<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994 Commission File Number 1-3761
TEXAS INSTRUMENTS INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 75-0289970
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
13500 North Central Expressway, P.O. Box 655474, Dallas, Texas 75265-5474
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 214-995-3773
---------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
91,710,064
- ------------------------------------------------------------------------------
Number of shares of Registrant's common stock outstanding as of March 31, 1994<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
For Three Months Ended
----------------------
Mar. 31 Mar. 31
Income 1994 1993
- ------ ------- -------
<S> <C> <C>
Net revenues............................................... $ 2,449 $ 1,884
Operating costs and expenses:
Cost of revenues......................................... 1,787 1,407
General, administrative and marketing.................... 379 283
Employees' retirement and profit sharing plans........... 74 54
------- -------
Total.................................................. 2,240 1,744
------- -------
Profit from operations..................................... 209 140
Interest income............................................ 11 7
Other income (expense) net................................. (5) (6)
Interest on loans.......................................... 11 12
------- -------
Income before provision for income taxes and
cumulative effect of accounting changes.................. 204 129
Provision for income taxes................................. 70 44
------- -------
Income before cumulative effect of accounting changes...... 134 85
Cumulative effect of accounting changes.................... -- (4)
------- -------
Net income................................................. $ 134 $ 81
======= =======
Earnings per common and common equivalent share:
Income before cumulative effect of accounting changes.... $ 1.41 $ 0.89
Cumulative effect of accounting changes.................. -- (0.04)
------- -------
Net income............................................... $ 1.41 $ 0.85
======= =======
Cash dividends declared per share of common stock.......... $ 0.18 $ 0.18
Cash Flows
- ----------
Net cash provided by operating activities.................. $ 413 $ 104
Cash flows from investing activities:
Additions to property, plant and equipment............... (205) (146)
Purchases of short-term investments...................... (159) (341)
Sales and maturities of short-term investments........... 30 466
------- -------
Net cash used in investing activities...................... (334) (21)
Cash flows from financing activities:
Dividends paid on common and preferred stock............. (17) (22)
Sales and other common stock transactions................ 52 19
Other.................................................... 19 (10)
------- -------
Net cash provided by (used in) financing activities........ 54 (13)
Effect of exchange rate changes on cash.................... 1 (3)
------- -------
Net increase in cash and cash equivalents.................. 134 67
Cash and cash equivalents, January 1....................... 404 356
------- -------
Cash and cash equivalents, March 31........................ $ 538 $ 423
======= =======
</TABLE>
2<PAGE>
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
(In millions of dollars, except per-share amounts.)
Mar. 31 Dec. 31
Balance Sheet 1994 1993
- ------------- ------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................................... $ 538 $ 404
Short-term investments............................................. 616 484
Accounts receivable, less allowance for losses of
$34 million in 1994 and $42 million in 1993...................... 1,350 1,218
Inventories:
Raw materials.................................................... 244 244
Work in process.................................................. 555 557
Finished goods................................................... 253 250
Less progress billings........................................... (209) (229)
------- -------
Inventories (net of progress billings)......................... 843 822
------- -------
Prepaid expenses................................................... 62 55
Deferred income taxes.............................................. 333 331
------- -------
Total current assets............................................. 3,742 3,314
------- -------
Property, plant and equipment at cost................................ 4,612 4,620
Less accumulated depreciation...................................... (2,374) (2,417)
------- -------
Property, plant and equipment (net).............................. 2,238 2,203
------- -------
Deferred income taxes................................................ 237 237
Other assets......................................................... 217 239
------- -------
Total assets......................................................... $ 6,434 $ 5,993
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 240 $ 211
Accounts payable................................................... 631 543
Accrued and other current liabilities.............................. 1,400 1,247
------- -------
Total current liabilities........................................ 2,271 2,001
------- -------
Long-term debt....................................................... 683 694
Accrued retirement costs............................................. 752 739
Deferred credits and other liabilities............................... 245 244
Stockholders' equity:
Preferred stock, $25 par value. Authorized - 10,000,000 shares.
Participating cumulative preferred. None issued.................. -- --
Common stock, $1 par value. Authorized - 300,000,000 shares.
Shares issued: 1994 - 91,816,183; 1993 - 90,919,314.............. 92 91
Paid-in capital.................................................... 984 932
Retained earnings.................................................. 1,424 1,307
Less treasury common stock at cost.
