SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------------------- ------------------------
Common Stock, par value $1.00 New York Stock Exchange
London Stock Exchange
Tokyo Stock Exchange
The Stock Exchanges of
Zurich, Basle and
Geneva
Preferred Stock Purchase Rights New York Stock Exchange
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $7,195,000,000 as of February 28, 1995.
92,840,206
---------------------------------------------------------------------
(Number of shares of common stock outstanding as of February 28, 1995)
Parts I, II and IV hereof incorporate information by reference to the
Registrant's 1994 annual report to stockholders. Part III hereof incorporates
information by reference to the Registrant's proxy statement for the 1995
annual meeting of stockholders. <PAGE>
PART I
ITEM 1. Business.
General
- -------
Texas Instruments Incorporated (hereinafter the "Registrant,"
including subsidiaries except where the context indicates otherwise) is
engaged in the development, manufacture and sale of a variety of products
in the electrical and electronics industry for industrial, government and
consumer markets. These products consist of components, defense
electronics and digital products. The Registrant also produces metallurgical
materials. In addition, the Registrant s patent portfolio has been established
as an ongoing contributor to the Registrant s revenues. The Registrant's
business is based principally on its broad semiconductor technology and
application of this technology to selected electronic end-equipment
markets. The Registrant from time to time considers acquisitions and
divestitures which may alter its business mix. The Registrant may effect
one or more such transactions at such time or times as the Registrant
determines to be appropriate.
The information with respect to net revenues, profit and
identifiable assets of the Registrant's industry segments and operations
outside the United States, which is contained in the note to the financial
statements captioned "Industry Segment and Geographic Area Operations" on
pages 37-38 of the Registrant's 1994 annual report to stockholders, is
incorporated herein by reference to such annual report.
Components
- ----------
Components consist of semiconductor integrated circuits (such
as microprocessors/microcontrollers, applications processors, memories, and
digital and linear circuits), semiconductor discrete devices, semiconductor
subassemblies (such as custom modules for specific applications), and
electrical and electronic control devices (such as motor protectors, starting
relays, circuit breakers, thermostats, sensors, and radio-frequency
identification systems).
These components are used in a broad range of products for
industrial end-use (such as computers, data terminals and peripheral
equipment, telecommunications, instrumentation, and industrial motor controls
and automation equipment), consumer end-use (such as televisions, cameras,
automobiles, home appliances, and residential air conditioning and heating
systems) and government end-use (such as defense and space equipment). The
Registrant sells these components primarily to original equipment
manufacturers principally through its own marketing organizations and to a
lesser extent through distributors.
Defense Electronics
- -------------------
Defense electronics consist of radar systems, navigation systems,
infrared surveillance and fire control systems, defense suppression missiles,
other weapon systems (including antitank and interdiction weapons), missile
guidance and control systems, electronic warfare systems, and other defense
electronic equipment. Sales are made to the U.S. government (either directly
or through prime contractors) and to international customers approved by the
U.S. government.
2
<PAGE>
Digital Products
- ----------------
Digital products include software productivity tools, notebook
computers, printers, electronic calculators, and custom engineering and
manufacturing services.
Digital products are used in a broad range of enterprise-wide,
work group and personal information-based applications. The Registrant
markets these products through various channels, including system suppliers,
business equipment dealers, distributors, retailers, and direct sales to end-
users and original equipment manufacturers.
Metallurgical Materials
- -----------------------
Metallurgical materials include clad metals, precision-engineered
parts and electronic connectors for use in a variety of applications such as
appliances, automobiles, electronic components, and industrial and
telecommunications equipment. These metallurgical materials are primarily
sold directly to original equipment manufacturers. This segment also includes
development costs associated with solar cells; the Registrant has announced
its intention to sell its solar cell technology.
Competition
- -----------
The Registrant is engaged in highly competitive businesses. Its
competitors include several of the largest companies in the United States,
East Asia, particularly Japan, and elsewhere abroad as well as many small,
specialized companies. The Registrant is a significant competitor in each of
its principal businesses. Generally, the Registrant's businesses are
characterized by rapidly changing technology which has, throughout the
Registrant's history, intensified the competitive factors, primarily
performance and price.
Government Sales
- ----------------
Net revenues directly from federal government agencies in the
United States, principally related to the defense electronics segment,
accounted for approximately 10% of the Registrant's net revenues in 1994.
Contracts for government sales generally contain provisions for
cancellation at the convenience of the government. In addition, companies
engaged in supplying military equipment to the government are dependent on
congressional appropriations and administrative allotment of funds, and may be
affected by changes in government policies resulting from various military and
political developments. See "ITEM 3. Legal Proceedings."
Backlog
- -------
The dollar amount of backlog of orders believed by the Registrant
to be firm was $3913 million as of December 31, 1994 and $3805 million as of
December 31, 1993. Approximately 24% of the 1994 backlog (involving defense
electronics) is not expected to be filled within the current fiscal year. The
backlog is significant in the business of the Registrant only as an indication
of future revenues which may be entered on the books of account of the
Registrant.
3
<PAGE>
Raw Materials
- -------------
The Registrant purchases materials, parts and supplies from a
number of suppliers. In addition, the Registrant produces some materials,
parts and supplies, such as silicon wafers used in the manufacture of
semiconductors, for its own use. The materials, parts and supplies essential
to the Registrant's business are generally available at present and the
Registrant believes at this time that such materials, parts and supplies will
be available in the foreseeable future.
Patents and Trademarks
- ----------------------
The Registrant owns many patents in the United States and other
countries in fields relating to its businesses. The Registrant has developed
a strong, broad-based patent portfolio. The Registrant also has several
agreements with other companies involving license rights and anticipates that
other licenses may be negotiated in the future. The Registrant does not
consider its business materially dependent upon any one patent or patent
license, although taken as a whole, the rights of the Registrant and the
products made and sold under patents and patent licenses are important to the
Registrant's business. As noted above, the Registrant's patent portfolio has
been established as an ongoing contributor to the revenues of the Registrant.
See "ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "ITEM 3. Legal Proceedings."
The Registrant owns trademarks that are used in the conduct of its
business. These trademarks are valuable assets, the most important of which
are "Texas Instruments" and the Registrant's corporate monogram.
Research and Development
- ------------------------
Expenditures for research and development were $1045 million in
1994 compared with $981 million in 1993 and $891 million in 1992. Of these
amounts, $689 million was company funded in 1994, ($590 million in 1993 and
$470 million in 1992), and $356 million in 1994 ($391 million in 1993 and $421
million in 1992) was funded by others, principally the U.S. government.
Seasonality
- -----------
The Registrant's revenues are subject to some seasonal variation.
Employees
- ---------
The information concerning the number of persons employed by the
Registrant at December 31, 1994 on page 41 of the Registrant's 1994 annual
report to stockholders is incorporated herein by reference to such annual
report.
4
<PAGE>
ITEM 2. Properties.
The Registrant's principal offices are located at 13500 North
Central Expressway, Dallas, Texas. The Registrant owns and leases plants in
the United States and 17 other countries for manufacturing and related
purposes. The following table indicates the general location of the principal
plants of the Registrant and the industry segments which make major use of
them. Except as otherwise indicated, the principal plants are owned by the
Registrant.
<TABLE>
<CAPTION>
Defense Digital Metallurgical
Components Electronics Products Materials
---------- ----------- -------- -------------
<S> <C> <C> <C> <C>
Dallas, Texas X X
Austin, Texas X X
Houston, Texas X
Lewisville, Texas X
Lubbock, Texas X X
McKinney, Texas X
Plano, Texas<F1>(1) X X
Sherman, Texas<F1>(1) X X
Temple, Texas X
Attleboro, X X
Massachusetts
Almelo, Netherlands X
Freising, Germany X
Avezzano, Italy<F2>(2) X
Baguio, X
Philippines<F3>(3)
Hiji, Japan X
Kuala Lumpur, X
Malaysia<F1>(1)
Miho, Japan X
Singapore<F3>(3) X
Taipei, Taiwan X
____________________
<F1>(1)Leased or primarily leased.
<F2>(2)Owned, subject to mortgage.
<F3>(3)Owned on leased land.
</TABLE>
The Registrant's facilities in the United States contained
approximately 18,500,000 square feet as of December 31, 1994, of which
approximately 4,400,000 square feet were leased. The Registrant's facilities
outside the United States contained approximately 6,500,000 square feet as of
December 31, 1994, of which approximately 1,600,000 square feet were leased.
The Registrant believes that its existing properties are in good
condition and suitable for the manufacture of its products. The Registrant's
facility in Denton, Texas is being marketed for sale. Otherwise, at the end
of 1994, the Registrant utilized substantially all of the space in its
facilities.
Leases covering the Registrant's leased facilities expire at
varying dates generally within the next 15 years. The Registrant anticipates
no difficulty in either retaining occupancy through lease renewals, month-to-
month occupancy or purchases of leased facilities, or replacing the leased
facilities with equivalent facilities.
5
ITEM 3. Legal Proceedings.
On July 19, 1991, the Registrant filed a lawsuit in Tokyo District
Court against Fujitsu Limited ( Fujitsu ) seeking injunctive relief, alleging
that Fujitsu's manufacture and sale of certain DRAMs infringe the Registrant's
Japanese patent on the invention of the integrated circuit (the Kilby
patent). Concurrently, Fujitsu brought a lawsuit in the same court against
the Registrant, seeking a declaration that Fujitsu is not infringing the Kilby
patent. On August 31, 1994, the district court ruled that Fujitsu's production
of 1-megabit and 4-megabit DRAMs and 32K EPROMs does not infringe the Kilby
patent. The Registrant has appealed the court's decision to the Tokyo High
Court.
The Registrant is included among a number of U.S. defense
contractors which are currently the subject of U.S. government investigations
regarding alleged procurement irregularities. The Registrant is unable to
predict the outcome of the investigations at this time or to estimate the
kinds or amounts of claims or other actions that could be instituted against
the Registrant. Under present government procurement regulations, such
investigations could lead to a government contractor's being suspended or
debarred from eligibility for awards of new government contracts for an
initial period of up to three years. In the current environment, even
matters that seem limited to disputes about contract interpretation can result
in criminal prosecution. While criminal charges against contractors have
resulted from such investigations, the Registrant does not believe such
charges would be appropriate in its case and has not, at any time, lost its
eligibility to enter into government contracts or subcontracts under these
regulations.
The Registrant is involved in various investigations and
proceedings conducted by the federal Environmental Protection Agency and
certain state environmental agencies regarding disposal of waste materials.
Although the factual situations and the progress of each of these matters
differ, the Registrant believes that in each case its liability will be
limited to sharing clean-up or other remedial costs with other potentially
responsible parties, in amounts that will not have a material adverse effect
upon its financial position or results of operations.
6
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
The following is an alphabetical list of the names and ages of the
executive officers of the Registrant and the positions or offices with the
Registrant presently held by each person named:
Name Age Position
Richard J. Agnich 51 Senior Vice President, Secretary
and General Counsel
William A. Aylesworth 52 Senior Vice President, Treasurer
and Chief Financial Officer
Nicholas K. Brookes 47 Vice President (President,
Materials & Controls Group)
Gary D. Clubb 48 Executive Vice President(President,
Defense Systems & Electronics
Group)
Thomas J. Engibous 42 Executive Vice President
(President, Semiconductor Group)
William F. Hayes 51 Executive Vice President
Jerry R. Junkins 57 Director; Chairman of the Board,
President and Chief Executive
Officer
Marvin M. Lane, Jr. 60 Vice President and Corporate
Controller
David D. Martin 55 Executive Vice President
William B. Mitchell 59 Director; Vice Chairman
Charles F. Nielson 57 Vice President
Elwin L. Skiles, Jr. 53 Vice President
William P. Weber 54 Director; Vice Chairman
The term of office of each of the above listed officers is from the date
of his election until his successor shall have been elected and qualified and
the most recent date of election of each of them was April 21, 1994. Messrs.
Agnich, Aylesworth, Junkins, Lane, Martin, Mitchell and Weber have served as
officers of the Registrant for more than five years. Messrs. Hayes, Nielson
and Skiles have served as officers of the Registrant since 1991, 1990 and
1992, respectively; and they and Messrs. Brookes, Clubb and Engibous have been
employees of the Registrant for more than five years.
7
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The information which is contained under the caption "Common Stock
Prices and Dividends" on page 45 of the Registrant's 1994 annual report to
stockholders, and the information concerning the number of stockholders of
record at December 31, 1994 on page 41 of such annual report, are incorporated
herein by reference to such annual report.
ITEM 6. Selected Financial Data.
The "Summary of Selected Financial Data" for the years 1990
through 1994 which appears on page 41 of the Registrant's 1994 annual report
to stockholders is incorporated herein by reference to such annual report.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Letter to the Stockholders on pages 3-5 of the Registrant's
1994 annual report to stockholders and the information contained under the
caption "Management Discussion and Analysis of Financial Condition and Results
of Operations" on pages 42-44 of such annual report are incorporated herein
by reference to such annual report.
On March 1, 1995, the Registrant announced it expects the
worldwide semiconductor market to grow 21 percent to $124 billion in 1995.
The semiconductor market grew 32 percent in 1994 to $102 billion.
8
<PAGE>
ITEM 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Registrant at
December 31, 1994 and 1993 and for each of the three years in the period ended
December 31, 1994 and the report thereon of the independent auditors, on pages
26-40 of the Registrant's 1994 annual report to stockholders, are incorporated
herein by reference to such annual report.
The "Quarterly Financial Data" on page 45 of the Registrant's 1994
annual report to stockholders is also incorporated herein by reference to such
annual report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The information with respect to directors' names, ages, positions,
term of office and periods of service, which is contained under the caption
"Nominees for Directorship" in the Registrant's proxy statement for the 1995
annual meeting of stockholders, and the information contained in the first two
paragraphs under the caption "Other Matters" in such proxy statement, are
incorporated herein by reference to such proxy statement.
Information concerning executive officers is set forth in Part I
hereof under the caption "Executive Officers of the Registrant."
ITEM 11. Executive Compensation.
The information which is contained under the captions "Directors
Compensation" and "Executive Compensation" in the Registrant's proxy statement
for the 1995 annual meeting of stockholders is incorporated herein by
reference to such proxy statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning (a) the only persons that have reported
beneficial ownership of more than 5% of the common stock of the Registrant,
and (b) the ownership of the Registrant's common stock by the Chief Executive
Officer and the four other most highly compensated executive officers, and all
executive officers and directors as a group, which is contained under the
caption "Voting Securities" in the Registrant's proxy statement for the 1995
annual meeting of stockholders, is incorporated herein by reference to such
proxy statement. The information concerning ownership of the Registrant's
common stock by each of the directors, which is contained under the caption
"Nominees for Directorship" in such proxy statement, is also incorporated
herein by reference to such proxy statement.
The aggregate market value of voting stock held by non-affiliates
of the Registrant shown on the cover page hereof excludes the shares held by
the Registrant's directors, some of whom disclaim affiliate status, executive
vice presidents and senior vice presidents. These holdings were considered to
include shares credited to certain individuals' profit sharing accounts.
ITEM 13. Certain Relationships and Related Transactions.
Not applicable.
9
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1 and 2. Financial Statements and Financial Statement Schedule
The financial statements and financial statement
schedule are listed in the index on page 15 hereof.
3. Exhibits
<TABLE>
<CAPTION>
Designation of
Exhibit in
this Report Description of Exhibit
-------------- ------------------------------------------
<S> <C>
3(a) Restated Certificate of Incorporation of
the Registrant (incorporated by reference
to Exhibit 3(a)to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(b) Certificate of Amendment to Restated
Certificate of Incorporation of the
Registrant (incorporated by reference to
Exhibit 3(b)to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(c) Certificate of Amendment to Restated
Certificate of Incorporation of the
Registrant (incorporated by reference to
Exhibit 3(c) to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(d) Certificate of Designations relating to
the Registrant's Participating Cumulative
Preferred Stock (incorporated by reference
to Exhibit 3(d) to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(e) Certificate of Ownership Merging Texas
Instruments Automation Controls, Inc. into
the Registrant (incorporated by reference
to Exhibit 3(e)to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(f) Certificate of Elimination of Designations
of Preferred Stock of the Registrant
(incorporated by reference to Exhibit 3(f)
to the Registrant's Annual Report on Form
10-K for the year 1993).
3(g) By-Laws of the Registrant (incorporated by
reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
4(a)(i) Rights Agreement dated as of June 17, 1988
between the Registrant and First Chicago
Trust Company of New York, formerly Morgan
Shareholder Services Trust Company, as
Rights Agent, which includes as Exhibit B
the form of Rights Certificate
(incorporated by reference to Exhibit
4(a)(i) to the Registrant's Annual Report
on Form 10-K for the year 1993).
4(a)(ii) Assignment and Assumption Agreement dated
10
as of September 24, 1992 among the
Registrant, First Chicago Trust Company of
New York, formerly Morgan Shareholder
Services Trust Company, and Harris Trust
and Savings Bank (incorporated by
reference to Exhibit 4(a)(i) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992).
