SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| For Quarter Ended March 31, 2004 | Commission File Number 001-03761 |
TEXAS INSTRUMENTS INCORPORATED
(Exact name of Registrant as specified in its charter)
| Delaware | 75-0289970 | |
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |
| 12500 TI Boulevard, P.O. Box 660199, Dallas, Texas | 75266-0199 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code 972-995-3773
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
1,731,102,705
Number of shares of Registrant’s common stock outstanding as of March 31, 2004
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts)
| For Three Months Ended | ||||||
| Operations |
Mar. 31, 2004 |
Mar. 31, 2003 | ||||
| Net revenue |
$ | 2,936 | $ | 2,192 | ||
| Operating costs and expenses: |
||||||
| Cost of revenue |
1,614 | 1,330 | ||||
| Research and development |
494 | 408 | ||||
| Selling, general and administrative |
354 | 301 | ||||
| Total |
2,462 | 2,039 | ||||
| Profit from operations |
474 | 153 | ||||
| Other income (expense) net |
50 | 14 | ||||
| Interest on loans |
8 | 13 | ||||
| Income before income taxes |
516 | 154 | ||||
| Provision for income taxes |
149 | 37 | ||||
| Net income |
$ | 367 | $ | 117 | ||
| Diluted earnings per common share |
$ | .21 | $ | .07 | ||
| Basic earnings per common share |
$ | .21 | $ | .07 | ||
| Cash dividends declared per share of common stock |
$ | .021 | $ | .021 | ||
2
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except share amounts)
| Balance Sheet |
Mar. 31, 2004 |
Dec. 31, 2003 |
||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,615 | $ | 1,818 | ||||
| Short-term investments |
2,522 | 2,511 | ||||||
| Accounts receivable, net of allowances for customer adjustments and doubtful accounts of $44 million in 2004 and $47 million in 2003 |
1,678 | 1,451 | ||||||
| Inventories: |
||||||||
| Raw materials |
126 | 106 | ||||||
| Work in process |
692 | 624 | ||||||
| Finished goods |
330 | 254 | ||||||
| Inventories |
1,148 | 984 | ||||||
| Deferred income taxes |
490 | 449 | ||||||
| Prepaid expenses and other current assets |
545 | 496 | ||||||
| Total current assets |
7,998 | 7,709 | ||||||
| Property, plant and equipment at cost |
9,738 | 9,549 | ||||||
| Less accumulated depreciation |
(5,550 | ) | (5,417 | ) | ||||
| Property, plant and equipment (net) |
4,188 | 4,132 | ||||||
| Long-term cash investments |
1,356 | 1,335 | ||||||
| Equity investments |
260 | 265 | ||||||
| Goodwill |
693 | 693 | ||||||
| Acquisition-related intangibles |
154 | 169 | ||||||
| Deferred income taxes |
524 | 626 | ||||||
| Other assets |
612 | 581 | ||||||
| Total assets |
$ | 15,785 | $ | 15,510 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Loans payable and current portion long-term debt |
$ | 435 | $ | 437 | ||||
| Accounts payable and accrued expenses |
1,553 | 1,496 | ||||||
| Income taxes payable |
210 | 250 | ||||||
| Accrued retirement and profit sharing contributions |
82 | 17 | ||||||
| Total current liabilities |
2,280 | 2,200 | ||||||
| Long-term debt |
394 | 395 | ||||||
| Accrued retirement costs |
620 | 628 | ||||||
| Deferred income taxes |
57 | 59 | ||||||
| Deferred credits and other liabilities |
349 | 364 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $25 par value. Authorized – 10,000,000 shares. |
||||||||
| Participating cumulative preferred. None issued. |
— | — | ||||||
| Common stock, $1 par value. Authorized – 2,400,000,000 shares. |
||||||||
| Shares issued: 2004 – 1,738,115,567; 2003 – 1,737,739,654 |
1,738 | 1,738 | ||||||
| Paid-in capital |
859 | 901 | ||||||
| Retained earnings |
9,865 | 9,535 | ||||||
| Less treasury common stock at cost: |
||||||||
| Shares: 2004 – 7,012,862; 2003 – 5,401,665 |
(200 | ) | (135 | ) | ||||
| Accumulated other comprehensive income (loss) |
(164 | ) | (159 | ) | ||||
| Deferred compensation |
(13 | ) | (16 | ) | ||||
| Total stockholders’ equity |
12,085 | 11,864 | ||||||
| Total liabilities and stockholders’ equity |
$ | 15,785 | $ | 15,510 | ||||
3
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars)
| For Three Months Ended |
||||||||
| Cash Flows |
Mar. 31, 2004 |
Mar. 31, 2003 |
||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 367 | $ | 117 | ||||
| Depreciation |
348 | 346 | ||||||
| Amortization of acquisition-related costs |
19 | 28 | ||||||
| Write–downs of equity investments |
5 | 12 | ||||||
| Gains on sale of equity investments |
(7 | ) | — | |||||
| Deferred income taxes |
(17 | ) | (13 | ) | ||||
| (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 |
(227 | ) | (160 | ) | ||||
| Inventories |
(164 | ) | (92 | ) | ||||
| Prepaid expenses and other current assets |
(97 | ) | (70 | ) | ||||
| Accounts payable and accrued expenses |
58 | (35 | ) | |||||
| Income taxes payable |
105 | 38 | ||||||
| Accrued retirement and profit sharing contributions |
65 | (9 | ) | |||||
| Increase (decrease) in noncurrent accrued retirement costs |
(64 | ) | 4 | |||||
| Other |
2 | 30 | ||||||
| Net cash provided by operating activities |
393 | 196 | ||||||
| Cash flows from investing activities: |
||||||||
| Additions to property, plant and equipment |
(401 | ) | (132 | ) | ||||
| Purchases of short-term investments |