Shares: 1994 - 106,119; 1993 - 102,522........................... (6) (5)
Other.............................................................. (11) (10)
------- -------
Total stockholders' equity....................................... 2,483 2,315
------- -------
Total liabilities and stockholders' equity........................... $ 6,434 $ 5,993
======= =======
</TABLE>
3<PAGE>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
Earnings per common and common equivalent share are based on average
common and common equivalent shares outstanding (95.1 and 94.3 million shares
for the first quarters of 1994 and 1993). Shares issuable upon exercise of
dilutive stock options and upon conversion of dilutive convertible debentures
and, for 1993, conversion preferred stock are included in average common and
common equivalent shares outstanding. In computing per-share earnings for the
periods, net income is reduced by $8 million for the first quarter of 1993 for
dividends accrued on preferred stock, and increased by $1 million and $7
million for the first quarters of 1994 and 1993 for interest (net of tax and
profit sharing effect) and dividends on the convertible debentures and
conversion preferred stock considered dilutive common stock equivalents.
Results for the first quarter of 1994 include special pretax charges of
$132 million and one-time royalty revenues of $69 million.
Effective January 1, 1993, the company adopted two new accounting
standards: SFAS No. 106, which requires accrual of expected retiree health-
care benefit costs during the employees working careers, and SFAS No. 109,
which requires increased recording of deferred income tax assets. This
resulted in a charge of $294 million ($3.12 per share) for SFAS No. 106 and a
credit of $290 million ($3.08 per share) for SFAS No. 109, for the cumulative
effect of the accounting changes.
The statements of income, statements of cash flows and balance sheet at
March 31, 1994, are not audited but reflect all adjustments which are of a
normal recurring nature and are, in the opinion of management, necessary to a
fair statement of the results of the periods shown.
4<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Continuing improvement in its semiconductor operations led the Registrant (the
"company" or "TI") to its best first quarter ever. Substantial progress was
made toward TI's shareholder value goal of sustained 8-10 percent profit after
tax return on assets.
As part of its ongoing strategy to increase competitiveness, TI will make
long-term improvements in its European operations and divest nonstrategic
product lines in information technology. The company took charges in the
first quarter related to these actions.
Financial Summary
- -----------------
For the first quarter of 1994, net revenues were $2449 million, up 30 percent
from $1884 million in the first quarter of 1993. The increase resulted
primarily from strong growth in semiconductor revenues and higher royalties.
Revenues for the quarter include one-time royalties totaling $69 million, most
of which are from previously announced agreements concluded during the quarter
with two semiconductor manufacturers. One-time royalties in the first quarter
of 1993 were $22 million.
TI's profit from operations for the quarter was $209 million, compared with
$140 million in the first quarter of 1993. Essentially all of the profit
increase came from higher royalties and improved semiconductor operations.
Net income for the quarter was $134 million, compared with $81 million in the
first quarter of 1993. Earnings per share were $1.41, compared with $0.85 in
the first quarter of 1993.
Excluding the effect of charges and one-time royalties, profit from operations
for the first quarter of 1994 would have been $256 million, net income would
have been $165 million, and earnings per share would have been $1.74.
First-quarter 1994 results include an accrual of $27 million for employee
profit-sharing plans, compared with a $7 million accrual in the first quarter
of 1993.
As part of its continuing improvement in operations, TI is restructuring its
European operations from the traditional country-by-country approach to
business centers that will have pan-European responsibilities. A pretax
charge of $83 million is being taken in this quarter for the costs to
implement this action. The charge includes future cash outlays of $58 million
for severance benefits, $12 million for relocation costs, and $5 million for
other costs, plus non-cash asset writedowns of $8 million. TI expects this
action to be completed by the end of 1994. The action, which primarily
affects semiconductor activities, is expected to result in annual savings of
approximately $54 million when fully implemented, and will better position
TI's European operations to emphasize high value-added technologies.
5<PAGE>
Additionally, the results for the quarter include a pretax charge of $49
million for costs related to the divestiture of nonstrategic product lines,
primarily in information technology. These costs include future cash outlays
of $15 million for operating losses, $7 million for transaction costs, and $4
million for severance benefits, plus non-cash asset writedowns of $23 million.
This will let TI concentrate its focus on its primary software development
tools -- principally the Information Engineering Facility (IEF)(TM) -- and
selected software applications. TI plans to complete these actions over the
next 12 months.