4(b) The Registrant agrees to provide the
Commission, upon request, copies of
instruments defining the rights of
holders of long-term debt of the
Registrant and its subsidiaries.
10(a)(i) Texas Instruments Annual Incentive Plan
(incorporated by reference to Exhibit
10(a)(i) to the Registrant's Annual Report
on Form 10-K for the year 1993).<F1>*
10(a)(ii) TI Deferred Compensation Plan.<F1>*
10(a)(iii) Amendment No. 1 to TI Deferred
Compensation Plan.<F1>*
10(b) Texas Instruments Long-Term Incentive Plan
(incorporated by reference to Exhibit
10(a)(ii) to the Registrant's Annual
Report on Form 10-K for the year
1993).<F1>*
10c(i) TI Directors Retirement Benefit Plan
(incorporated by reference to Exhibit
10(b)(i) to the Registrant's Annual Report
on Form 10-K for the year 1991).
10c(ii) Amendment No. 1 to TI Directors Retirement
Benefit Plan (incorporated by reference to
Exhibit 10(b)(ii) to the Registrant's
Annual Report on Form 10-K for the year
1991).
10(c)(iii) Amendment No. 2 to TI Directors
Retirement Benefit Plan (incorporated by
reference to Exhibit 10(b)(iii) to the
Registrant's Annual Report on Form 10-K
for the year 1993).
10(c)(iv) Amendment No. 3 to TI Directors Retirement
Benefit Plan (incorporated by reference to
Exhibit 10(b)(iv) to the Registrant's
Annual Report on Form 10-K for the year
1993).
10(c)(v) Amendment No. 4 to TI Directors Retirement
Benefit Plan (incorporated by reference to
Exhibit 10(b)(v) to the Registrant's
Annual Report on Form 10-K for the year
1993).
10(d) Statement of Policy of Registrant s Board
of Directors on Top Officer and Board
Member Retirement Practices (incorporated
by reference to Exhibit 10(b)(vi) to the
Registrant's Annual Report on Form 10-K
for the year 1993).<F1>*
11 Computation of earnings per common and
11
common equivalent share.
12 Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock
Dividends.
13 Registrant's 1994 Annual Report to
Stockholders. (With the exception of the
items listed in the index to financial
statements and financial statement
schedules herein, and the items referred
to in ITEMS 1, 5, 6, 7 and 8 hereof, the
1994 Annual Report to Stockholders is not
to be deemed filed as part of this
report.)
21 List of subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
________________
<F1>*Executive Compensation Plans and Arrangements:
Texas Instruments Annual Incentive Plan (incorporated by reference to
Exhibit 10(a)(i) to the Registrant's Annual Report on Form 10-K for
the year 1993).
Texas Instruments Long-Term Incentive Plan (incorporated by
reference to Exhibit 10(a)(ii)to the Registrant's Annual Report on
Form 10-K for the year 1993).
Statements of Policy of Registrant's Board of Directors on Top
Officer and Board Member Retirement Practices (incorporated by
reference to Exhibit 10(b)(vi) to the Registrant's Annual Report on
Form 10-K for the year 1993).
TI Deferred Compensation Plan - Exhibit 10(a)(ii) to this Report
Amendment No. 1 to TI Deferred Commpensation Plan - Exhibit
10(a)(iii) to this Report.
</TABLE>
(b) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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: JERRY R. JUNKINS
---------------------
Jerry R. Junkins
Chairman of the Board,
President and
Chief Executive Officer
Date: March 16, 1995
13
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 16th day of March, 1995.
JAMES R. ADAMS DAVID M. RODERICK
- ------------------------------------ ------------------------------------
James R. Adams David M. Roderick
Director Director
DAVID L. BOREN GLORIA M. SHATTO
- ------------------------------------ ------------------------------------
David L. Boren Gloria M. Shatto
Director Director
WILLIAM P. WEBER
- ------------------------------------ ------------------------------------
James B. Busey IV William P. Weber
Director Vice Chairman; Director
GERALD W. FRONTERHOUSE CLAYTON K. YEUTTER
- ------------------------------------ ------------------------------------
Gerald W. Fronterhouse Clayton K. Yeutter
Director Director
JERRY R. JUNKINS WILLIAM A. AYLESWORTH
- ------------------------------------- ------------------------------------
Jerry R. Junkins William A. Aylesworth
Chairman of the Board; President; Senior Vice President; Treasurer;
Chief Executive Officer; Director Chief Financial Officer
WILLIAM S. LEE MARVIN M. LANE, JR.
- ------------------------------------- ------------------------------------
William S. Lee Marvin M. Lane, Jr.
Director Vice President; Corporate Controller
WILLIAM B. MITCHELL
- ------------------------------------
William B. Mitchell
Vice Chairman; Director
14
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
(Item 14(a))
<TABLE>
<CAPTION>
Page Reference
--------------
Annual
Report to
Form 10-K Stockholders
--------- ------------
Information incorporated by reference
to the Registrant's 1994 Annual Report
to Stockholders:
<S> <C> <C>
Consolidated Financial Statements:
Income for each of the three 26
years in the period ended
December 31, 1994
Balance sheets at December 31, 27
1994 and 1993
Cash flows for each of the 28
three years in the period
ended December 31, 1994
Stockholders' equity for each of 29
the three years in the period
ended December 31, 1994
Notes to financial statements 30-39
Report of Independent Auditors 40
Supplemental Financial Information:
Quarterly financial data (unaudited) 45
Consolidated Schedule for each of the three
years in the period ended December 31, 1994:
II. Allowance for losses 16
</TABLE>
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
15
<PAGE>
SCHEDULE II
------------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
ALLOWANCE FOR LOSSES
(In Millions of Dollars)
Years Ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions of Year
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1994 $42 $80 $85 $37
- ---- === === === ===
1993 $34 $87 $79 $42
- ---- === === === ===
1992 $45 $75 $86 $34
- ---- === === === ===
Allowances for losses from uncollectible accounts, returns, etc.,
are deducted from accounts receivable in the balance sheet.
</TABLE>
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Designation of
Exhibit in Paper(P) or
this Report Description of Exhibit Electronic(E)
- ------------ ---------------------------------------- --------------
<S> <C> <C>
3(a) Restated Certificate of Incorporation of
the Registrant (incorporated by reference to
Exhibit 3(a) to the Registrant's Annual
Report on Form 10-K for the year 1993).
3(b) Certificate of Amendment to Restated
Certificate of Incorporation of the
Registrant (incorporated by reference to
Exhibit 3(b) to the Registrant's Annual Report
on Form 10-K for the year 1993).
3(c) Certificate of Amendment to Restated
Certificate of Incorporation of the
Registrant (incorporated by reference to
Exhibit 3(c) to the Registrant's Annual Report
on Form 10-K for the year 1993).
3(d) Certificate of Designations relating to the
Registrant's Participating Cumulative
Preferred Stock (incorporated by reference to
Exhibit 3(d) to the Registrant's Annual Report
on Form 10-K for the year 1993).
3(e) Certificate of Ownership Merging Texas
Instruments Automation Controls, Inc. into
the Registrant (incorporated by reference to
Exhibit 3(e) to the Registrant's Annual Report
on Form 10-K for the year 1993).
3(f) Certificate of Elimination of Designations of
Preferred Stock of the Registrant (incorporated
by reference to Exhibit 3(f) to the
Registrant's Annual Report on Form 10-K for
the year 1993).
3(g) By-Laws of the Registrant (incorporated by
reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
4(a)(i) Rights Agreement dated as of June 17, 1988
between the Registrant and First Chicago
Trust Company of New York, formerly Morgan
Shareholder Services Trust Company, as
Rights Agent, which includes as Exhibit B
the form of Rights Certificate (incorporated
by reference to Exhibit 4(a)(i) to the
Registrant's Annual Report on Form 10-K for
the year 1993).
17
EXHIBIT INDEX
</TABLE>
<TABLE>
<CAPTION>
Designation of
Exhibit in Paper(P) or
this Report Description of Exhibit Electronic(E)
- ------------- ------------------------------------------ -------------
<S> <C> <C>
4(a)(ii) Assignment and Assumption Agreement dated
as of September 24, 1992 among the
Registrant, First Chicago Trust Company of
New York, formerly Morgan Shareholder
Services Trust Company, and Harris Trust
and Savings Bank (incorporated by reference
to Exhibit 4(a)(i) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992).
4(b) The Registrant agrees to provide the Commission,
upon request, copies of instruments defining the
rights of holders of long-term debt of the
Registrant and its subsidiaries.
10(a)(i) Texas Instruments Annual Incentive Plan
(incorporated by reference to Exhibit
10(a)(i) to the Registrant's Annual Report on
Form 10-K for the year 1993).*
10(a)(ii) TI Deferred Compensation Plan.* E
10(a)(iii) Amendment No. 1 to TI Deferred Compensation
Plan.* E
10(b) Texas Instruments Long-Term Incentive Plan
(incorporated by reference to Exhibit
10(a)(ii) to the Registrant's Annual Report
on Form 10-K for the year 1993).*
10c(i) TI Directors Retirement Benefit Plan
(incorporated by reference to Exhibit
10(b)(i) to the Registrant's Annual Report
on Form 10-K for the year 1991).
10c(ii) Amendment No. 1 to TI Directors Retirement
Benefit Plan (incorporated by reference to
Exhibit 10(b)(ii) to the Registrant's
Annual Report on Form 10-K for the year 1991).
10(c)(iii) Amendment No. 2 to TI Directors Retirement
Benefit Plan (incorporated by reference
to Exhibit 10(b)(iii) to the Registrant's
Annual Report on Form 10-K for the year 1993).
10(c)(iv) Amendment No. 3 to TI Directors Retirement
Benefit Plan (incorporated by reference to
Exhibit 10(b)(iv) to the Registrant's Annual
Report on Form 10-K for the year 1993).
10(c)(v) Amendment No. 4 to TI Directors Retirement
Benefit Plan (incorporated by reference to Exhibit
10(b)(v) to the Registrant's Annual Report on
Form 10-K for the year 1993).
18
EXHIBIT INDEX
</TABLE>
<TABLE>
<CAPTION>
Designation of
Exhibit in Paper(P) or
this Report Description of Exhibit Electronic(E)
- ------------- ----------------------------------------- -------------
<S> <C> <C>
10(d) Statement of Policy of Registrant's Board
of Directors on Top Officer and Board
Member Retirement Practices (incorporated by
reference to Exhibit 10(b)(vi) to the
Registrant's Annual Report on Form 10-K for
the year 1993).
11 Computation of earnings per common and
common equivalent share. E
12 Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends. E
13 Registrant's 1994 Annual Report to
Stockholders. (With the exception of the
items listed in the index to financial
statements and financial statement schedules
herein, and the items referred to in ITEMS 1,
5, 6, 7 and 8 hereof, the 1994 Annual Report
to Stockholders is not to be deemed filed as
part of this report.) E
21 List of subsidiaries of the Registrant. E
23 Consent of Ernst & Young LLP. E
27 Financial Data Schedule E
________________
*Executive Compensation Plans and Arrangements:
Texas Instruments Annual Incentive Plan (incorporated by
reference to Exhibit 10(a)(i) to the Registrant's Annual Report on Form 10-K
for the year 1993).
Texas Instruments Long-Term Incentive Plan (incorporated by
reference to Exhibit 10(a)(ii)to the Registrant's Annual Report on Form 10-K
for the year 1993).
Statements of Policy of Registrant's Board of Directors on Top
Officer and Board Member Retirement Practices (incorporated by reference to
Exhibit 10(b)(vi) to the Registrant's Annual Report on Form 10-K for the year
1993).
TI Deferred Compensation Plan - Exhibit 10(a)(ii) to this report.
Amendment No. 1 to TI Deferred Commpensation Plan - Exhibit
10(a)(iii) to this Report.
19
</TABLE>
EXHIBIT
10(a)(ii)
------------
TI DEFERRED COMPENSATION PLAN
TEXAS INSTRUMENTS INCORPORATED, a Delaware corporation with its
principal offices in Dallas, Texas, (hereafter "TI") hereby establishes,
effective as of January 1, 1995, an employee benefit plan, to be known as the
TI DEFERRED COMPENSATION PLAN (the "Plan"). The purpose of the Plan is to
provide to a select group of management and highly compensated employees (as
defined in section 201(2) of the Employee Retirement Income Security Act of
1974 ("ERISA"), the opportunity to defer to a later date certain compensation
to which they are entitled.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
Whenever used in the Plan, the following words and phrases shall have the
meanings set forth below unless a different meaning is plainly required by
the context. Unless otherwise indicated by the context, any masculine
terminology when used in the Plan shall also include the feminine gender, and
the definition of any term in the singular shall also include the plural.
Sec. 1-1. Administrator. "Administrator" or "Plan Administrator"
means the person or persons from time to time acting under the provisions
of Article V hereof.
Sec. 1-2. Board of Directors. "Board of Directors" means the Board of
Directors of TI.
Sec. 1-3. Change in Control. "Change in Control" means the occurrence of
either of the following events:
(i) any Person, alone or together with its Affiliates and Associates or
otherwise, becomes an Acquiring Person otherwise than pursuant to a
transaction or agreement approved by the Board of Directors prior to the
time the Acquiring Person became such; or
(ii) a majority of the Board of Directors changes within a 24 month
period unless the election or the nomination for election by TI's
stockholders of each new director has been approved by a vote of at least
a majority of the directors then still in office who were directors at the
beginning of the period.
For the purposes of this Section 1-3, the terms "Person", "Affiliates",
"Associates" and "Acquiring Person" shall have the meanings given to such
terms in the Rights Agreement dated as of June 17, 1988 between TI and Harris
Trust and Savings Bank, successor in interest to First Chicago Trust Company
of New York (formerly Morgan Shareholder Services Trust Company), as in effect
on the date hereof; provided, however, that if the percentage employed in the
definition of Acquiring Person is reduced hereafter from 20% in such Rights
Agreement, then such reduction shall also be applicable for the purposes
hereof.
Sec. 1-4. Compensation. "Compensation" means, with respect to a Plan
Year, a Participant's annual cash incentive award under the Texas
Instruments Annual Incentive Plan.
Sec 1-5. Compensation Committee. "Compensation Committee" means the
Compensation Committee of the Board of Directors.
Sec. 1-6. Deferred Compensation Agreement. "Deferred Compensation
Agreement" means an agreement described in Section 2-3 hereof.
Sec. 1-7. Election Period. "Election Period" means the period specified
by the Plan Administrator at least once during a calendar year during which
Participants may enter into Deferred Compensation Agreements for the next
following Plan Year. All elections made during the Election Period shall be
subject to the provisions of this Plan.
Sec. 1-8. Executive. "Executive" means an employee of TI or a subsidiary
of TI who is classified by TI or the subsidiary of TI who employs such
Executive in a job grade or other position, and in a location, determined by
the Compensation Committee from time to time as eligible to participate in
this Plan.
Sec. 1-9. Participant. "Participant" means both an Active Participant and
an Inactive Participant as such terms are defined in this Section 1-9.
(a) "Active Participant" means an Executive who is eligible to participate
in the Plan and who has executed a Deferred Compensation Agreement for the
current Plan year agreeing to participate in accordance with Article II
hereof.
(b) "Inactive Participant " means an Executive who has an account
balance but who did not execute a Deferred Compensation Agreement for the
current Plan Year in accordance with Article II hereof, and any other
person who has an account balance, including a former Executive who is no
longer an Executive within the meaning of Section 1-8 hereof and a former
Executive whose Termination of Employment or Retirement has occurred.
Sec. 1-10. Plan Year. "Plan Year" means a calendar year.
Sec. 1-11. Retirement. "Retirement" means the Termination of Employment
of a Participant because of the Participant's retirement pursuant to the
terms of any pension or retirement plan maintained by TI or a subsidiary of
TI, or the Participant's Termination of Employment with TI and all
subsidiaries of TI due to the Participant's disability as determined by the
Plan Administrator in its sole discretion.
Sec. 1-12. Termination of Employment. "Termination of Employment" means
the complete cessation of the employer-employee relationship between a
Participant and TI and all subsidiaries of TI, including a leave of absence
from which the Plan Administrator, in its sole discretion, determines that
the Participant is not expected to return.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Sec. 2-1. Eligibility. Eligibility for participation in the Plan in any
Plan Year is limited to employees of TI or TI subsidiaries who were
Executives as of the beginning of the Election Period immediately preceding
that Plan Year.
Sec. 2-2. Participation. Any Executive shall become an Active Participant
for a Plan Year by completing and filing a Deferred Compensation Agreement
in accordance with the provisions of Sections 2-3 and 2-4 hereof with the
Plan Administrator or its designee during the Election Period for such Plan
Year. A Participant shall continue as an Active Participant hereunder until
the earliest of:
(i) the first day of the Plan Year following the Plan Year in which he or
she ceases to be an Executive;
(ii) the date the Plan is terminated pursuant to Section 6-1 hereof;
(iii) the date of the Participant's Retirement or Termination of
Employment; or
(iv) the first day of a Plan Year for which the Participant did not execute a
Deferred Compensation Agreement.
