UNITED STATES
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 June 30, 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 ¨
1,731,077,633
Number of shares of Registrant’s common stock outstanding as of June 30, 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 |
For Six Months Ended | |||||||||||
| June 30, 2004 |
June 30, 2003 |
June 30, 2004 |
June 30, 2003 | |||||||||
| Operations |
||||||||||||
| Net revenue |
$ | 3,241 | $ | 2,339 | $ | 6,177 | $ | 4,531 | ||||
| Operating costs and expenses: |
||||||||||||
| Cost of revenue |
1,760 | 1,462 | 3,374 | 2,793 | ||||||||
| Research and development |
514 | 424 | 1,007 | 832 | ||||||||
| Selling, general and administrative |
375 | 328 | 730 | 629 | ||||||||
| Total |
2,649 | 2,214 | 5,111 | 4,254 | ||||||||
| Profit from operations |
592 | 125 | 1,066 | 277 | ||||||||
| Other income (expense) net |
38 | 36 | 87 | 51 | ||||||||
| Interest on loans |
8 | 10 | 15 | 23 | ||||||||
| Income before income taxes |
622 | 151 | 1,138 | 305 | ||||||||
| Provision for income taxes |
181 | 30 | 330 | 67 | ||||||||
| Net income |
$ | 441 | $ | 121 | $ | 808 | $ | 238 | ||||
| Diluted earnings per common share |
$ | .25 | $ | .07 | $ | .45 | $ | .14 | ||||
| Basic earnings per common share |
$ | .25 | $ | .07 | $ | .47 | $ | .14 | ||||
| Cash dividends declared per share of common stock |
$ | .021 | $ | .021 | $ | .043 | $ | .043 | ||||
See accompanying notes.
2
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except share amounts)
| June 30, 2004 |
Dec. 31, 2003 |
|||||||
| Balance Sheet |
||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,623 | $ | 1,818 | ||||
| Short-term investments |
2,311 | 2,511 | ||||||
| Accounts receivable, net of allowances for customer adjustments and doubtful accounts of $42 million in 2004 and $47 million in 2003 |
1,930 | 1,451 | ||||||
| Inventories: |
||||||||
| Raw materials |
135 | 106 | ||||||
| Work in process |
799 | 624 | ||||||
| Finished goods |
351 | 254 | ||||||
| Inventories |
1,285 | 984 | ||||||
| Deferred income taxes |
467 | 449 | ||||||
| Prepaid expenses and other current assets |
491 | 496 | ||||||
| Total current assets |
8,107 | 7,709 | ||||||
| Property, plant and equipment at cost |
9,831 | 9,549 | ||||||
| Less accumulated depreciation |
(5,654 | ) | (5,417 | ) | ||||
| Property, plant and equipment (net) |
4,177 | 4,132 | ||||||
| Long-term cash investments |
1,600 | 1,335 | ||||||
| Equity investments |
254 | 265 | ||||||
| Goodwill |
693 | 693 | ||||||
| Acquisition-related intangibles |
138 | 169 | ||||||
| Deferred income taxes |
496 | 626 | ||||||
| Other assets |
585 | 581 | ||||||
| Total assets |
$ | 16,050 | $ | 15,510 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Loans payable and current portion long-term debt |
$ | 415 | $ | 437 | ||||
| Accounts payable and accrued expenses |
1,601 | 1,496 | ||||||
| Income taxes payable |
35 | 250 | ||||||
| Accrued retirement and profit sharing contributions |
183 | 17 | ||||||
| Total current liabilities |
2,234 | 2,200 | ||||||
| Long-term debt |
375 | 395 | ||||||
| Accrued retirement costs |
611 | 628 | ||||||
| Deferred income taxes |
59 | 59 | ||||||
| Deferred credits and other liabilities |
333 | 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 – 1,738,123,534; 2003 – 1,737,739,654 |
1,738 | 1,738 | ||||||
| Paid-in capital |
812 | 901 | ||||||
| Retained earnings |
10,269 | 9,535 | ||||||
| Less treasury common stock at cost: |
||||||||
| Shares: 2004 – 7,045,901; 2003 – 5,401,665 |
(193 | ) | (135 | ) | ||||
| Accumulated other comprehensive income (loss) |
(178 | ) | (159 | ) | ||||
| Unearned compensation |
(10 | ) | (16 | ) | ||||
| Total stockholders’ equity |
12,438 | 11,864 | ||||||
| Total liabilities and stockholders’ equity |
$ | 16,050 | $ | 15,510 | ||||
See accompanying notes.