(496 | ) | (493 | ) | ||||
| Sales and maturities of short-term investments |
910 | 1,131 | ||||||
| Purchases of long-term cash investments |
(493 | ) | (560 | ) | ||||
| Sales of long-term cash investments |
44 | 67 | ||||||
| Purchases of equity investments |
(2 | ) | (10 | ) | ||||
| Sales of equity investments |
11 | — | ||||||
| Net cash provided by (used in) investing activities |
(427 | ) | 3 | |||||
| Cash flows from financing activities: |
||||||||
| Payments on loans payable |
(1 | ) | (5 | ) | ||||
| Payments on long-term debt |
— | (256 | ) | |||||
| Dividends paid on common stock |
(37 | ) | (37 | ) | ||||
| Sales and other common stock transactions |
42 | 16 | ||||||
| Common stock repurchase program |
(172 | ) | (48 | ) | ||||
| Decrease in current assets for restricted cash |
— | 261 | ||||||
| Net cash used in financing activities |
(168 | ) | (69 | ) | ||||
| Effect of exchange rate changes on cash |
(1 | ) | 10 | |||||
| Net increase (decrease) in cash and cash equivalents |
(203 | ) | 140 | |||||
| Cash and cash equivalents, January 1 |
1,818 | 949 | ||||||
| Cash and cash equivalents, March 31 |
$ | 1,615 | $ | 1,089 | ||||
4
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
| 1. | Diluted earnings per common share are based on average common and dilutive potential common shares outstanding (1783.6 and 1753.4 million shares for the first quarters of 2004 and 2003). |
| 2. | Income for the first quarter of 2004 includes, in millions of dollars, a charge of $5 for restructuring actions initiated in the second quarter of 2003, of which $2 is associated with achieving manufacturing efficiencies in the Semiconductor business and $3 is associated with moving certain production lines in the Sensors & Controls business from Attleboro to other TI sites. The $5 restructuring charge is primarily for severance and benefit costs. Of the $5, $4 is included in cost of revenue and $1 is in selling, general and administrative expense. |
| 3. | Income for the first quarter of 2003 includes, in millions of dollars, a charge of $10 in other income (expense) net from the redemption of $250 million principal amount of 4.25% convertible subordinated notes due 2007 that were originally issued by Burr-Brown Corporation, which was acquired by the company in August 2000. |
| 4. | Total comprehensive income, i.e., net income plus investment and pension liability adjustments to stockholders’ equity, for the first quarters of 2004 and 2003, in millions of dollars, was $362 and $51. |
| 5. | Year-to-date acquisition-related purchased in-process research and development (R&D) charges were zero for both 2004 and 2003. These charges are for R&D from business purchase acquisitions. Values for acquired in-process R&D (purchased R&D) were determined at the acquisition date based upon the appraised value of the related developmental projects. Purchased R&D projects were assessed, analyzed and valued within the context and framework articulated by the Securities and Exchange Commission herein described as the Exclusion Approach. |
Major assumptions, detailed in the following table, used in determining the value of significant purchased R&D included the discount rate, the estimated beginning date of projected operating cash flows, and the remaining cost and time, in engineer-months, to complete the R&D projects. The term “engineer-month” refers to the average amount of research work expected to be performed by an engineer in a month.
5
Millions of Dollars
| Entity Acquired |
Acquisition Date |
Consideration |
Goodwill |
Other Intangibles |
Unearned Compensation |
Purchased In-process R&D Charge |
R&D Focus |
Discount Rate |
Cost/Time to Complete R&D Projects |
Year Cash Flows Projected to Begin | ||||||||||||||||||
| At Acquisition |
At Mar. 2004 |
|||||||||||||||||||||||||||
| Radia Communications, Inc. |
Third quarter 2003 |
$ | 133 | $ | 64 | $ | 40 | $ | 9 | $ | 23 | Development of radio frequency wireless local area networking multi-band/ multi-mode radios |
24 | % | $9/485 engineer months |
$3/145 engineer months |
2004 | |||||||||||
6
| 6. | The company accounts for its stock-based employee compensation plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock option compensation cost is reflected in net income, as all options (except options granted under the company’s employee stock purchase plans and acquisition-related stock option awards) granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per common share if the company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation (in millions of dollars, except per-share amounts). |
| For Three Months Ended |
||||||||
| Mar. 31, 2004 |
Mar. 31, 2003 |
|||||||
| Net income, as reported |
$ | 367 | $ | 117 | ||||
| Add: Stock-based employee compensation expense included in reported net income, net of tax |
3 | 2 | ||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax |
(104 | ) | (107 | ) | ||||
| Adjusted net income |
$ | 266 | $ | 12 | ||||
| Earnings per common share: |
||||||||
| Diluted – as reported |
$ | .21 | $ | .07 | ||||
| Diluted – as adjusted |
$ | .15 | $ | .01 | ||||
| Basic – as reported |
$ | .21 | $ | .07 | ||||
| Basic – as adjusted |
$ | .15 | $ | .01 | ||||