Sec. 2-3. Deferred Compensation Agreement. Each Executive who elects to
participate in this Plan shall sign and file with the Plan Administrator or its
designee a Deferred Compensation Agreement in the form approved by the Plan
Administrator. Participant's Deferred Compensation Agreement shall be
irrevocable and shall be effective only for the Plan Year immediately
following the Election Period in which such Agreement is filed. No
Participant or any person or entity claiming through a Participant shall have
any rights whatsoever under the Plan other than the rights and benefits granted
under this Plan. Each such Deferred Compensation Agreement shall, among
other provisions approved by the Plan Administrator, specify:
(i) that the Participant agrees to participate in the Plan in accordance
with its provisions; and
(ii) that the Plan is incorporated by reference and that the Deferred
Compensation Agreement shall be subject to the provisions of the Plan in
all respects.
Sec. 2-4. Elections by Participants. (a) Each Participant by his or her
Deferred Compensation Agreement shall elect to defer a portion of his or her
Compensation for the Plan Year during which such Deferred Compensation Agreement
is effective in accordance with the provisions of this Article II.
(b) A Participant may elect to defer no more than 90% of his or her
Compensation for the Plan Year for which the Deferred Compensation Agreement
is effective;
(c) At the time each Participant files his or her initial Deferred
Compensation Agreement, the Participant must elect the form of payment to be
made at distribution of the deferred amounts. Such election shall cover the
form of payment of all deferrals made during the ten (10) year period beginning
with the first deferral hereunder, and shall be irrevocable. During any
Election Period occurring during or after the Participant's tenth (10th) year of
participation, such Participant may make one (1) additional irrevocable
election to change the form of payment to be made at distribution for deferrals
elected in Plan Years following the Plan Year in which the additional
election was made.
Participants may elect to receive distribution of amounts deferred hereunder
in the following forms:
(i) a lump sum;
(ii) annual installments for five (5) years;
(iii)annual installments for ten (10) years; or
(iv) annual installments for fifteen (15) years.
ARTICLE III
COMPENSATION DEFERRALS; ACCOUNTS
Sec. 3-1. Compensation Deferrals. Payment of the portion of the
Participant's Compensation elected by the Participant's Deferred Compensation
Agreement will be deferred by TI or its subsidiaries until such later time as
the Participant may elect in accordance with the provisions of Article II.
Compensation deferral pursuant to an election by a Participant shall commence
the first month of the Plan Year immediately following the Election Period in
which the election was made.
Sec. 3-2. Interest on Amounts Deferred. Amounts deferred hereunder shall
earn interest during each Plan Year until further action by the Compensation
Committee at an annual rate of interest equal to the Moody's Corporate Aaa
Bond Yield Average as of September 30 of the preceding year. Such rate of
interest may be changed prospectively for any Plan Year by the Compensation
Committee in its sole and absolute discretion. In lieu of establishing a
specific rate of interest, the Compensation Committee may specify the manner
in which interest to be earned hereunder is to be determined for each Plan
Year. Such interest rate shall be applied to the balance in the Participant's
account on the last day of each month and interest at such rate will be credited
as of the end of each month. Deferred amounts plus accrued interest shall
continue to accrue interest until fully distributed. No interest shall be
paid on amounts withdrawn or distributed prior to the date on which interest
is credited.
Sec. 3-3. Withdrawal of Amounts Deferred. During any Plan Year a
Participant may withdraw up to 100% of his or her account balance existing as
of December 31 of the immediately preceding Plan Year. A Participant who makes
an election to withdraw any amount shall forfeit 10% of the amount withdrawn.
Distribution of withdrawals shall be made as soon as practicable after the
request for withdrawal is received by the Plan Administrator, except that
amounts deferred in the immediately preceding Plan Year will not be paid
before March 16. All forfeited amounts shall be removed from the
Participant's account balance and shall be retained by TI.
Sec. 3-4. Maintenance and Distribution of Participant's Accounts. (a) TI
shall maintain for each Participant an unfunded account of the amounts
deferred hereunder together with the interest credited thereon, less any
withdrawals and forfeitures, until such time following the Termination of
Employment or Retirement of the Participant as all amounts have been
distributed in accordance with the provisions of this Article III. TI shall
maintain records of all accounts of Participants and such other records and data
as may be necessary and appropriate for the proper administration of the Plan
and to determine the amounts distributable to Participants and beneficiaries.
(b) Notwithstanding the other provisions of this Plan:
(i) The Compensation Committee, in its sole and absolute discretion, may
require that a lump sum distribution of all deferred amounts plus
accrued interest be made to any Participant promptly following such
Participant's Termination of Employment or Retirement if the Participant
thereafter becomes affiliated with a governmental agency or with any
private company or firm which the Compensation Committee believes to be in
competition with TI.
(ii) In the event of a Change in Control, distribution of the accounts of
all Participants shall be made in a lump sum no later than the month
following the month during which such Change in Control occurred.
(iii) In the event of the death of a Participant prior to the receipt of
the full amount to be distributed to the Participant, all remaining
amounts will be distributed to the beneficiary or beneficiaries designated by
the Participant in such manner and form as the Plan Administrator shall
specify, or, if there is no beneficiary so designated or if none of the
beneficiaries survive the Participant, to the Participant's estate, as soon
as practicable following the month in which the death occurred.
Sec. 3-5. Time of Distribution. (a) Distributions of amounts in a
Participant's account shall commence on or before the last day of the month
immediately following the month in which the Participant's Retirement or
Termination of Employment occurs, provided that:
(i) distributions of amounts deferred in the Plan Year prior to the Plan
Year in which the Participant's Retirement or Termination of Employment
occurs shall not commence before March 16 of the Plan Year in which the
Retirement or Termination of Employment occurs;
(ii) distributions of amounts deferred during the Plan Year in which a
Participant's Retirement or Termination of Employment occurs shall not
commence before March 16 of the Plan Year immediately following that
Plan Year; and
(iii) a lump sum distribution elected by a Participant in accordance with
the provisions of Section 2-4(c) hereof may, if so elected by the
Participant, be paid on or after March 16 of the Plan Year following the Plan
Year in which the Participant's Retirement or Termination of Employment
occurred.
(b) Annual installments subsequent to the first installment of a
Participant's distribution shall be paid as of March 31 of each Plan Year
until the Participant's account balance is fully distributed.
(c) Notwithstanding the foregoing provisions of this Section 3-5, the amount
of the distribution pursuant to paragraph (a) above during the Plan Year in
which the Participant's Termination or Retirement of Employment occurs shall
not, when combined with such Participant's other remuneration paid by TI
and TI subsidiaries for such Plan Year, exceed the amount that is deductible
for such year by TI for Federal income tax purposes pursuant to Section 162(m)
of the Internal Revenue Code of 1986, as amended. Any amount not distributed
during a Plan Year pursuant to this paragraph (c) shall be distributed in
March of the following Plan Year.
Sec. 3-6. Taxes. TI makes no guarantees and assumes no obligation or
responsibility with respect to the Participant's Federal, state, or local
income, estate, inheritance or gift tax obligations, if any, under this Plan
or any Deferred Compensation Agreement.
Sec. 3-7. No Assignment; Nonalienation of Benefits. No Participant or
beneficiary of a Participant shall have any right to assign, alienate,
encumber, sell, pledge, hypothecate, anticipate, charge or in any way
create a lien on any amounts payable hereunder. No amounts payable hereunder
shall be subject to assignment or transfer or otherwise be alienable, either by
voluntary or involuntary act, or by operation of law, or subject to
attachment, execution, garnishment, sequestration or other seizure under any
legal, equitable or other process, or be liable in any way for the debts,
defaults, contracts, liabilities, or torts of Participants or their
beneficiaries. Any attempt to anticipate, alienate, sell, assign, pledge,
encumber or charge the same will be void.
ARTICLE IV
FUNDING
Sec. 4-1. Funding. Any and all benefits under this Plan, including without
limitation, the payment or distribution of amounts deferred hereunder, shall be
paid solely by TI. Benefits payable under this Plan shall be paid from the
general assets of TI and shall represent TI's unfunded and unsecured promise
to pay. TI may create separate accounts, reserves, funds, or other
facilities and may provide for amounts to be held in trust or by custodians on
its behalf under such trust or custodial agreements as the Compensation
Committee in its absolute and sole discretion deems appropriate, but in no event
shall any Participant or beneficiary or any person claiming by, through or under
any such person have any claim to any such accounts, reserves, funds or
acilities or the assets of any trust or custody arrangement or to any other
specific assets of TI.
Sec. 4-2. Creditor Status. A Participant and his or her beneficiary or
beneficiaries shall be nothing more than general creditors of TI with respect
to the payment of any benefit under this Plan.
ARTICLE V
ADMINISTRATION OF THE PLAN
Sec. 5.1 Administration. The Plan Administrator shall be charged with the
administration of the Plan and shall have the power and authority as may be
necessary and appropriate for such purposes, including but not by way of
limitation, the defense of lawsuits and conduct of litigation in the name of
the Plan (subject to the approval of the General Counsel of TI), the power to
interpret and construe this Plan where it concerns question of eligibility,
of status, and subject to the opportunity for review of denied claims pursuant
to Section 5-5 hereof, rights of Participants and others hereunder. In all
such cases the determination of the Plan Administrator shall be final and
conclusive.
Sec. 5-2. Number and Selection. The Plan shall be administered by a Plan
Administrator consisting of one or more persons appointed by the Compensation
Committee. Each Plan Administrator shall serve without compensation for
services in connection with the administration of this Plan and the
expenses of administering the Plan shall be paid by TI.
Sec. 5-3. Action by Administrator. (a) If the Plan Administrator is one
person, such person shall determine all actions of the Plan Administrator,
except as otherwise provided below.
(b) If more than one person is appointed Plan Administrator, all actions of
the Plan Administrator shall be by a majority of the persons so appointed,
except as otherwise provided below. Such actions may be taken at a meeting
of the persons then appointed Plan Administrator or without a meeting by a
resolution or memorandum signed by a majority of such persons. No person
appointed Plan Administrator shall be entitled to vote or decide upon any
matters pertaining to himself or herself individually but such matter shall
be determined by the remaining Plan Administrator or by a majority of the
remaining persons appointed Plan Administrator, if any, or if the Plan
Administrator is one person, by the Compensation Committee. The Plan
Administrator may appoint agents, retain legal counsel and other services, and
perform such acts as may be necessary for the proper administration of the
Plan.
Sec. 5-4. Distributions in the Event of Legal Disability. In the event any
Participant or beneficiary of a Participant who is entitled to receive any
payment under the Plan is, at the time of such payment, a minor, mentally
incompetent or, in the opinion of the Plan Administrator, under any other legal
disability, the Plan Administrator may direct such payment to the legal
guardian or parent of such person or to any person having the apparent custody
and control of such beneficiary or Participant and such payment shall fully
acquit and discharge all parties hereto.
Sec. 5-5. Rules and Regulations. The Plan Administrator may adopt and
promulgate such rules and regulations as it may deem appropriate for the
administration of the Plan. The Plan Administrator shall adopt and promulgate
written rules governing claims procedures reasonably calculated to:
(i) provide adequate written notice to any Participant or other person whose
claim under the Plan has been denied, setting forth the specific reasons
for such denial; and
(ii) afford a reasonable opportunity to such Participant or other person
for a full and fair review by the Plan Administrator of the decision
denying the claim.
The determination of the Plan Administrator on review of decisions denying
claims shall be final and conclusive.
Sec. 5-6. Reliance on Documents. The Plan Administrator shall be entitled
to rely upon, and shall have no liability in relying upon, any representation
made to it by TI or any officer of TI, or upon any paper or document believed by
it to be genuine and to have been signed or sent by the proper person.
Sec. 5-7. Non-Liability. No member of the Compensation Committee, of the
Plan Administrator, TI, any TI subsidiary, or any officer, director or
employee of TI shall be liable for any act done or omitted by him or her with
respect to the Plan.
Sec. 5-8. Resignation or Removal. Any person appointed as a Plan
Administrator may resign by giving written notice to the Compensation Committee
and may be removed by the Compensation Committee at any time without notice.
Upon the death, resignation, removal or inability of any person appointed Plan
Administrator to act as such, the Compensation Committee may appoint a
successor.
ARTICLE VI
GENERAL PROVISIONS
Sec. 6-1. Amendment; Termination. (a) TI may change, amend, modify,
alter, or terminate the Plan at any time and in any manner except that no
amendment, modification or alteration shall be exercised retroactively to
alter or change the rights of Participants or their Beneficiaries without the
consent of the affected Participants insofar as they relate to past deferrals,
nor shall any such amendment divest any Participant of any deferral made
prior to the amendment without the consent of the affected Participant.
(b) TI reserves the right, in it sole discretion, to discontinue
deferrals under a Deferred Compensation Agreement at any time. In the event of
such discontinuance TI reserves the right to distribute to each Participant all
deferred amounts plus accrued interest at any time or times.
Sec. 6-2. Plan Not an Employment Contract. Neither this Plan nor any
Deferred Compensation Agreement nor any other agreement hereunder
constitutes a contract foremployment or continued employment. This Plan does
not give to any person the right to be continued in employment, and all
Participants remain subject to changes in compensation, Compensation,
transfer, change of job, discipline, layoff, discharge or any other change of
employment status.
Sec. 6-3. Applicable Law. The Plan shall be governed and construed in
accordance with the laws of the State of Texas, except to the extent such
laws are preempted by any applicable Federal law.
IN WITNESS WHEREOF, this Plan is executed as of the 19th day of October,
1994.
TEXAS INSTRUMENTS INCORPORATED
By: /s/ RICHARD J. AGNICH
EXHIBIT 10(a)(iii)
------------------
AMENDMENT NO. 1
TO
TI DEFERRED COMPENSATION PLAN
TEXAS INSTRUMENTS INCORPORATED, a Delaware Corporation with its
principal offices in Dallas, Texas (hereafter "TI") hereby amends the TI
Deferred Compensation Plan (hereafter the "Plan") established by the Company as
of October 19, 1994 in the respects set forth below:
1. Section 1-4 of the Plan hereby is amended so as to read as follows:
"Sec. 1-4. Compensation. "Compensation" means, with respect to a
Plan Year, a Participant's annual cash incentive award under the Texas
Instruments Annual Incentive Plan and, for the Plan Year 1996 only,
payments by TI or a subsidiary for accrued unused vacation time."
2. Section 2-3 of the Plan hereby is amended so as to read as follows:
"Sec. 2-3. Deferred Compensation Agreement. Each Executive who
elects to participate in this Plan shall sign and file with the Plan
Administrator or its designee a Deferred Compensation Agreement in the
form approved by the Plan Administrator. A Participant's Deferred
Compensation Agreement shall be irrevocable and shall be effective
only for the Plan Year immediately following the Election Period
in which such Agreement is filed, provided that, a Deferred
Compensation Agreement which elects to defer payment for accrued
unused vacation time must be filed during the Election Period which
occurs in Plan Year 1994 and will be effective only for Plan Year
1996. No Participant or any person or entity claiming through a
Participant shall have any rights whatsoever under the Plan other than
the rights and benefits granted under this Plan. Each such Deferred
Compensation Agreement shall, among other provisions approved by the
Plan Administrator, specify:
(i) that the Participant agrees to participate in the Plan in
accordance with its provisions; and
(ii) that the Plan is incorporated by reference and that the Deferred
Compensation Agreement shall be subject to the provisions of
the Plan in all respects."
This amendment shall be effective as of January 1, 1995.
Executed as of this 14th day of November, 1994.