The severance amounts are based on specified employees affected and
accumulation of severance benefits based on years of service. The severance
actions will affect 1064 employees, primarily in Europe.
Profit after tax return on assets reached an annualized rate of 8.6 percent in
the first quarter of 1994, continuing progress toward TI's goal of sustainable
8-10 percent PAT ROA.
At TI's annual stockholders meeting, held on April 21 in Dallas, TI's
chairman announced that management will recommend to the board of directors an
increase in the annual dividend rate on TI common stock from $0.72 to $1.00
per share, effective with the July dividend payment, and announced a dividend
reinvestment plan to encourage long-term ownership of TI stock.
Semiconductors
- --------------
TI's semiconductor orders reached an all-time high in the quarter, setting
records in every major geographic region with strength across all major TI
product lines. Orders for TI's digital signal processors (DSPs) grew
significantly faster than overall semiconductor orders.
TI's semiconductor revenues were up substantially from the first quarter of
last year, primarily because of new products and, to a lesser extent,
increased shipments and higher prices. Memory shipments increased
significantly, and digital signal processors and mixed-signal products also
showed strong growth. TI's semiconductor revenues grew faster than the total
market.
Without the one-time effect of restructuring charges in the first quarter of
1994, semiconductor operating profit more than doubled over the first quarter
of 1993 because of increased shipments, higher prices and manufacturing
efficiencies. Semiconductor margins doubled from last year's first quarter
and also improved over the fourth quarter of 1993. Even with the effect of
the charge, semiconductor profits were up significantly over the first quarter
of 1993.
Defense Electronics
- -------------------
TI's defense electronics orders declined from the first quarter of 1993,
primarily because of timing of receipt of orders for the High-speed
Antiradiation Missile (HARM). Margins were stable on essentially unchanged
revenues. As noted previously, revenues for the year are expected to be lower
than in 1993.
6<PAGE>
The company has won several new programs in next-generation night-vision
systems. Key wins in 1994 include advanced electro-optic systems for the U.S.
Navy's Lamps helicopter and the U.S. Army's Bradley Fighting Vehicle, and a
contract for flexible manufacturing technology to build focal-plane array
modules for night-vision systems.
Software
- --------
TI's software revenues continued to grow in the first quarter, but at a more
moderate rate than in the past. This business operated at a loss in the first
quarter. TI continues to emphasize improving the performance of its software
business.
Outlook
- -------
At the beginning of 1994, TI expected the world semiconductor market to grow
about 17 percent in 1994, to about $91 billion, with relatively stronger
markets in the United States and the Asia-Pacific region, and relatively
slower growing markets in Japan and Europe. Based on the strength of orders
in the first quarter in all regions, TI believes the world market will grow to
more than $93 billion in 1994, a 21 percent increase over 1993.
For the longer term, the company expects the world semiconductor market to be
more stable than in the past, based on better inventory management,
conservative capacity additions relative to industry revenues, and an
acceleration in the rate of increase of semiconductor content in electronic
end equipment.
TI Chairman Jerry Junkins said that the company's strategy has been successful
in meeting customers' needs, increasing shareholder value, and improving
stability and productivity. "Our challenge is to sustain and improve this
level of performance. As we do, we will generate more funds to increase R&D,
which will increase the company's competitiveness over the long term," he
said.
ADDITIONAL FINANCIAL INFORMATION
Shown below is an analysis of orders and revenues for TI's major segments for
the quarter:
<TABLE>
<CAPTION>
Change in orders, Change in net revenues,
Segment 1Q94 vs. 1Q93 1Q94 vs. 1Q93
- -------------------- ----------------- ----------------------
<S> <C> <C>
Components up 36% up 46%
Defense Electronics down 54% flat
Digital Products up 16% up 16%
TI Total up 7% up 30%
</TABLE>
TI's orders for the first quarter of 1994 were $2415 million, compared with
$2247 million in the same period of 1993. Semiconductors accounted for
essentially all of the order increase in the components segment. The decline
in defense electronics orders was primarily because of timing of receipt of
HARM orders. The increase in digital segment orders was primarily in personal
productivity products, particularly notebook computers.
7<PAGE>
The increase in components segment revenue resulted from a substantial
increase in patent royalties, higher shipments of memory and strong growth in
digital signal processors and mixed-signal products. Royalty revenues related
to current-quarter licensee shipments doubled from last year's first quarter.