3
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars)
| For Six Months Ended |
||||||||
| June 30, 2004 |
June 30, 2003 |
|||||||
| Cash Flows |
||||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 808 | $ | 238 | ||||
| Depreciation |
711 | 702 | ||||||
| Amortization of acquisition-related costs |
38 | 53 | ||||||
| Write-downs of equity investments |
6 | 23 | ||||||
| Gains on sale of equity investments |
(11 | ) | (6 | ) | ||||
| Deferred income taxes |
68 | (20 | ) | |||||
| (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 |
(481 | ) | (210 | ) | ||||
| Inventories |
(301 | ) | (210 | ) | ||||
| Prepaid expenses and other current assets |
(41 | ) | (20 | ) | ||||
| Accounts payable and accrued expenses |
98 | 77 | ||||||
| Income taxes payable |
(92 | ) | (26 | ) | ||||
| Accrued retirement and profit sharing contributions |
165 | (5 | ) | |||||
| Increase (decrease) in noncurrent accrued retirement costs |
(69 | ) | 3 | |||||
| Other |
— | (25 | ) | |||||
| Net cash provided by operating activities |
899 | 574 | ||||||
| Cash flows from investing activities: |
||||||||
| Additions to property, plant and equipment |
(757 | ) | (294 | ) | ||||
| Purchases of short-term investments |
(1,185 | ) | (685 | ) | ||||
| Sales and maturities of short-term investments |
1,937 | 1,804 | ||||||
| Purchases of long-term cash investments |
(926 | ) | (1,443 | ) | ||||
| Sales of long-term cash investments |
95 | 354 | ||||||
| Purchases of equity investments |
(14 | ) | (11 | ) | ||||
| Sales of equity investments |
30 | 14 | ||||||
| Net cash used in investing activities |
(820 | ) | (261 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Payments on loans payable |
(1 | ) | (5 | ) | ||||
| Payments on long-term debt |
(28 | ) | (385 | ) | ||||
| Dividends paid on common stock |
(74 | ) | (74 | ) | ||||
| Sales and other common stock transactions |
111 | 63 | ||||||
| Common stock repurchase program |
(285 | ) | (109 | ) | ||||
| Decrease in restricted cash |
— | 261 | ||||||
| Net cash used in financing activities |
(277 | ) | (249 | ) | ||||
| Effect of exchange rate changes on cash |
3 | 6 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(195 | ) | 70 | |||||
| Cash and cash equivalents, January 1 |
1,818 | 949 | ||||||
| Cash and cash equivalents, June 30 |
$ | 1,623 | $ | 1,019 | ||||
See accompanying notes.
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 (1771.6 and 1762.6 million shares for the second quarters of 2004 and 2003 and 1777.8 and 1758.0 for the six months ended June 30, 2004 and 2003). |
| 2. | 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. |
| 3. | Total comprehensive income, i.e., net income plus investment and pension liability adjustments to stockholders’ equity, for the second quarters of 2004 and 2003, in millions of dollars, was $427 and $242. For the six months ended June 30, 2004 and 2003, it was $789 and $293. |
| 4. | 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 |
For Six Months Ended |
|||||||||||||||
| June 30, 2004 |
June 30, 2003 |
June 30, 2004 |
June 30, 2003 |
|||||||||||||
| Net income, as reported |
$ | 441 | $ | 121 | $ | 808 | $ | 238 | ||||||||
| Add: Stock-based employee compensation expense included in reported net income, net of tax |
3 | 3 | 6 | 5 | ||||||||||||
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax |
(89 | ) | (108 | ) | (192 | ) | (215 | ) | ||||||||
| Adjusted net income |
$ | 355 | $ | 16 | $ | 622 | $ | 28 | ||||||||