TEXAS INSTRUMENTS INCORPORATED
BY: /s/RICHARD J. AGNICH
EXHIBIT 11
----------
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
PRIMARY AND FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per-share amounts)
Years Ended December 31
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Income before cumulative effect of accounting changes ............ $690,902 $476,226 $247,001
Less preferred dividends accrued:
Market auction preferred ..................................... -- (2,043) (7,617)
Money market preferred ....................................... -- (2,028) (4,723)
Series A conversion preferred ................................ -- (16,097) (25,118)
Add:
Dividends on series A conversion preferred
shares assumed converted ................................... -- 16,097 --
Interest, net of tax and profit sharing effect, on
convertible debentures assumed converted ................... 2,413 2,681 3,945
-------- -------- --------
Adjusted income before cumulative effect
of accounting changes .......................................... 693,315 474,836 213,488
Cumulative effect of accounting changes .......................... -- (4,173) --
-------- -------- --------
Adjusted net income .............................................. $693,315 $470,663 $213,488
======== ======== ========
Earnings per Common and Common Equivalent Share:
- ------------------------------------------------
Weighted average common shares outstanding ....................... 92,062 85,950 82,324
Weighted average common equivalent shares:
Stock option and compensation plans .......................... 1,189 1,323 373
Convertible debentures ....................................... 2,176 2,413 2,614
Series A conversion preferred ................................ -- 3,920 --
-------- -------- --------
Weighted average common and common equivalent shares ........... 95,427 93,606 85,311
======== ======== ========
Earnings per Common and Common Equivalent Share:
Income before cumulative effect of accounting changes .......... $ 7.27 $ 5.07 $ 2.50
Cumulative effect of accounting changes ........................ -- (0.04) --
-------- -------- --------
Net income ..................................................... $ 7.27 $ 5.03 $ 2.50
======== ======== ========
Earnings per Common Share Assuming Full Dilution:
- -------------------------------------------------
Weighted average common shares outstanding ....................... 92,062 85,950 82,324
Weighted average common equivalent shares:
Stock option and compensation plans .......................... 1,199 1,394 859
Convertible debentures ....................................... 2,176 2,413 2,614
Series A conversion preferred ................................ -- 3,920 --
-------- -------- --------
Weighted average common and common equivalent shares ........... 95,437 93,677 85,797
======== ======== ========
Earnings per Common Share Assuming Full Dilution:
Income before cumulative effect of accounting changes .......... $ 7.26 $ 5.07 $ 2.49
Cumulative effect of accounting changes ........................ -- (0.05) --
-------- -------- --------
Net income ..................................................... $ 7.26 $ 5.02 $ 2.49
======== ======== ========
</TABLE>
EXHIBIT 12
----------
<TABLE>
<CAPTION>
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)
1990 1991 1992 1993 1994
------ ------ ------ ------ ------
<S> <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 ..... $ 14 $ (250) $ 433 $ 755 $1,098
Add interest attributable to
rental and lease expense ........... 50 43 42 38 40
------ ------ ------ ------ ------
$ 64 $ (207) $ 475 $ 793 $1,138
====== ====== ====== ====== ======
Fixed charges:
Total interest on loans (expensed
and capitalized) ................... $ 47 $ 59 $ 57 $ 55 $ 58
Interest attributable to rental
and lease expense .................. 50 43 42 38 40
------ ------ ------ ------ ------
Fixed charges ............................ $ 97 $ 102 $ 99 $ 93 $ 98
====== ====== ====== ====== ======
Combined fixed charges and
preferred stock dividends:
Fixed charges ........................ $ 97 $ 102 $ 99 $ 93 $ 98
Preferred stock dividends
(adjusted as appropriate to a
pretax equivalent basis) ........... 36 34 55 29 --
------ ------ ------ ------ ------
Combined fixed charges and
preferred stock dividends .......... $ 133 $ 136 $ 154 $ 122 $ 98
====== ====== ====== ====== ======
Ratio of earnings to fixed charges ....... * * 4.8 8.5 11.6
====== ====== ====== ====== ======
Ratio of earnings to combined
fixed charges and preferred
stock dividends ........................ ** ** 3.1 6.5 11.6
====== ====== ====== ====== ======
* 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>
EXHIBIT 13
----------
To the Stockholders of Texas Instruments
Strong performance in TI's semiconductor business in 1994 produced the best
financial results in the company's history. TI reached record levels in
earnings per share, profits and revenues. Other contributors to TI's
improvement were higher royalties, and increased profits in personal
productivity products and materials and controls. For the first time, annual
revenues surpassed $10 billion, and profit from operations surpassed $1
billion.
Financial Summary. TI's net revenues for 1994 were $10.3 billion, up 21
percent from $8.5 billion in 1993, with most of the increase in
semiconductors. Profit from operations was $1083 million in 1994, up 49
percent from $728 million in 1993. Higher semiconductor operating profits and
higher royalties accounted for much of the increase.
[Graphic text: "...the best financial results in the company's history."]
Results for 1994 include a profit-sharing accrual of $175 million, the
highest in the company's history, versus $83 million in 1993. Productivity, as
measured in revenues per person, increased 26 percent in 1994, contributing to
TI's record amount of profit sharing.
Changes are being made in TI's worldwide profit-sharing program
beginning in 1995. While the formula that generates the amount of profit
sharing is unchanged, each country will have the flexibility to decide how
payments from the program will be made. The company believes these changes
will make the profit-sharing program more responsive and competitive,
benefiting shareholders and TIers.
Net income for the year was $691 million, compared with $472 million for
1993, an increase of 46 percent. Earnings per share increased 45 percent to
$7.27, compared with $5.03 in 1993.
The company made progress in building shareholder value, as measured by
return on invested capital. TI's return on invested capital was 19.5 percent
in 1994, up from 14.7 percent in 1993.
Leadership Strategies for the Networked Society. TI's second
consecutive year of record financial performance was the result of good
execution of strategies put in place in the late 1980s. Based on that success,
we are now developing the strategies that will take TI into the next century.
As highlighted later in this report, the new strategies will focus on
developing the products and services that make it easy for people to be
interconnected via digital technology. We believe the most significant added
value in electronic equipment is the ability for people to form networks that
enable them to share information more effectively. We made substantial
progress in 1994 on products and technologies critical to the networked
society.
[Picture of William P. Weber, vice chairman; William B. Mitchell, vice
chairman; and Jerry R. Junkins, chairman, president and chief executive
officer]
3
Semiconductors. TI's semiconductor revenues grew faster than the
industry for the third consecutive year, strengthening our position as a
leader in the $100-billion world semiconductor market. Semiconductor revenues
were at record levels for the fourth quarter of 1994 and for the year.
Profits, up substantially in 1994 over 1993, also reached record levels for
the year. Semiconductor operating margins improved in 1994, primarily because
of increased manufacturing productivity.
Much of TI's strategic emphasis in semiconductors is focused on digital
signal processing, one of the fastest growing opportunities in the
semiconductor market. Digital signal processing is at the heart of many of the
multimedia technologies, such as communications and full-motion video, that
are critical to the digital
[Graphic text: "In 1995, we will increase our focus on...accelerating TI's
long-term profitable growth."]
revolution. TI's digital signal processor (DSP) revenues grew substantially
faster than the DSP market in 1994, with new applications in cellular
telephones, high-density disk drives and consumer electronic equipment.
We introduced more than 40 new DSP products in 1994,
including a Multimedia Video Processor that is being designed into
applications ranging from teleconferencing to document processing.
TI remains the acknowledged leader in the rapidly growing digital signal
processor market, and has a strong position in the market for mixed-signal
devices that connect digital signals to the analog world. This strength is the
basis for our leadership in digital signal processing solutions (DSPS),
integrating digital signal processors, mixed-signal devices, and embedded
software to provide higher value to our customers.
Progress continued in 1994 on programs designed to sustain semiconductor
financial performance. Improvements in manufacturing yield and cycle time
generated additional wafer output from existing facilities equivalent to the
capacity of more than one major wafer-fabrication facility.
Construction of TI's most advanced semiconductor manufacturing
facility, in Dallas, was completed ahead of schedule in December 1994, with
initial production planned for the first half of 1995. This facility is
designed for rapid prototyping and production of 0.35-micron advanced logic
products.
Demand for memory remains strong, with personal computers driving much
of the demand. TI's memory revenues grew substantially in 1994, outpacing the
growth of the memory market. During 1994, TI and Hitachi announced plans for a
new joint-venture wafer-fabrication facility for dynamic random-access
memories to be built in Richardson, Texas, near Dallas. This facility will
begin initial production in 1996. TI also announced the expansion of capacity
at its facility in Avezzano, Italy. Capacity at the existing joint-venture
facilities is also being expanded to meet the longer term demand for memory
products. TI's shared investment strategy continues to support the growth of
memory revenues by providing timely and cost-effective capacity additions,
while reducing the effect on TI of the volatility of the memory business.
Defense Electronics. TI's defense electronics business continues to
meet the challenges of a smaller defense market. This business generated good
cash flow and maintained stable margins in 1994 on lower revenues, while
continuing to win key contracts.
During the year, TI won several new programs in next-generation night-
vision systems. Key wins included advanced electro-optic systems for the U.S.
Navy's Lamps helicopter and the U.S. Army's Bradley Fighting Vehicle.
4
Additionally, TI's Paveway III was selected for the United Kingdom's
interdiction weapons program, and the joint venture team of TI and Martin
Marietta received the initial low-rate production contract for the Javelin
antitank missile developed for the U.S. Army and Marine Corps.
Software. In 1994, TI's software business made progress strategically
and financially. Actions initiated in early 1994 to divest non-strategic
product areas were essentially completed by the end of the year, putting this
business in a better position to focus on strategic opportunities. During the
year, TI formed an alliance with Microsoft to define and market an innovative
framework that will allow broader use of our application development tools.
Personal Productivity Products. TI's notebook computer, calculator and
printer business, benefiting from the consolidation of these operations that
began in late 1993, made substantial profit improvement in 1994. We are moving
to take advantage of new market opportunities created by our customers' need
for mobility and connectivity in the emerging networked society. We plan to
step up product development and marketing in 1995 to strengthen TI's position
in these emerging markets.
Materials and Controls. Growth in new products, combined with a
recovery in international economies, led TI's materials and controls business
to record revenues in 1994. Research and development spending has been
increased for this business over the past few years to accelerate the shift to
faster growing electronic opportunities, such as sensors and radio-frequency
identification systems.
Summary. TI's achievements over the last few years, and particularly in
1994, have put the company in the best product, technology and financial
position in recent history.
The global semiconductor industry continues its trend of sustainable
double-digit growth with improved long-term stability. This is attributable to
improved inventory control, reasonable additions to capacity relative to
revenues, increased semiconductor content in electronic end equipment, and
enhanced geographic diversification of the semiconductor market.
In this environment, TI plans to increase capital expenditures in 1995
by 20 percent, to about $1.3 billion. TI-funded R&D increased $99 million in
1994, to $689 million, and it will be increased again in 1995, to about $800
million, to support targeted opportunities in advanced memory and
microprocessors, digital signal processing solutions, and digital imaging
technology for display and hardcopy applications.
Over the next few years, TI expects to make a major contribution to the
critical technologies driving the digital revolution, across a broad base of
capabilities in semiconductors, software and systems. By integrating our
capabilities in sensing, processing, transmission, and display, we can provide
value-added solutions that will help make our customers more competitive in
global markets. In 1995, we will increase our focus on those opportunities
that provide the greatest leverage across TI's businesses and technologies.
This will lay the foundation for accelerating TI's long-term profitable
growth.
Jerry R. Junkins
Chairman, President and
Chief Executive Officer
Dallas, Texas
January 27, 1995
David L. Boren, president of The University of Oklahoma, has been elected a
director of Texas Instruments.
5
<PAGE>
Consolidated Financial Statements
(In millions of dollars, except per-share amounts)
<TABLE>
<CAPTION>
For the years ended December 31
-------------------------------
Income 1994 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues .............................. $10,315 $8,523 $7,440
------- ------ ------
Operating costs and expenses:
Cost of revenues ......................... 7,471 6,274 5,720
General, administrative and marketing .... 1,393 1,247 1,170
Employees' retirement and profit
sharing plans .......................... 368 274 130
------- ------ ------
Total .................................. 9,232 7,795 7,020
------- ------ ------
Profit from operations .................... 1,083 728 420
Other income (expense) net ................ 4 15 --
Interest on loans ......................... 45 47 51
------- ------ ------
Income before provision for
income taxes and cumulative effect of
accounting changes ....................... 1,042 696 369
Provision for income taxes ................ 351 220 122
------- ------ ------
Income before cumulative effect
of accounting changes .................... 691 476 247
Cumulative effect of accounting changes ... -- (4) --
------- ------ ------
Net income ................................ $ 691 $ 472 $ 247
======= ====== ======
Earnings per common and common
equivalent share:
Income before cumulative effect
of accounting changes .................. $ 7.27 $ 5.07 $ 2.50
Cumulative effect of accounting changes .. -- (0.04) --
------- ------ ------
Net income ............................... $ 7.27 $ 5.03 $ 2.50
======= ====== ======
</TABLE>
See accompanying notes.
Texas Instruments Incorporated and Subsidiaries
26
<TABLE>
<CAPTION>
December 31
------------------
Balance Sheet 1994 1993
- ----------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................... $ 760 $ 404
Short-term investments ...................................... 530 484
Accounts receivable, less allowance for losses of
$37 million in 1994 and $42 million in 1993................ 1,442 1,218
Inventories (net of progress billings) ...................... 882 822
Prepaid expenses ............................................ 66 55
Deferred income taxes ....................................... 337 331
------ ------
Total current assets ...................................... 4,017 3,314
------ ------
Property, plant and equipment at cost ........................ 4,895 4,620
Less accumulated depreciation ............................... (2,327) (2,417)
------ ------
Property, plant and equipment (net) ....................... 2,568 2,203
------ ------
Deferred income taxes ........................................ 243 237
Other assets ................................................. 161 239
------ ------
Total assets ................................................. $6,989 $5,993
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt ............ $ 12 $ 211
Accounts payable and accrued expenses ....................... 1,877 1,512
Income taxes payable ........................................ 56 120
Accrued retirement and profit sharing contributions ......... 254 158
------ ------
Total current liabilities ................................. 2,199 2,001
------ ------
Long-term debt ............................................... 808 694
Accrued retirement costs ..................................... 740 739
Deferred credits and other liabilities ....................... 203 244
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 - 92,786,992;
1993 - 90,919,314 ......................................... 93 91
Paid-in capital ............................................. 1,041 932
Retained earnings ........................................... 1,912 1,307
Less treasury common stock at cost.
Shares: 1994 - 104,170; 1993 - 102,522................... (6) (5)
Other ....................................................... (1) (10)
------ ------
Total stockholders' equity ............................... 3,039 2,315
------ ------
Total liabilities and stockholders' equity ................... $6,989 $5,993
====== ======
</TABLE>
See accompanying notes.
Texas Instruments Incorporated and Subsidiaries
27
<PAGE>
Consolidated Financial Statements
(In millions of dollars, except per-share amounts)
<TABLE>
<CAPTION>
For the years ended December 31
--------------------------------
Cash Flows 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income before cumulative
effect of accounting changes ................ $ 691 $ 476 $ 247
Depreciation .................................. 665 617 610
Deferred income taxes ......................... (12) (59) (93)
Net currency exchange losses .................. 3 4 3
(Increase) decrease in working capital
(excluding cash and cash equivalents,
short-term investments, deferred income
taxes, and loans payable and current
portion long-term debt):
Accounts receivable ........................ (197) (258) (111)
Inventories ................................ (60) (88) 50
Prepaid expenses ........................... (9) (3) 1
Accounts payable and accrued expenses ...... 330 37 (16)
Income taxes payable ....................... (67) 27 52
Accrued retirement and profit sharing
contributions ............................ 111 94 12
Increase (decrease) in noncurrent accrued
retirement costs ............................ (8) 21 39
Other ......................................... 85 66 7
------ ------ ------
Net cash provided by operating activities ...... 1,532 934 801
Cash flows from investing activities:
Additions to property, plant and equipment .... (1,076) (730) (429)
Purchases of short-term investments ........... (779) (616) (4,352)
Sales and maturities of short-term investments. 732 635 3,998
Proceeds from sales of businesses ............. -- -- 48
------ ------ ------
Net cash used in investing activities .......... (1,123) (711) (735)
Cash flows from financing activities:
Additions to loans payable .................... 40 35 92
Payments on loans payable ..................... (41) (72) (61)
Additions to long-term debt ................... 1 14 150
Payments on long-term debt .................... (88) (15) (117)
Redemptions of auction-rate preferred stock ... -- (150) (146)
Dividends paid on common and preferred stock .. (79) (86) (98)
Sales and other common stock transactions ..... 110 100 25
Other ......................................... (2) 6 (2)
------ ------ ------
Net cash used in financing activities .......... (59) (168) (157)
Effect of exchange rate changes on cash ........ 6 (7) (5)
------ ------ ------
Net increase (decrease) in cash and cash
equivalents ................................... 356 48 (96)
Cash and cash equivalents at beginning of year.. 404 356 452
------ ------ ------
Cash and cash equivalents at end of year ....... $ 760 $ 404 $ 356
====== ====== ======
</TABLE>
See accompanying notes.