Components segment profit more than doubled over the first quarter of 1993,
primarily because of higher royalties and increased semiconductor revenues.
One-time royalties in the first quarter of 1994 approximately offset the
restructuring charge.
The increase in digital segment revenues was primarily from notebook
computers. Royalty revenues in the segment were down from the same period of
last year because of one-time royalties in the first quarter of 1993.
The digital segment operated at a loss in the first quarter of 1994. Without
one-time charges, the segment had a small profit, with patent royalties and
profit in personal productivity products more than offsetting losses in
information technology.
The income tax rate for the first quarter of 1994 was 34.5 percent, which is
the current estimate of the rate for the full year.
TI's financial condition continued to strengthen in the first quarter of 1994.
Cash flow from operating activities net of additions to property, plant, and
equipment was positive for the fourth consecutive quarter. Cash and cash
equivalents plus short-term investments increased by $266 million to $1154
million, primarily because of the cash flow mentioned above. TI's debt-to-
total-capital ratio at the end of the first quarter was .27, down from .28 at
year-end 1993. The company's goal is to reduce this ratio to about .25.
TI's backlog of unfilled orders as of March 31, 1994, was $3771 million, down
$326 million from the end of last year's first quarter, primarily because of
timing of receipt of HARM orders in defense electronics. Semiconductor
backlog was up substantially. Total backlog is essentially flat from the end
of 1993, with increases in semiconductor backlog offsetting declines in
defense electronics.
TI-funded R&D was $163 million in the first quarter of 1994, compared with
$125 million in the same period of 1993. The increase was driven primarily by
investments in differentiated semiconductor products and new venture
activities, particularly digital micromirror device technology.
In the first quarter of 1994, TI made significant progress toward completion
of the 1990 round of its semiconductor industry licensing program and can
begin now to focus on the 1995 round of discussions. TI reached new
agreements in the quarter with Micron Technology Inc. and Goldstar Electron
Co., Ltd. Each will be licensed through 1998, and TI will receive royalty
payments based on sales of semiconductors by the two companies.
TI is pleased to have completed the 1990 round with a minimum of litigation.
There are only two remaining suits: one with Fujitsu Limited over the Kilby
Patent in Japan, and one with four semiconductor manufacturers in the United
States over TI's plastic encapsulation patents.
8<PAGE>
The litigation with Fujitsu in Japan is proceeding to a conclusion, with a
decision expected by mid-1994. TI believes the Kilby patent should be
enforced by the court. TI recognizes that any litigation is uncertain, and
this litigation is in a country which has yet to establish a clear record for
protecting intellectual property. Regardless of the outcome, there should be
no significant effect on existing licensing agreements. While there is no way
to predict the results of the 1995 round of negotiations, TI has increased
its level of patent acquisition and will have an important portfolio for
future negotiations. As in prior years, TI's negotiations are dependent on
the strength of the company's entire patent portfolio and not on a single
patent. TI continues to expect a significant ongoing stream of royalty
revenue throughout the remainder of the decade.
Capital expenditures in the first quarter of this year were $205 million,
compared with $146 million in 1993's first quarter.
Depreciation in the first quarter of 1993 was $154 million, compared with
$143 million in last year's first quarter.
9<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a) Exhibits
Designation of
Exhibit in
this Report Description of Exhibit
<S> <C>
11 Computation of primary and fully
diluted earnings per common and
common equivalent share.
12 Computation of Ratio of Earnings to
Fixed Charges and Ratio of Earnings
to Combined Fixed Charges and
Preferred Stock Dividends.
</TABLE>
(b) Report on Form 8-K
The Registrant filed the following reports on
Form 8-K with the Securities and Exchange Commission
during the quarter ended March 31, 1994: Form 8-K,
dated January 28, 1994, relating to the 1994 Annual
Meeting of Stockholders of the Registrant; Form 8-K,
dated February 7, 1994, relating to the 1993
financial statements of the Registrant; and Form 8-K,
dated March 9, 1994, which included a news release
regarding the Registrant's semiconductor licensing
program.
10<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TEXAS INSTRUMENTS INCORPORATED
By WILLIAM A. AYLESWORTH
Senior Vice President,
Treasurer and
Chief Financial Officer
Date: April 21, 1994
11<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Paper (P)
Designation of or
Exhibits in Electronic
this Report Description of Exhibit (E)
- -------------- ---------------------------------------- ----------
<S> <C> <C>
11 Computation of primary and fully diluted (E)
earnings per common and common equivalent
share.