Texas Instruments Incorporated and Subsidiaries
28
<TABLE>
<CAPTION>
Market Auction/ Series A
Money Market Conversion Treasury
Preferred Preferred Common Paid-In Retained Common
Stockholders' Equity Stock Stock Stock Capital Earnings Stock Other
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 ........... $ 296 $ 69 $ 82 $ 746 $ 766 $ (4) $ --
1992
- ----
Net income ......................... 247
Dividends declared on:
Market auction preferred stock ... (8)
Money market preferred stock ..... (4)
Series A conversion preferred
stock ($9.04 per share) ........ (25)
Common stock ($.72 per share) .... (60)
Redemptions of auction-rate
preferred stock .................. (146)
Common stock issued on exercise
of stock options ................. 1 15 3
Other stock transactions, net ...... 9 (3)
Pension liability adjustment ....... (37)
------ ------ ------ ------ ------ ------ ------
Balance, December 31, 1992 ........... 150 69 83 770 916 (4) (37)
1993
- ----
Net income ......................... 472
Dividends declared on:
Market auction preferred stock ... (2)
Money market preferred stock ..... (2)
Series A conversion preferred
stock ($5.45 per share) ........ (14)
Common stock ($.72 per share) .... (63)
Redemptions of auction-rate
preferred stock .................. (150)
Redemptions of Series A conversion
preferred stock .................. (69) 6 63
Common stock issued:
To profit sharing trusts ......... 13
On exercise of stock options ..... 2 67 2
Other stock transactions, net ...... 19 (3)
Pension liability adjustment ....... 27
------ ------ ------ ------ ------ ------ ------
Balance, December 31, 1993 ........... -- -- 91 932 1,307 (5) (10)
1994
- ----
Net income ......................... 691
Dividends declared on common
stock ($.93 per share) ........... (86)
Common stock issued:
To profit sharing trusts.......... 31
On exercise of stock options ..... 2 60 3
Other stock transactions, net ...... 18 (4)
Pension liability adjustment ....... 10
Cash investments adjustment......... (1)
------ ------ ------ ------ ------ ------ ------
Balance, December 31, 1994 ........... $ -- $ -- $ 93 $1,041 $1,912 $ (6) $ (1)
====== ====== ====== ====== ====== ====== ======
See accompanying notes.
</TABLE>
Texas Instruments Incorporated and Subsidiaries
29
Notes to Financial Statements
Accounting Policies and Practices
- ------------------------------------------------------------------------------
Effective January 1, 1994, the company adopted a new accounting standard, SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
which requires that cash equivalent and short-term investment debt securities
be stated at fair value, instead of the lower of cost or fair value. This
adoption had no material effect on the company's financial statements.
Effective January 1, 1993, the company adopted SFAS No. 106, which required
the accrual of expected retiree health care benefit costs during the
employees' working careers, and SFAS No. 109, which required increased
recording of deferred income tax assets. This resulted in a 1993 charge of
$294 million ($3.14 per share) for SFAS No. 106 and a credit of $290 million
($3.10 per share) for SFAS No. 109, for the cumulative effect of the
accounting changes.
The consolidated financial statements include the accounts of all
subsidiaries. Intercompany balances and transactions have been eliminated.
The U.S. dollar is the functional currency for financial reporting. With
regard to accounts recorded in currencies other than U.S. dollars, current
assets (except inventories), deferred income taxes, other assets, current
liabilities and long-term liabilities are remeasured at exchange rates in
effect at year end. Inventories, property, plant and equipment and
depreciation thereon are remeasured at historic exchange rates. Revenue and
expense accounts other than depreciation for each month are remeasured at the
appropriate month-end rate of exchange. Net currency exchange gains and
losses from remeasurement and forward currency exchange contracts to hedge net
balance sheet exposures are charged or credited on a current basis to other
income (expense) net. Gains and losses from forward currency exchange
contracts and interest rate swaps to hedge specific transactions are included
in the measurement of the related transactions.
Inventories are stated at the lower of cost, current replacement cost or
estimated realizable value. Cost is generally computed on a currently
adjusted standard (which approximates current average costs) or average basis.
Revenues from semiconductor and other commercial products and services
are generally recognized as products are shipped or services are rendered.
Revenues under long-term fixed price and fixed-price incentive contracts are
recognized as deliveries are made or as performance targets are achieved.
Revenues under long-term cost reimbursement contracts are recorded as costs
are incurred and include estimated earned fees. Royalty revenue is recognized
by the company upon fulfillment of its contractual obligations and
determination of a fixed royalty amount, or, in the case of ongoing royalties,
upon sale by the licensee of royalty-bearing products, as estimated by the
company.
Substantially all depreciation is computed by either the declining-
balance method (primarily 150 percent declining method) or the sum-of-the-
years-digits method. Fully depreciated assets are written off against
accumulated depreciation.
Earnings per common and common equivalent share are based on average
common and common equivalent shares outstanding (95,427,322 shares, 93,605,749
shares and 85,310,690 shares for 1994, 1993 and 1992). Shares issuable upon
exercise of dilutive stock options and upon conversion of dilutive convertible
debentures and, for 1993 and 1992, conversion preferred stock are included in
average common and common equivalent shares outstanding. In computing per-
share earnings, net income is reduced by $20 million and $37 million in 1993
and 1992 for dividends accrued on preferred stock, and increased by $2
million, $19 million and $4 million in 1994, 1993 and 1992 for interest (net
of tax and profit sharing effect) and dividends on the convertible debentures
and conversion preferred stock considered dilutive common stock equivalents.
Cash Equivalents and Short-Term Investments
- ------------------------------------------------------------------------------
Debt securities with original maturities within three months are considered
cash equivalents. Debt securities with original maturities beyond three months
have remaining maturities within 13 months and are considered short-term
investments. These cash equivalent and short-term investment debt securities
are available for sale and, beginning in 1994, stated at fair value, which
approximates their specific amortized cost. Adjustments to fair value are
recorded as an increase or decrease in stockholders' equity. At year-end
1994, this adjustment was a $1 million decrease. As of December 31, 1994,
these debt securities consisted primarily of the following types: U.S.
government ($217 million), U.S. state and municipalities ($187 million),
corporate ($434 million), and asset-backed commercial paper ($154 million).
Gross realized and unrealized gains and losses for each of these security
types were immaterial in 1994. Proceeds from sales of these cash equivalent
and short-term investment debt securities in 1994 were $75 million.
Texas Instruments Incorporated and Subsidiaries
30
Inventories
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
-------------------
1994 1993
------ -----
<S> <C> <C>
Raw materials and purchased parts .................... $ 237 $ 244
Work in process ...................................... 553 557
Finished goods ....................................... 318 250
------ ------
Inventories before progress billings ................. 1,108 1,051
Less progress billings ............................... (226) (229)
------ ------
Inventories (net of progress billings) ............... $ 882 $ 822
====== ======
</TABLE>
Approximately 31% and 34% of the December 31, 1994 and 1993 inventories
before progress billings related to long-term contracts.
Inventories related to long-term contracts are stated at actual production
costs, including manufacturing overhead and special tooling and engineering
costs, reduced by amounts identified with revenues recognized on units
delivered or with progress completed. Such inventories are reduced by
charging any amounts in excess of estimated realizable value to cost of
revenues. The costs attributed to units delivered under long-term contracts
are based on the estimated average cost of all units to be produced under
existing contracts and are determined under the learning curve concept, which
anticipates a predictable decrease in unit costs as tasks and production
techniques become more efficient through repetition. Production costs
included in inventories in excess of the estimated cost of in-process
inventories (on the basis of estimated average cost of all units to be
produced) were not material.
To secure access to additional semiconductor plant capacity, TI entered into
four joint ventures formed to construct and operate semiconductor
manufacturing facilities. Upon formation of the ventures TI contributed
technology and cash to acquire minority interests and entered into long-term
inventory purchase commitments with each joint venture. Under the agreements,
TI purchases the output of the ventures at prices based upon percentage
discounts from TI's average selling prices. Certain co-venturers have the
right to buy a portion of the output from TI. Under certain circumstances, TI
may increase its ownership and potentially acquire a majority interest in the
ventures. Under the ventures' financing arrangements, the venturers have
provided certain debt and other guarantees. At December 31, 1994 and 1993, TI
was contingently liable for an aggregate of $46 million and $43 million of
such guarantees. Inventory purchases from the ventures aggregated $908
million in 1994, $356 million in 1993 and $66 million in 1992. Receivables
from and payables to the ventures were $1 million and $94 million at December
31, 1994, and $6 million and $45 million at December 31, 1993.
The primary purpose of the joint ventures is to provide semiconductor
output for TI and other co-venturers. As a result, TI expects to recover its
cost of the ventures through sale of the semiconductor output, and is
amortizing its cost of the ventures over the expected initial output period of
3 to 5 years, and recognizing its share of any cumulative venture net losses
in excess of amortization using the equity method of accounting. TI
recognized operating expense of $15 million in 1994, $27 million in 1993, and
$3 million in 1992. Due to the fact that dividend distributions are not
expected to be significant in the foreseeable future, the probability of
realization of TI's share of any venture net income is indeterminate and such
income is not recognized. Instead, dividends, if and when received, will
first be credited against TI's cost of the ventures, thereafter to income.
Compared to this amortization method, TI's net income would have been
approximately $35 million ($.37 per share) higher in 1994, and essentially
unchanged in 1993 and 1992, had TI recorded its simple arithmetic share of the
ventures' net income or loss.
Property, Plant and Equipment at Cost
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
-------------------
Depreciable Lives 1994 1993
----------------- ------ ------
<S> <C> <C> <C>
Land ............................ $ 82 $ 70
Buildings and improvements ...... 5-40 years 1,777 1,691
Machinery and equipment ......... 3-10 years 3,036 2,859
------ ------
Total ........................... $4,895 $4,620
====== ======
</TABLE>
Authorizations for property, plant and equipment expenditures in future
years were approximately $816 million at December 31, 1994 and $603 million at
December 31, 1993.
Accounts Payable and Accrued Expenses
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
-------------------
1994 1993
------ ------
<S> <C> <C>
Accounts payable .................................... $ 678 $ 543
Advance payments from commercial and defense
contract customers ................................. 205 130
Accrued salaries, wages, severance
and vacation pay ................................... 367 291
Other accrued expenses and liabilities .............. 627 548
------ ------
Total ............................................... $1,877 $1,512
====== ======
</TABLE>
Texas Instruments Incorporated and Subsidiaries
31
Notes to Financial Statements
(continued)
Long-Term Debt and Lines of Credit
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
-------------------
1994 1993
------ ------
<S> <C> <C>
2.75% convertible subordinated
debentures due 2002 .................................. $ 124 $ 200
9.0% notes due 1999 ................................... 150 150
9.0% notes due 2001 ................................... 150 150
9.25% notes due 2003 .................................. 150 150
8.75% notes due 2007 .................................. 150 150
5.56% to 6.10% Italian lira mortgage notes
(51% swapped for 1.60% U.S. dollar obligation) ....... 87 95
Other ................................................. 9 10
------ ------
820 905
Less current portion long-term debt ................... 12 211
------ ------
Long-term debt ........................................ $ 808 $ 694
====== ======
</TABLE>
The convertible subordinated debentures may be redeemed at the company's
option at specified prices. On September 29, 1994, $76 million of the
debentures were redeemed at the option of the holders. The remaining
debentures are convertible at the holder's option into an aggregate 1,492,730
shares of TI common stock at a common stock conversion price of $82.875 per
share.
A portion of the coupon rates for the notes due 1999, 2001, 2003 and,
beginning in 1994, the notes due 2007 have been swapped for commercial paper-
based or LIBOR-based variable rates through April 1997, resulting in a
combination of fixed plus short-term variable rates for an effective interest
rate of approximately 9.6% and 6.4% as of December 31, 1994 and 1993. The
notes due 1999 may be redeemed at par, at the company's option, beginning in
July 1996. The Italian lira mortgage notes, and related swaps, are due in
installments through 2003. The mortgage notes are collateralized by real
estate and equipment.
Interest incurred on loans in 1994, 1993 and 1992 was $58 million, $55
million and $57 million. Of these amounts, $13 million in 1994, $8 million in
1993 and $6 million in 1992 were capitalized as a component of capital asset
construction costs. Interest paid on loans (net of amounts capitalized) was
$53 million in 1994, $54 million in 1993 and $51 million in 1992.
Aggregate maturities of long-term debt due during the four years
subsequent to December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Millions of Dollars
-------------------
<S> <C>
1996 ................................................. $ 13
1997 ................................................. 13
1998 ................................................. 14
1999 ................................................. 165
</TABLE>
Unused lines of credit for short-term financing were approximately $547
million at December 31, 1994 and $569 million at December 31, 1993. Of these
amounts, $440 million and $470 million were available to support commercial
paper borrowings.
Financial Instruments and Risk Concentration
- ------------------------------------------------------------------------------
Financial instruments: In addition to the swaps discussed in the preceding
note, as of December 31, 1994, the company has forward currency exchange
contracts outstanding of $314 million to hedge net balance sheet exposures
(including $64 million to buy yen, $47 million to buy deutsche mark, and $39
million to buy Singapore dollars) and $116 million to hedge specific firm
commitments for multi-year product sale transactions denominated in pound
sterling. At December 31, 1993, the company had forward currency exchange
contracts outstanding of $219 million to hedge net balance sheet exposures
(including $53 million to buy deutsche mark, $34 million to buy Singapore
dollars, and $22 million to sell pound sterling) and $20 million to hedge
specific firm commitments for near-term product purchase transactions
denominated in yen. As of December 31, 1994 and 1993, the carrying amounts
and current market settlement values of these swaps and forward contracts were
not significant, except for the interest rate swaps for the notes due 1999,
2001, 2003 and 2007 for which the year-end 1994 carrying amounts are a
liability of $2 million and the settlement values are a liability of
approximately $34 million.
The forward currency exchange contracts, including the currency interest
rate swaps for the Italian lira mortgage notes, are used to minimize the
adverse impacts from the effect of exchange rate fluctuations on the company's
non-U.S. net balance sheet exposures (predominantly receivables, payables and
accrued expenses) and specific commitments to purchase or sell products. The
interest rate swaps for the company's notes due 1999, 2001, 2003 and 2007 are
used to change the characteristics of the interest rate stream on the debt
from fixed rates to a combination of fixed plus short-term variable rates in
order to achieve a mix of interest rates which, over time, is expected to
moderate financing costs. The effect of these interest rate swaps was to
reduce interest expense by $8 million, $12 million and $9 million in 1994,
1993 and 1992. These interest rate swaps are sensitive to interest rate
changes. If short-term interest rates increase (decrease) by one percentage
point from year-end 1994 rates, annual interest expense would increase
(decrease) by $6 million.
In order to minimize its exposure to credit risk, the company limits its
counterparties on the forward currency exchange contracts and interest rate
swaps to investment-grade rated financial institutions.
As of December 31, 1994 and 1993, the fair value of long-term debt, based
on current interest rates, was approximately $830 million and $998 million,
compared with the carrying amount of $820 million and $905 million.
Texas Instruments Incorporated and Subsidiaries
32
The company has an agreement to sell, on a revolving basis, up to $175
million of an undivided percentage ownership interest in a designated pool of
accounts receivable, with limited recourse. Accounts receivable are shown net
of $125 million at December 31, 1994 and $175 million at December 31, 1993,
representing receivables sold. The comparable amount for December 31, 1992 is
$175 million. The related discount expense, which varies with commercial
paper rates, is included in other income (expense) net. In January 1995, the
company reduced the outstanding balance to zero, and the agreement will be
terminated effective January 30, 1995.
Risk concentration: Financial instruments which potentially subject the
company to concentrations of credit risk are primarily cash investments and
accounts receivable. The company places its cash investments in investment-
grade, short-term debt securities and limits the amount of credit exposure to
any one commercial issuer. Concentrations of credit risk with respect to the
receivables are limited due to the large number of customers in the company's
customer base, and their dispersion across different industries and geographic
areas. The company maintains an allowance for losses based upon the expected
collectibility of all accounts receivable, including receivables sold.
Stockholders' Equity
- ------------------------------------------------------------------------------
The company is authorized to issue 10,000,000 shares of preferred stock.
Prior to 1994, the company had three series of preferred stock outstanding:
market auction preferred stock (average dividends declared per share: 1993 -
$2,564; 1992 - $5,239); money market preferred stock (average dividends
declared per share: 1993 - $2,729; 1992 - $5,138); and Series A conversion
preferred stock. By the end of 1993 all preferred shares had been redeemed by
the company and none are currently outstanding.
Each outstanding share of the company's common stock carries a stock
purchase right. Under certain circumstances, each right may be exercised to
purchase one one-hundredth of a share of the company's participating
cumulative preferred stock for $200. Under certain circumstances following
the acquisition of 20% or more of the company's outstanding common stock by an
acquiring person (as defined in the rights agreement), each right (other than
rights held by an acquiring person) may be exercised to purchase common stock
of the company or a successor company with a market value of twice the $200
exercise price. The rights, which are redeemable by the company at 1 cent per
right, expire in June 1998.
Research and Development Expense
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Research and development expense ........... $ 689 $ 590 $ 470
</TABLE>
Other Income (Expense) Net
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
------------------------------
<S> <C> <C> <C>
1994 1993 1992
------ ------ ------
Interest income ........................... $ 51 $ 31 $ 30
Other income (expense) net ................ (47) (16) (30)
------ ------ ------
Total ..................................... $ 4 $ 15 $ --
====== ====== ======
</TABLE>
Stock Options
- ------------------------------------------------------------------------------
The company has stock options outstanding to participants under the Texas
Instruments Long-Term Incentive Plan, approved by stockholders on April 15,
1993. Options are also outstanding under the 1984 and 1988 Stock Option
Plans; however, no further options may be granted under these plans. Under
all these stockholder-approved plans, the exercise price per share may not be
less than 100 percent of the fair market value on the date of the grant.
Options granted become exercisable in such amounts, at such intervals and
subject to such terms and conditions as determined by the compensation
committee of the board of directors.
Under the Long-Term Incentive Plan, the company may grant stock options,
including incentive stock options; restricted stock and restricted stock
units; performance units; and other stock-based awards, including stock
appreciation rights. The plan provides for the issuance of 4,000,000 shares
of the company's common stock; in addition, if any option under the 1984 or
1988 Stock Option Plans terminates, then any unissued shares subject to the
terminated option become available for granting awards under the plan. No
more than 1,000,000 shares of common stock may be awarded as restricted stock,
restricted stock units or other stock-based awards under the plan.
The company also has stock options outstanding under an Employees Stock
Option Purchase Plan approved by stockholders in 1988. The plan provides for
options to be offered to all eligible employees in amounts based on a
percentage of the employee's prior year's compensation. If the optionee
authorizes and does not cancel payroll deductions which, with interest, will
be equal to or greater than the purchase price, options granted become
exercisable 14 months, and expire not more than 27 months, from date of grant.
Texas Instruments Incorporated and Subsidiaries
33
Notes to Financial Statements
(continued)
Stock option transactions during 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Long-Term
Incentive Employees
and Stock Stock Option Option
Option Purchase Price Range
Plans Plan Per Share
--------- --------- ---------------
<S> <C> <C> <C>
Balance, Dec. 31, 1991 ............ 4,322,295 833,791 $25.34 - $60.57
Granted .......................... 834,450 591,300*
Terminated ....................... 93,859 404,427*
Exercised** ...................... 255,409 218,441 $25.34 - $44.75
--------- ---------
Balance, Dec. 31, 1992 ............ 4,807,477 802,223 $30.73 - $60.57
Granted .......................... 860,000 438,803*
Terminated ....................... 159,150 85,734*
Exercised** ...................... 1,056,079 636,986 $32.82 - $54.61
--------- ---------
Balance, Dec. 31, 1993 ............ 4,452,248 518,306 $30.73 - $65.69
Granted .......................... 859,750 342,562*
Terminated ....................... 49,601 70,979*
Exercised** ...................... 1,182,620 315,498 $30.73 - $65.69
--------- ---------
Balance, Dec. 31, 1994 ............ 4,079,777 474,391 $30.84 - $82.13
========= =========
</TABLE>
Exercisable at Dec. 31, 1993 ...... 751,920 106,105
Exercisable at Dec. 31, 1994 ...... 2,265,703 155,812
* Excludes options offered but not accepted.
** Includes previously unissued shares and treasury shares of 1,440,568 and
57,550; 1,636,199 and 56,866; and 398,288 and 75,562 for 1994, 1993 and 1992.
At year-end 1994, 2,651,076 shares were available for future grants under
the Long-Term Incentive Plan and 1,779,479 shares under the Employees Stock
Option Purchase Plan approved in 1988. As of year-end 1994, 6,953,762 shares
were reserved for issuance under the company's stock option and incentive
plans and 2,253,870 shares were reserved for issuance under the Employees
Stock Option Purchase Plan approved in 1988.
The company acquires its common stock from time to time for use in
connection with exercise of stock options and other stock transactions.
Treasury shares acquired in 1994, 1993 and 1992 were 59,198 shares, 55,525
shares and 77,339 shares. Previously unissued common shares issued under the
Annual Incentive Plan in 1994, 1993 and 1992 were 23,165 shares, 103,926
shares and 68,860 shares.
Profit Sharing and Retirement Plans
- -----------------------------------------------------------------------------
The company provides various incentive plans for employees, including general
profit sharing and savings programs as well as an annual incentive plan for
key employees. The company also provides pension and retiree health care
benefit plans in the U.S. and pension plans in certain non-U.S. locations.
Profit sharing: Profit sharing expense was $175 million in 1994 and $83
million in 1993. There was no profit sharing expense in 1992. Under the
plans, unless otherwise provided by local law, the company and certain of its
subsidiaries contribute a portion of their net profits according to certain
formulas, but not to exceed the lesser of 25% of consolidated income (as
defined) before profit sharing and income taxes or 15% of the compensation of
eligible participants. Unless otherwise provided by local law, contributions
are invested as follows. For worldwide profit sharing earned by eligible
participants prior to 1994, the contributions have been invested in TI common
stock. For profit sharing earned by U.S. employees in 1994, the contributions
will initially be invested in TI common stock but several other investment
options will be made available in the future for this contribution. For 1995
and thereafter, 50% of profit sharing earned by U.S. employees under the
current formula will be contributed to the profit sharing plan and invested at
the participants' option in one or more of several available investment funds
including TI common stock; the remaining 50% will not be contributed to the
profit sharing plan but will be paid as cash to the eligible participants.
Similar changes are being considered for non-U.S. employees.
Except in the event of company contributions in stock, investments in TI
common stock are made by the trustees through purchases of outstanding shares
or through purchases of shares offered from time to time by the company. The
board of directors has authorized the issuance of previously unissued shares
for purposes of the plans; 2,308,459 of such shares were available for future
issuance at December 31, 1994.
The trustees of the profit sharing plans purchased 1,881,815 outstanding
shares of TI common stock in 1994 (626,670 shares in 1993 and 105,688 shares
in 1992) and 403,945 previously unissued shares in 1994 (209,464 shares in
1993 and none in 1992) for use in the profit sharing plans and savings
program. As of December 31, 1994, 6,176,127 shares of TI common stock were
allocated to profit sharing plan stock accounts of the company's employees.
Savings program: The company provides a matched savings program whereby
U.S. employees' contributions of up to 4% of their salary are matched by the
company at the rate of 50 cents per dollar. Contributions are subject to
statutory limitations. The contributions may be invested in several
investment funds including TI common stock. The company's expense under this
program was $21 million in 1994, $21 million in 1993 and $20 million in 1992.
Texas Instruments Incorporated and Subsidiaries
34
U.S. pension plan: The company has a defined benefit plan covering most
U.S. employees with benefits based on years of service and employee's
compensation. The plan is a career-average-pay plan which has been amended
periodically in the past to produce approximately the same results as a final-
pay type plan. The board of directors of the company has expressed an intent
to make such amendments in the future, circumstances permitting, and the
expected effects of such amendments have been considered in calculating U.S.
pension expense. The company's funding policy is to contribute to the plan at
least the minimum amount required by ERISA. Plan assets consist primarily of
common stock, U.S. government obligations, commercial paper and real estate.
Pension expense of the U.S. plan includes the following components:
<TABLE>
<CAPTION>
Millions of Dollars
--------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost - benefits earned
during the period ...................... $ 54 $ 59 $ 58
Interest cost on projected benefit
obligation ............................. 69 72 70
Return on plan assets:
Actual return .......................... 16 (99) (45)
Deferral ............................... (74) 44 (10)
Net amortization ........................ (4) (2) (5)
------ ------ ------
U.S. pension expense .................... $ 61 $ 74 $ 68
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
The funded status of the U.S. plan was as follows:
Millions of Dollars
-------------------
1994 1993
------- -------
<S> <C> <C>
Actuarial present value at Dec. 31 of:
Vested benefit obligation .................... $ (523) $ (655)
======= =======
Accumulated benefit obligation ............... $ (575) $ (717)
======= =======
Projected benefit obligation ................. $ (818) $(1,026)
Plan assets at fair value ..................... 724 783
------- -------
Projected benefit obligation in excess of
plan assets .................................. (94) (243)
Unrecognized net asset from initial
application of SFAS 87 ....................... (78) (90)
Unrecognized net (gain) loss .................. (121) 43
Unrecognized prior service cost ............... 41 46
------- -------
Accrued pension at Dec. 31 .................... (252) (244)
Less current portion .......................... 54 40
------- -------
Accrued U.S. pension costs .................... $ (198) $ (204)
======= =======
</TABLE>
The projected benefit obligations for 1994 and 1993 were determined using
assumed discount rates of 8.5% and 7.0% and an assumed average long-term pay
progression rate of 4.25%. The assumed long-term rate of return on plan
assets was 9.0%.
Non-U.S. pension plans: Retirement coverage for non-U.S. employees of the
company is provided, to the extent deemed appropriate, through separate plans.
Retirement benefits are based on years of service and employee's compensation,
generally during a fixed number of years immediately prior to retirement.
Funding policies are based on local statutes. Plan assets consist primarily
of common stock, government obligations and corporate bonds.
<TABLE>
<CAPTION>
Pension expense of the non-U.S. plans includes the following components:
Millions of Dollars
-------------------------------
<S> <C> <C> <C>
1994 1993 1992
------ ------ ------
Service cost - benefits earned
during the period ...................... $ 56 $ 44 $ 38
Interest cost on projected benefit
obligations ............................ 32 28 23
Return on plan assets:
Actual return .......................... (15) (50) 1
Deferral ............................... (15) 25 (24)
Net amortization ........................ 11 8 4
------ ------ ------
Non-U.S. pension expense ................ $ 69 $ 55 $ 42
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
The funded status of the non-U.S. plans was as follows:
Millions of Dollars
---------------------
<S> <C> <C>
1994 1993
------ ------
Actuarial present value at Sept. 30 of:
Vested benefit obligations .................. $ (424) $ (365)
====== ======
Accumulated benefit obligations ............. $ (493) $ (429)
====== ======
Projected benefit obligations ............... $ (693) $ (621)
Plan assets at fair value .................... 398 342
------ ------
Projected benefit obligations in excess of
plan assets ................................. (295) (279)
Unrecognized net liabilities from initial
application of SFAS 87 ...................... 24 25
Unrecognized net loss ........................ 148 157
Unrecognized prior service cost .............. 6 10
------ ------
Accrued non-U.S. pension at Sept. 30 ......... (117) (87)
Additional minimum liability ................. (9) (24)
Adjustments from Sept. 30 to Dec. 31 ......... -- 2
Less prepaid pension costs at Dec. 31 ........ 12 18
------ ------
Accrued pension at Dec. 31 ................... (138) (127)
Less current portion ......................... 10 7
------ ------
Accrued non-U.S. pension costs ............... $ (128) $ (120)
====== ======
</TABLE>
The range of assumptions used for the non-U.S. plans reflects the
different economic environments within the various countries. The projected
benefit obligations were determined using a range of assumed discount rates of
4.75% to 8.0% in 1994 and 4.75% to 9.0% in 1993 and a range of assumed
average long-term pay progression rates of 4.0% to 6.0% in 1994 and 4.0% to
7.0% in 1993. The range of assumed long-term rates of return on plan assets
was 8.0% to 9.0%. Accrued pension at December 31 includes approximately $83
million in 1994
Texas Instruments Incorporated and Subsidiaries
35
Notes to Financial Statements
(continued)
and $79 million in 1993 for two non-U.S. plans that are not funded. Pension
accounting rules require recognition in the balance sheet of an additional
minimum pension liability equal to the excess of the accumulated benefit
obligation over the fair value of the plan assets. A corresponding amount is
recognized as an intangible asset, not to exceed the amount of unrecognized
prior service cost, with the balance recorded as a reduction of stockholders'
equity. As of December 31, 1994 and 1993, the company has recorded an
additional non-U.S. minimum pension liability of $9 million and $24 million
and, for 1993, an equity reduction of $10 million.
Retiree health care benefit plan: The company's U.S. employees are currently
eligible to receive, during retirement, specified company-paid medical
benefits. The plan is contributory and premiums are adjusted annually. For
employees retiring on or after January 5, 1993, the company has specified a
maximum annual amount per retiree, based on years of service, that it will pay
toward retiree medical premiums. For employees who retired prior to that
date, the company maintains a consistent level of cost sharing between the
company and the retiree. The company is pre-funding the plan obligation in
amounts determined at the discretion of management. Plan assets consist
primarily of common stock, U.S. government obligations, commercial paper, and
obligations of U.S. states and municipalities.
Effective January 1, 1993, the company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which required
the accrual of expected retiree health care benefit costs during the
employees' working careers, instead of when the claims are incurred. The
company recorded an accumulated postretirement benefit obligation of $454
million and a related deferred income tax asset of $160 million, which
resulted in a 1993 charge of $294 million ($3.14 per share) for the cumulative
effect of the accounting change. Retiree health care benefit expense in 1992
was computed on a claims-incurred basis.
Expense of the retiree health care benefit plan includes the following
components:
<TABLE>
<CAPTION>
Millions of Dollars
-------------------
1994 1993
------ ------
<S> <C> <C>
Service cost - benefits earned
during the period ........................... $ 6 $ 6
Interest cost on accumulated
postretirement benefit obligation .......... 36 35
Return on plan assets:
Actual return .............................. (3) (1)
Deferral .................................... 3 1
------ ------
Retiree health care benefit expense .......... $ 42 $ 41
====== ======
</TABLE>
<TABLE>
<CAPTION>
The funded status of the plan was as follows:
Millions of Dollars
-------------------
<S> <C> <C>
1994 1993
------ ------
Actuarial present value at Dec. 31 of accumulated
postretirement benefit obligation:
Retirees ....................................... $ (337) $ (396)
Fully eligible employees ....................... (12) (14)
Other employees ................................ (104) (117)
------ ------
(453) (527)
------ ------
Plan assets at fair value ........................ 23 8
------ ------
Accumulated postretirement benefit obligation
in excess of plan assets ........................ (430) (519)
Unrecognized net (gain) loss ..................... (16) 63
Unrecognized prior service cost .................. (12) --
------ ------
Accrued at Dec. 31 ............................... (458) (456)
Less current portion ............................. 44 41
------ ------
Accrued retiree health care benefit costs ........ $ (414) $ (415)
====== ======
</TABLE>
Retiree health care benefit amounts were determined using health care cost
trend rates of 8.8% for 1995 decreasing to 6.0% by 1999, and assumed discount
rates of 8.5% for 1994 and 7.0% for 1993. Increasing the health care cost
trend rates by 1% would have increased the accumulated postretirement benefit
obligation at December 31, 1994 by $27 million and 1994 plan expense by $2
million. A trust holding a portion of the plan assets is subject to federal
income taxes at a 39.6% rate. The assumed long-term rate of return on plan
assets, after taxes, was 7.3%. Retiree health care benefit expense was $24
million in 1992.
Special actions: In the first quarter of 1994, the company took a pretax
charge of $83 million for restructuring of its European operations from the
traditional country-by-country approach to business centers with pan-European
responsibilities. This action primarily affected semiconductor activities and
is expected to result in annual savings of approximately $54 million when
fully implemented. Also taken in the first quarter was a pretax charge of $49
million for costs related to the divestiture of nonstrategic product lines,
primarily in digital products. The total charges of $132 million included
non-cash asset write-downs of $31 million with the balance for expected cash
outlays, including $62 million for severance. The divestitures were
essentially completed by the end of 1994. Completion of the restructuring
action, which has been delayed due to extended negotiations with certain
European works councils, is expected by the fourth quarter of 1995. Of the
total expected cash outlays, $41 million was expended during 1994 with the
balance expected to be expended in 1995. Of the approximately 1,000
employees, primarily in Europe, affected by the severance actions, 383 left
the company during 1994 with the balance expected to leave in 1995.
Texas Instruments Incorporated and Subsidiaries
36
Industry Segment and Geographic Area Operations
- -----------------------------------------------------------------------------
The company is engaged in the development, manufacture and sale of a variety
of products in the electrical and electronics industry for industrial,
government and consumer markets. These products consist of components
(semiconductors, such as integrated circuits, discrete devices and
subassemblies, and electrical and electronic control devices); defense
electronics (such as radar systems, navigation systems, infrared surveillance
and fire control systems, defense suppression missiles, missile guidance and
control systems, and electronic warfare systems); and digital products (such
as software productivity tools, notebook computers, printers, electronic
calculators, and custom manufacturing services). In fourth quarter 1992, the
company sold its commercial multiuser minicomputer systems and service
operations, which were part of the digital products segment. The company also
produces metallurgical materials (including clad metals, precision-engineered
parts and electronic connectors).
The company's business is based principally on its broad semiconductor
technology and application of this technology to selected electronic end-
equipment markets.
Industry segment and geographic area profit (loss) is not equivalent to
income before provision for income taxes and cumulative effect of accounting
changes due to exclusion of general corporate expenses, net interest, currency
exchange gains and losses, and other items along with elimination of
unrealized profit in assets. Profit sharing expense is allocated to segment
results based on payroll costs. Prior to 1994, for geographic area purposes
research and development expense was allocated based on revenues. In 1994,
research and development expense is generally reported in the geographic area
where incurred. The effect of this change on 1994 geographic area results was
to decrease U.S. profits by $144 million, decrease Europe losses by $28
million, increase East Asia profits by $113 million and increase other areas
profit by $3 million. Royalty revenue from patent license agreements is
included in the U.S. geographic net revenues and (except for royalty revenue
from microcomputer system patent license agreements, which is included in the
digital products segment) is principally included in the components segment.