12 Computation of Ratio of Earnings to Fixed (E)
Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
PRIMARY AND FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per-share amounts.)
For Three Months Ended
----------------------
Mar 31 Mar 31
1994 1993
-------- --------
<S> <C> <C>
Income before cumulative effect of accounting changes ..... $133,702 $ 84,845
Less preferred dividends accrued:
Market auction preferred .............................. - (645)
Money market preferred ................................ - (716)
Series A conversion preferred ......................... - (6,279)
Add:
Dividends on series A conversion preferred
shares assumed converted ............................ - 6,279
Interest, net of tax and profit sharing effect, on
convertible debentures assumed converted ............ 661 671
-------- --------
Adjusted income before cumulative effect
of accounting changes ................................... 134,363 84,155
Cumulative effect of accounting changes ................... - (4,173)
-------- --------
Adjusted net income ....................................... $134,363 $ 79,982
======== ========
Earnings per Common and Common Equivalent Share:
- ------------------------------------------------
Weighted average common shares outstanding ................ 91,198 82,779
Weighted average common equivalent shares:
Stock option and compensation plans ................... 1,444 1,335
Convertible debentures ................................ 2,413 2,413
Series A conversion preferred ......................... - 7,757
-------- --------
Weighted average common and common equivalent shares .... 95,055 94,284
======== ========
Earnings per Common and Common Equivalent Share:
Income before cumulative effect of accounting changes ... $ 1.41 $ 0.89
Cumulative effect of accounting changes ................. - (0.04)
-------- --------
Net income .............................................. $ 1.41 $ 0.85
======== ========
Earnings per Common Share Assuming Full Dilution:
- -------------------------------------------------
Weighted average common shares outstanding ................ 91,198 82,779
Weighted average common equivalent shares:
Stock option and compensation plans ................... 1,460 1,471
Convertible debentures ................................ 2,413 2,413
Series A conversion preferred ......................... - 7,757
-------- --------
Weighted average common and common equivalent shares .... 95,071 94,420
======== ========
Earnings per Common Share Assuming Full Dilution:
Income before cumulative effect of accounting changes ... $ 1.41 $ 0.89
Cumulative effect of accounting changes ................. - (0.04)
-------- --------
Net income .............................................. $ 1.41 $ 0.85
======== ========
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in millions)
For Three Months
Ended March 31
--------------
1989 1990 1991 1992 1993 1993 1994
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and fixed charges:
Income (loss) before cumulative
effect of accounting changes,
interest expense on loans,
capitalized interest amortized,
and provision for income taxes ...... $ 387 $ 14 $(250) $ 433 $ 755 $ 144 $ 218
Add interest attributable to
rental and lease expense ............ 47 50 43 42 38 9 10
----- ----- ----- ----- ----- ----- -----
$ 434 $ 64 $(207) $ 475 $ 793 $ 153 $ 228
===== ===== ===== ===== ===== ===== =====
Fixed charges:
Total interest on loans (expensed
and capitalized) .................... $ 38 $ 47 $ 59 $ 57 $ 55 $ 14 $ 13
Interest attributable to rental
and lease expense ................... 47 50 43 42 38 9 10
----- ----- ----- ----- ----- ----- -----
Fixed charges ............................. $ 85 $ 97 $ 102 $ 99 $ 93 $ 23 $ 23
===== ===== ===== ===== ===== ===== =====
Combined fixed charges and
preferred stock dividends:
Fixed charges ......................... $ 85 $ 97 $ 102 $ 99 $ 93 $ 23 $ 23
Preferred stock dividends
(adjusted as appropriate to a
pretax equivalent basis) ............ 47 36 34 55 29 12 -
----- ----- ----- ----- ----- ----- -----
Combined fixed charges and
preferred stock dividends ........... $ 132 $ 133 $ 136 $ 154 $ 122 $ 35 $ 23
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges ........ 5.1 * * 4.8 8.5 6.7 9.9
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to combined
fixed charges and preferred
stock dividends ......................... 3.3 ** ** 3.1 6.5 4.4 9.9
===== ===== ===== ===== ===== ===== =====
* Not meaningful. The coverage deficiency was $33 million in 1990 and $309 million in 1991.
** Not meaningful. The coverage deficiency was $69 million in 1990 and $343 million in 1991.
</TABLE>
<PAGE>