Identifiable assets are those associated with segment or geographic area
operations, excluding unallocated cash and short-term investments, internal
company receivables and deferred income taxes. Generally, revenues between
industry segments and between geographic areas are based on prevailing market
prices or an approximation thereof.
<TABLE>
<CAPTION>
Industry Segment Net Revenues
- -----------------------------------------------------------------------------
Millions of Dollars
-------------------------------
<S> <C> <C> <C>
1994 1993 1992
------- ------ ------
Components
Trade ................................ $ 6,787 $5,091 $3,982
Intersegment ......................... 56 66 47
------- ------ ------
6,843 5,157 4,029
------- ------ ------
Defense Electronics
Trade ................................ 1,710 1,842 1,990
Intersegment ......................... 17 14 14
------- ------ ------
1,727 1,856 2,004
------- ------ ------
Digital Products
Trade ................................ 1,661 1,454 1,345
Intersegment ......................... 1 4 5
------- ------ ------
1,662 1,458 1,350
------- ------ ------
Metallurgical Materials
Trade ................................ 152 126 116
Intersegment ......................... 25 19 22
------- ------ ------
177 145 138
------- ------ ------
Eliminations and other ................ (94) (93) (81)
------- ------ ------
Total ................................. $10,315 $8,523 $7,440
======= ====== ======
</TABLE>
<PAGE>
Net revenues directly from federal government agencies in the United
States, principally related to the defense electronics segment, were $1,009
million in 1994, $1,031 million in 1993 and $1,172 million in 1992.
Industry Segment Profit (Loss)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
------------------------------
<S> <C> <C> <C>
1994 1993 1992
------ ------ ------
Components ............................ $1,101 $ 689 $ 340
Defense Electronics ................... 172 188 194
Digital Products ...................... 62 34 27
Metallurgical Materials ............... (8) (4) 3
Eliminations and corporate items ...... (285) (211) (195)
------ ------ ------
Income before provision for
income taxes and cumulative effect of
accounting changes ................... $1,042 $ 696 $ 369
====== ====== ======
</TABLE>
Industry Segment Identifiable Assets
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Components ............................ $3,655 $3,016 $2,695
Defense Electronics ................... 731 821 842
Digital Products ...................... 756 718 633
Metallurgical Materials ............... 76 68 57
Eliminations and corporate items ...... 1,771 1,370 958
------ ------ ------
Total ................................. $6,989 $5,993 $5,185
====== ====== ======
</TABLE>
Texas Instruments Incorporated and Subsidiaries
37
<PAGE>
Notes to Financial Statements
(continued)
Industry Segment Property, Plant and Equipment
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
------------------------------
Depreciation 1994 1993 1992
- ------------ ------ ------ ------
<S> <C> <C> <C>
Components ............................ $ 514 $ 462 $ 457
Defense Electronics ................... 97 104 110
Digital Products ...................... 24 23 24
Metallurgical Materials ............... 10 10 10
Eliminations and corporate items ...... 20 18 9
------ ------ ------
Total ................................. $ 665 $ 617 $ 610
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Millions of Dollars
------------------------------
Additions 1994 1993 1992
- --------- ------ ------ ------
<S> <C> <C> <C>
Components ............................ $ 888 $ 545 $ 314
Defense Electronics ................... 96 92 74
Digital Products ...................... 42 37 13
Metallurgical Materials ............... 9 16 8
Eliminations and corporate items ...... 41 40 20
------ ------ ------
Total ................................. $1,076 $ 730 $ 429
====== ====== ======
</TABLE>
<PAGE>
The following geographic area data include revenues, costs and expenses
generated by and assets employed in operations located in each area:
Geographic Area Net Revenues
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
-------------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
United States
Trade ................................ $ 5,943 $5,314 $4,829
Interarea ............................ 457 449 407
------- ------ ------
6,400 5,763 5,236
------- ------ ------
Europe
Trade ................................ 1,574 1,281 1,249
Interarea ............................ 253 238 186
------- ------ ------
1,827 1,519 1,435
------- ------ ------
East Asia
Trade ................................ 2,729 1,860 1,307
Interarea ............................ 1,525 1,223 1,058
------- ------ ------
4,254 3,083 2,365
------- ------ ------
Other Areas
Trade ................................ 69 68 62
Interarea ............................ 50 51 32
------- ------ ------
119 119 94
------- ------ ------
Eliminations .......................... (2,285) (1,961) (1,690)
------- ------ ------
Total ................................. $10,315 $8,523 $7,440
======= ====== ======
</TABLE>
Geographic Area Profit (Loss)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
-------------------------------
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
United States ......................... $ 1,018 $ 743 $ 581
Europe ................................ (12) 33 (24)
East Asia ............................. 219 63 (28)
Other Areas ........................... 5 -- (5)
Eliminations and corporate items ...... (188) (143) (155)
------- ------ ------
Income before provision for
income taxes and cumulative effect of
accounting changes ................... $ 1,042 $ 696 $ 369
======= ====== ======
</TABLE>
<PAGE>
Geographic Area Identifiable Assets
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
United States ......................... $2,965 $2,589 $2,378
Europe ................................ 889 897 887
East Asia ............................. 1,616 1,310 1,105
Other Areas ........................... 43 42 40
Eliminations and corporate items ...... 1,476 1,155 775
------ ------ ------
Total ................................. $6,989 $5,993 $5,185
====== ====== ======
</TABLE>
Income Taxes
- ----------------------------------------------------------------------------
Effective January 1, 1993, the company adopted SFAS No. 109, "Accounting for
Income Taxes," which required increased recording of deferred income tax
assets. As a result, the company recorded additional deferred income tax
assets of $203 million, after a valuation allowance of $404 million, and
reduced deferred income tax liabilities by $87 million, which resulted in a
1993 credit of $290 million ($3.10 per share) for the cumulative effect of the
accounting change.
Income (Loss) before Provision for Income Taxes and
Cumulative Effect of Accounting Changes
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
-----------------------------------------
Geographic area
profit (loss)
------------------ Elims. &
U.S. Non-U.S. corp. items Total
------ -------- ----------- -------
<S> <C> <C> <C> <C>
1994......................... $1,018 $ 212 $ (188) $1,042
1993 ........................ 743 96 (143) 696
1992 ........................ 581 (57) (155) 369
</TABLE>
With the exception of interarea elimination of unrealized profit in
assets, which increased $18 million in 1994, increased $1 million in 1993, and
decreased $20 million in 1992, the remaining corporate items consist primarily
of general corporate expenses which are applicable to both U.S. and non-U.S.
operations. These expenses are generally deductible for tax purposes in the
U.S.
Texas Instruments Incorporated and Subsidiaries
38
<PAGE>
Provision (Credit) for Income Taxes
- ----------------------------------------------------------------------------
Income tax amounts for 1994 and 1993 were computed based on SFAS No. 109;
amounts for 1992 were computed based on the prior accounting standard, SFAS
No. 96.
<TABLE>
<CAPTION>
Millions of Dollars
--------------------------------------------
U.S. Federal Non-U.S. U.S. State Total
------------ -------- ---------- -----
<S> <C> <C> <C> <C>
1994
- ----
Current ....................... $ 249 $ 95 $ 19 $ 363
Deferred ...................... 4 (18) 2 (12)
----- ----- ----- -----
Total ......................... $ 253 $ 77 $ 21 $ 351
===== ===== ===== =====
1993
- ----
Current ....................... $ 168 $ 96 $ 15 $ 279
Deferred ...................... (39) (17) (3) (59)
----- ----- ----- -----
Total ......................... $ 129 $ 79 $ 12 $ 220
===== ===== ===== =====
1992
- ----
Current ....................... $ 139 $ 63 $ 13 $ 215
Deferred ...................... (97) 4 -- (93)
----- ----- ----- -----
Total ......................... $ 42 $ 67 $ 13 $ 122
===== ===== ===== =====
</TABLE>
Principal reconciling items from income tax computed at the statutory
federal rate follow.
<TABLE>
<CAPTION>
Millions of Dollars
------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Computed tax at statutory rate .............. $ 365 $ 244 $ 125
Effect of increase in tax rate on net
deferred tax assets ........................ -- (17) --
Effect of change in valuation allowance ..... -- (2) --
Effect of non-U.S. rates .................... (42) (3) 33
Increase (decrease) in unrecognized
deferred tax benefits ...................... -- -- (34)
Research and experimentation tax credits .... (3) (8) (2)
Effect of U.S. state income taxes............ 14 10 9
Other ....................................... 17 (4) (9)
------ ------ ------
Total provision for income taxes ............ $ 351 $ 220 $ 122
====== ====== ======
</TABLE>
Included in the effect of non-U.S. rates for 1994 is a $69 million benefit
from tax loss carryforward utilization reduced by certain non-U.S. taxes and
losses for which no benefit was recognized. Provision has been made for
deferred taxes on undistributed earnings of non-U.S. subsidiaries to the
extent that dividend payments from such companies are expected to result in
additional tax liability. The remaining undistributed earnings (approximately
$595 million at December 31, 1994) have been indefinitely reinvested;
therefore, no provision has been made for taxes due upon remittance of these
earnings. Determination of the amount of unrecognized deferred tax liability
on these unremitted earnings is not practicable.
The primary components of deferred income tax assets and liabilities
at December 31 were as follows:
<TABLE>
<CAPTION>
Millions of Dollars
-------------------
1994 1993
------ ------
<S> <C> <C>
Deferred income tax assets:
Accrued retirement costs (pension and
retiree health care) ............................ $ 264 $ 262
Inventories and related reserves ................. 227 183
Accrued expenses ................................. 155 168
Long-term contracts .............................. 50 63
Non-U.S. loss carryforwards ...................... 138 181
Other ............................................ 165 168
------ ------
999 1,025
------ ------
Less valuation allowance .......................... (330) (350)
------ ------
669 675
------ ------
Deferred income tax liabilities:
Property, plant and equipment .................... (95) (81)
Other ............................................ (32) (66)
------ ------
(127) (147)
------ ------
Net deferred income tax asset ..................... $ 542 $ 528
====== ======
</TABLE>
As of December 31, 1994 and 1993, the net deferred income tax asset of
$542 million and $528 million was presented in the balance sheet, based on tax
jurisdiction, as deferred income tax assets of $580 million and $568 million
and deferred income tax liabilities of $38 million and $40 million.
The company has aggregate non-U.S. tax loss carryforwards of approximately
$314 million. Of this amount, $270 million expires through the year 2004 and
$44 million has no expiration.
Income taxes paid were $399 million, $231 million and $108 million for
1994, 1993 and 1992.
Rental Expense and Lease Commitments
- ------------------------------------------------------------------------------
Rental and lease expense was $145 million in 1994, $132 million in 1993 and
$143 million in 1992. The company conducts certain operations in leased
facilities and also leases a portion of its data processing and other
equipment. The lease agreements frequently include purchase and renewal
provisions and require the company to pay taxes, insurance and maintenance
costs.
At December 31, 1994, the company was committed under non-cancelable
leases with minimum rentals in succeeding years as follows:
Non-cancelable Leases
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Millions of Dollars
-------------------
<S> <C>
1995 ............................................ $ 102
1996 ............................................ 82
1997 ............................................ 55
1998 ............................................ 41
1999 ............................................ 37
Later years ..................................... 207
</TABLE>
Texas Instruments Incorporated and Subsidiaries
39
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
- ------------------------------------------------------------------------------
The Board of Directors
Texas Instruments Incorporated
We have audited the accompanying consolidated balance sheet of Texas
Instruments Incorporated and subsidiaries (the Company) at December 31, 1994
and 1993, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texas
Instruments Incorporated and subsidiaries at December 31, 1994 and 1993, and
the results of its operations and cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in the "Profit Sharing and Retirement Plans" and "Income
Taxes" notes to the financial statements, in 1993 the Company changed its
method of accounting for retiree health care benefits and income taxes.
Ernst & Young LLP
Dallas, Texas
January 26, 1995
Texas Instruments Incorporated and Subsidiaries
40
<PAGE>
<TABLE>
<CAPTION>
Summary of Selected Financial Data
Years ended December 31 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Millions of Dollars
Net revenues ..................... $10,315 $8,523 $7,440 $6,784 $6,567
Operating costs and expenses ..... 9,232 7,795 7,020 7,033 6,593
------- ------ ------ ------ ------
Profit (loss) from operations .... 1,083 728 420 (249) (26)
Other income (expense) net........ 4 15 -- (14) 29
Interest on loans ................ 45 47 51 41 24
------- ------ ------ ------ ------
Income (loss) before provision
for income taxes and cumulative
effect of accounting changes..... 1,042 696 369 (304) (21)
Provision for income taxes ....... 351 220 122 105 18
------- ------ ------ ------ ------
Income (loss) before cumulative
effect of accounting changes .... 691 476 247 (409) (39)
Cumulative effect of accounting
changes ......................... -- (4) -- -- --
------- ------ ------ ------ ------
Net income (loss) ................ $ 691 $ 472 $ 247 $ (409) $ (39)
======= ====== ====== ====== ======
- -------------------------------------------------------------------------------
Earnings (loss) per common and
common equivalent share:
Income (loss) before cumulative
effect of accounting changes ... $ 7.27 $ 5.07 $ 2.50 $(5.40) $ (.92)
Cumulative effect of accounting
changes ........................ -- (0.04) -- -- --
------- ------ ------ ------ ------
Net income (loss) ............... $ 7.27 $ 5.03 $ 2.50 $(5.40) $ (.92)
======= ====== ====== ====== ======
Dividends declared per
common share .................... $ .93 $ .72 $ .72 $ .72 $ .72
- -------------------------------------------------------------------------------
Average common and common
equivalent shares outstanding
during year, in thousands ....... 95,427 93,606 85,311 81,970 81,614
- -------------------------------------------------------------------------------
As of December 31 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------
Millions of Dollars
Working capital .................. $ 1,818 $1,313 $ 961 $ 813 $ 826
Property, plant and
equipment (net) ................. 2,568 2,203 2,133 2,354 2,480
Total assets ..................... 6,989 5,993 5,185 5,009 5,048
Long-term debt ................... 808 694 909 896 715
Stockholders' equity ............. 3,039 2,315 1,947 1,955 2,358
- -------------------------------------------------------------------------------
Employees ........................ 56,333 59,048 60,577 62,939 70,318
Stockholders of record ........... 28,740 29,129 31,479 35,162 36,268
</TABLE>
See Notes to Financial Statements and Management Discussion and Analysis of
Financial Condition and Results of Operations.
Texas Instruments Incorporated and Subsidiaries
41
Supplemental Financial Information
Management Discussion and Analysis of
Financial Condition and Results of Operations
- ------------------------------------------------------------------------------
The management discussion and analysis of the company's financial condition
and results of operations consists of the letter to stockholders set forth on
pages 3 through 5 of this report and the following additional information:
<TABLE>
<CAPTION>
Change in orders, Change in net revenues,
Segment 1994 vs. 1993 1994 vs. 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Components............................... up 27% up 33%
Defense Electronics...................... up 11% down 7%
Digital Products......................... up 10% up 14%
- ------------------------------------------------------------------------------
Total................................ up 21% up 21%
===========================================================================
===
</TABLE>
<TABLE>
<CAPTION>
Change in orders, Change in net revenues,
Segment 4Q94 vs. 4Q93 4Q94 vs. 4Q93
- ------------------------------------------------------------------------------
<S> <C> <C>
Components............................... up 28% up 31%
Defense Electronics...................... down 30% down 17%
Digital Products......................... up 1% up 12%
- ------------------------------------------------------------------------------
Total................................ up 13% up 17%
===========================================================================
===
</TABLE>
1994 Results of Operations Compared with 1993
- ------------------------------------------------------------------------------
TI's orders for 1994 were $10.4 billion, up 21 percent from $8.6 billion
in 1993. Significantly higher semiconductor orders in the components segment
were the primary contributor to the change. Defense electronics orders
increased due primarily to the timing of orders.
TI's net revenues for 1994 were $10.3 billion, up 21 percent from $8.5
billion in 1993. The increase was due primarily to higher semiconductor
revenues in the components segment, resulting from increased shipments and new
products. Profit from operations was $1083 million in 1994, up 49 percent
from $728 million in 1993. Higher semiconductor operating profits accounted
for much of the increase; higher royalties also contributed. Results for 1994
include a profit-sharing accrual of $175 million compared with $83 million
accrued in 1993.
Results for the year include one-time royalty revenues of $73 million,
compared with $90 million in 1993. Results also include $132 million in
pretax restructuring and divestiture charges taken in the first quarter of
1994, compared with $23 million in pretax consolidation charges taken in the
fourth quarter of 1993.
The income tax provision for 1994 is for U.S. and non-U.S. taxes. Non-
U.S. taxes include a benefit from tax loss carryforward utilization reduced by
certain non-U.S. taxes and losses for which no benefit was recognized. TI's
income tax rate for the year was 33.7 percent. For 1993, the provision was
net of an increase in deferred tax assets for the effect of the increase in
the U.S. statutory rate.
TI's orders for the fourth quarter of 1994 were $2534 million, compared
with $2247 million for the same period in 1993. Higher semiconductor and
electrical controls orders in the components segment offset a decline in
defense electronics orders. TI's semiconductor orders were up over year-ago
levels, led by substantial growth in memory and digital signal processing
products.
Net revenues for the fourth quarter of 1994 were $2782 million, compared
with $2374 million in the fourth quarter of 1993. The increase was due
primarily to higher semiconductor revenues in the components segment,
attributable to increased shipments and new products. The decline in defense
revenues was due to ramping down of mature production programs. The increase
in digital segment revenue in the fourth quarter of 1994 was primarily in
custom manufacturing services and software.
Profit from operations for the fourth quarter increased 47 percent to
$291 million, from $198 million in the same period of 1993. The largest
increase was in semiconductor operations. Improvement in personal
productivity products, resulting from consolidation actions taken in the
fourth quarter of 1993, and higher royalties also contributed to the increase.
Fourth-quarter 1994 results include an accrual of $48 million for profit
sharing, as well as one-time charges for previously announced employment-
reduction actions in international operations, including Japan, and start-up
costs for new semiconductor capacity in Dallas. Fourth-quarter 1993 results
included an accrual of $31 million for profit sharing and a pretax charge of
$23 million related to the consolidation of TI's consumer and peripheral
products businesses. Net income in the fourth quarter of 1994 was $188
million, and earnings per share were $1.98, compared with net income of $134
million and earnings per share of $1.42 in the fourth quarter of 1993.
Manufacturing operations have resumed at KTI Semiconductor in Nishiwaki,
Japan, after being suspended following the earthquake in Kobe. KTI is a
joint-venture manufacturing facility of TI and Kobe Steel.
TI's backlog of unfilled orders as of December 31, 1994, was $3913
million, up $108 million from the end of 1993, due to increases in
semiconductor backlog. Backlog was down $249 million from the end of the
third quarter of 1994, primarily because of a decline in defense electronics
backlog.
Texas Instruments Incorporated and Subsidiaries
42
TI-funded R&D was $689 million for 1994 and $190 million for the fourth
quarter, compared with $590 million and $170 million for the same periods of
1993. Customer-funded R&D was $356 million in 1994, compared with $391
million in 1993.
Capital expenditures were $1076 million in 1994 and $320 million in the
fourth quarter, compared with $730 million and $218 million in the same
periods of 1993.
Depreciation for 1994 was $665 million, compared with $617 million in
1993, and $179 million in the fourth quarter of 1994, compared with $167
million in the same period of 1993. Depreciation in 1995 is expected to be
about $800 million.
Components Segment: Orders in the components segment were up 27 percent for
the year, and revenues up 33 percent, from 1993. Components segment profit
increased substantially, primarily because of improved semiconductor
manufacturing productivity and higher royalties.
For the fourth quarter of 1994, orders in the components segment were up
28 percent over the same period of 1993, with strong increases in
semiconductor orders. Segment revenues were up 31 percent from the same
period of a year ago, reflecting higher semiconductor revenues. Segment
profit increased substantially over the fourth quarter of 1993 because of
improved semiconductor operating performance and higher royalties.
Defense Electronics Segment: In TI's defense electronics segment, 1994 orders
were up 11 percent from 1993 due to timing of orders. Revenues were down 7
percent from 1993, primarily because of reduced shipments of mature production
programs. Margins for the year were essentially flat with 1993.
Fourth-quarter 1994 orders in defense electronics were down 30 percent
from the fourth quarter of 1993 because of reduced procurement levels on
mature production programs. Revenues were down 17 percent from the high level
of the fourth quarter of 1993, which included shipments that were delayed from
the third quarter of 1993. Margins remained essentially flat with fourth
quarter of 1993.
Digital Products Segment: Orders in TI's digital products segment were up 10
percent in 1994, and revenues up 14 percent, compared with 1993. The segment
operated at a profit for the year, with royalty revenues and profits from the
personal productivity products business more than offsetting the divestiture
charges taken in the first quarter of 1994.
For the fourth quarter of 1994, orders in the digital segment were
essentially flat with the same period of 1993. Revenues were up 12 percent
and the segment operated at a profit.
Intellectual Property: During 1994, TI reached new semiconductor patent-
license agreements with Micron Technology Inc. and GoldStar Electron Co., Ltd.
As previously reported, on August 31, 1994, the district court in Tokyo
ruled that Fujitsu's production of 1-megabit and 4-megabit DRAMs and 32K
EPROMs does not infringe the company's Kilby patent. The company has appealed
the court's decision to the Tokyo High Court. The decision should not have
any significant effect on existing patent-license agreements.
Most of the existing semiconductor patent-license agreements expire at
the end of 1995 or early in 1996, and preparations have begun for the upcoming
round of negotiations regarding their renewal. The agreements with GoldStar,
Hyundai Electronics Industries Co., Ltd., Micron, Mitsubishi Electric
Corporation, Toshiba Corporation and Yamaha Corporation have expiration dates
ranging from 1998 to 2001. Also, the company will continue negotiations with
computer manufacturers in an effort to reach additional computer system
patent-license agreements.
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. Although
these negotiations by their nature are not predictable as to outcome or
timing, TI continues to expect a significant ongoing stream of royalty revenue
throughout the remainder of the decade.
<PAGE>
Financial Condition
- ------------------------------------------------------------------------------
TI's financial condition remained strong in 1994 as cash flow from operating
activities net of additions to property, plant and equipment was a positive
$456 million.
During the year, cash and cash equivalents plus short-term investments
increased by $402 million to $1290 million, primarily because of the cash flow
mentioned above. On September 29, 1994, $76 million
Texas Instruments Incorporated and Subsidiaries
43
Supplemental Financial Information
(continued)
of TI's 2.75% convertible subordinated debentures due 2002 were redeemed at
the option of the holders. The $124 million remaining balance was classified
as a long-term liability at the end of the third quarter because the holders'
redemption period had lapsed. In early April, the company amended its asset
securitization agreement for accounts receivable and reduced the outstanding
balance from $175 million to $125 million. In January 1995, the company
reduced the outstanding balance to zero, and the agreement will be terminated
effective January 30, 1995. On June 17, 1994, the company announced an
increase in the annual common dividend rate per share from $.72 to $1.00,
resulting in approximately $7 million of increased dividend payments per
quarter (at current common share balances). TI's debt-to-total-capital ratio
was .21 at the end of 1994, down from .23 at the end of the third quarter and
.28 at year-end 1993.
Unexpended authorizations for future capital expenditures were
approximately $816 million at December 31, 1994. In view of increased
semiconductor demand, we plan to raise capital expenditures in 1995 to about
$1.3 billion, from $1076 million in 1994. The funds will be supplied by cash
from operations and existing cash balances.
At December 31, 1994, the company had deferred income tax assets of $580
million, after a valuation allowance of $330 million, and deferred income tax
liabilities of $38 million. The valuation allowance reflects the company's
assessment regarding the realizability of certain non-U.S. deferred income tax
assets. The balance of the deferred income tax assets is considered
realizable based on carryback potential, existing taxable temporary
differences, and expectation of future income levels comparable to recent
results. Such future income levels are not assured because of the nature of
the company's businesses, which are generally characterized by rapidly
changing technology and intense competition. The company evaluates
realizability of the deferred income tax assets quarterly.
The company maintains unused lines of credit to support commercial paper
borrowing and to provide additional liquidity. Unused lines of credit were
approximately $547 million at December 31, 1994. Of this amount, $440 million
was available to support commercial paper borrowing.
The company believes that its financial condition provides the
foundation for continued support of the programs essential to TI's future.
<PAGE>
1993 Results of Operations Compared with 1992
- ------------------------------------------------------------------------------
TI's orders for 1993 were $8595 million, up 12 percent from $7645 million in
1992. Significantly higher semiconductor orders in the components segment
were the primary contributor to the change.
TI's net revenues for 1993 were $8523 million, compared with $7440 million
in 1992. Essentially all of the increase was in semiconductor revenues in the
components segment, resulting primarily from new products and increased
shipments. Royalty revenues for the year were $521 million, up 33 percent
from 1992. The increase was primarily the result of new agreements with
personal computer manufacturers covering TI's computer systems patents and
higher shipments by licensees under TI's semiconductor patents. Profit from
operations was $728 million in 1993, up 73 percent from $420 million in 1992.
Higher semiconductor operating profits and higher royalties accounted for
virtually all of the increase. Results for 1993 included a profit-sharing
accrual of $83 million. There was no accrual for profit sharing in 1992.
Net income for the year was $472 million, compared with $247 million in
1992.
The income tax provision for 1993 was for U.S. and non-U.S. taxes, net of
a third-quarter increase in deferred tax assets for the effect of the increase
in the U.S. statutory rate. TI's income tax rate for the year was 31.6
percent.
TI's backlog of unfilled orders as of December 31, 1993, was $3805
million, up $72 million from the end of 1992, as increases in semiconductor
backlog more than offset a decline in defense electronics.
TI-funded R&D was $590 million for 1993, compared with $470 million for
1992. Customer-funded R&D was $391 million in 1993, compared with $421
million in 1992.
Capital expenditures were $730 million in 1993, compared with $429 million
in 1992.
Depreciation for 1993 was $617 million, compared with $610 million in
1992.
Components Segment: Orders in the components segment were up 32 percent for
the year, and revenues up 28 percent, from 1992. Components segment profit
doubled from 1992, with semiconductor operating improvement accounting for
virtually all of the increase.
Defense Electronics Segment: In TI's defense electronics segment, 1993 orders
were down 26 percent from 1992 because Operation Desert Storm replenishment
orders
Texas Instruments Incorporated and Subsidiaries
44
were not repeated in 1993. Revenues were down 7 percent from 1992, primarily
because of reduced shipments of the High-Speed Antiradiation Missile. Margins
for the year were essentially flat with 1992.
Digital Products Segment: Orders in TI's digital products segment were up 11
percent in 1993, and revenues up 8 percent, compared with 1992. Excluding the
effect of the 1992 sale of TI's multiuser minicomputer systems and service
operations to Hewlett-Packard, 1993 orders were up 25 percent, and revenues up
24 percent, over 1992. The segment operated at a profit for the year 1993, as
royalty revenues more than offset operating losses.
Metallurgical Materials Segment: In the metallurgical materials segment,
orders were up 12 percent, and revenues were up 5 percent, from 1992. The
segment operated at a small loss for the year, primarily because of increased
investments in new technologies, including solar energy.
Intellectual Property: During 1993, TI reached new semiconductor patent-
license agreements with Hyundai Electronics Industries Co., Ltd. and Nippon
Steel Semiconductor Corporation. We also reached computer systems patent-
license agreements with personal computer manufacturers including Compaq
Computer Corporation, Daewoo Electronics Company, Ltd., Daewoo Telecom Co.,
Ltd., Dell Computer Corporation, Gateway 2000, Inc., Hyundai, Packard Bell
Electronics, Inc., Toshiba Corporation, and Zenith Data Systems.
Common Stock Prices and Dividends
- -----------------------------------------------------------------------------
TI common stock is listed on the New York Stock Exchange and traded
principally in that market. In addition, TI common stock is listed on the
London and Tokyo stock exchanges and in Switzerland on the Zurich, Geneva and
Basel stock exchanges. The table below shows the high and low prices of TI
common stock on the composite tape as reported by The Wall Street Journal and
the dividends paid per common share for each quarter during the past two
years.
<TABLE>
<CAPTION>
Quarter
--------------------------------------------
1st 2nd 3rd 4th
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock prices:
1994 High .................... $89.50 $85.75 $87.50 $80.63
Low ..................... 61.00 63.25 65.75 63.38
1993 High .................... 63.38 72.38 84.25 76.50
Low ..................... 45.75 51.63 65.88 55.75
Dividends paid:
1994 ......................... $ .18 $ .18 $ .25 $ .25
1993 ......................... .18 .18 .18 .18
</TABLE>
<TABLE>
<CAPTION>
Quarterly Financial Data
- ------------------------------------------------------------------------------
1994 Millions of Dollars, Except Per-Share Amounts
---------------------------------------------
1st 2nd 3rd 4th
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues ...................... $2,449 $2,510 $2,574 $2,782
Gross profit ...................... 662 708 722 752
Profit from operations ............ 209 292 291 291
Income before provision
for income taxes ................. 204 277 281 280
Net income ........................ 134 184 186 188
- ------------------------------------------------------------------------------
Earnings per common and
common equivalent share .......... $ 1.41 $ 1.93 $ 1.94 $ 1.98
===========================================================================
===
</TABLE>
<TABLE>
<CAPTION>
1993 Millions of Dollars, Except Per-Share Amounts
---------------------------------------------
1st 2nd 3rd 4th
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues ...................... $1,884 $2,105 $2,161 $2,374
Gross profit ...................... 477 548 609 615
Profit from operations ............ 140 173 218 198
Income before provision
for income taxes and cumulative
effect of accounting changes ..... 129 169 196 202
Income before cumulative effect
of accounting changes ............ 85 112 146 134
Net income ........................ 81 112 146 134
- ------------------------------------------------------------------------------
Earnings per common and
common equivalent share:
Income before cumulative effect
of accounting changes ........... $ .89 $ 1.18 $ 1.54 $ 1.42
Net income ....................... .85 1.18 1.54 1.42
===========================================================================
===
</TABLE>
Effective January 1, 1993, the company adopted SFAS No. 106, which
required accrual of expected retiree health care benefit costs during the
employees' working careers, and SFAS No. 109, which required increased
recording of deferred income tax assets. This resulted in a 1993 first
quarter 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.
Earnings per common and common equivalent share are based on average
common and common equivalent shares outstanding (95,131,937 shares and
94,154,923 shares for the fourth quarters of 1994 and 1993). In computing
per-share earnings, net income is increased by $1 million for the fourth
quarter of 1993 for interest (net of tax and profit sharing effect) on the
convertible debentures considered dilutive common stock equivalents.
Texas Instruments Incorporated and Subsidiaries
45
EXHIBIT 21
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
LIST OF SUBSIDIARIES OF THE REGISTRANT
The following are current subsidiaries of the Registrant.
Subsidiary and Name Under Which Business is Done Where Organized
Texas Instruments Deutschland G.m.b.H. Germany
Texas Instruments France S.A. France
Texas Instruments Holland B.V. Netherlands
Texas Instruments Hong Kong Limited Hong Kong
Texas Instruments Italia S.p.A. Italy
Texas Instruments Japan Limited Japan
Texas Instruments Limited United Kingdom
Texas Instruments Malaysia Sdn. Bhd. Malaysia
Texas Instruments (Philippines) Incorporated Delaware
Texas Instruments Singapore (Pte) Limited Singapore
Texas Instruments Taiwan Limited Taiwan
TI Information Engineering Limited United Kingdom
Note: The names of other subsidiaries of the Registrant are not listed
herein since the additional subsidiaries considered in the aggregate as
a single subsidiary do not constitute a significant subsidiary as
defined by Rule 1.02(v) of Regulation S-X.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form
10-K of Texas Instruments Incorporated and subsidiaries of our report dated
January 26, 1995, included in the 1994 Annual Report to Stockholders of Texas
Instruments Incorporated.
Our audits also included the financial statement schedule of Texas Instruments
Incorporated listed in Item 14(a). This schedule is the responsibility of the
Registrant's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the following
registration statements, and in the related prospectuses thereto, of our
report dated January 26, 1995 with respect to the consolidated financial
statements and consolidated schedule of Texas Instruments Incorporated,
included in or incorporated by reference in this Annual Report on Form 10-K
for the year ended December 31, 1994: Registration Statement No. 33-61154 on
Form S-8, Registration Statement No. 33-21407 on Form S-8, Registration
Statement No. 33-42172 on Form S-8, Registration Statement No. 33-54615 on
Form S-8, Registration Statement No. 33-18509 on Form S-3, and Registration
Statement No. 33-48840 on Form S-3.
ERNST & YOUNG LLP
Dallas, Texas
March 20, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL
STATEMENTS OF TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES AS OF DECEMBER 31, 1994, AND FOR
THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Dec-31-1994
<CASH> 760
<SECURITIES> 530
<RECEIVABLES> 1,442
<ALLOWANCES> 37
<INVENTORY> 882
<CURRENT-ASSETS> 4,017
<PP&E> 4,895
<DEPRECIATION> 2,327
<TOTAL-ASSETS> 6,989
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<BONDS> 808
<COMMON> 93
0
0
<OTHER-SE> 2,946
<TOTAL-LIABILITY-AND-EQUITY> 6,989
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</TABLE>
