What drove Texas Instruments' improved profitability in 1993?

Most of the improvement came from the semiconductor business in the Components segment, where operating results improved on higher shipments of new products, better margins, and cycle-time reductions. Higher royalty income from patent licenses with PC makers and semiconductor manufacturers also contributed substantially, rising to $521 million from $391 million.

What are the main risks to TI's outlook for 1994?

Key risks include continued decline in defense electronics as Desert Storm replenishment orders do not recur, weakness in the Japanese and German economies, cyclical swings in semiconductor demand, and the ongoing Kilby patent litigation with Fujitsu in Japan, whose timing and outcome are uncertain. The company also faces government procurement investigations affecting defense contractors and environmental cleanup obligations, though management did not expect these to be materially adverse.

How is TI investing for future growth?

TI plans capital expenditures of about $1 billion in 1994, up from $730 million, mainly for submicron CMOS capacity and a new wafer-fabrication facility in Dallas intended to shorten the time to move new chips into volume production. R&D spending is expected to rise to about $700 million from $590 million, with most of the increase going to new semiconductor technologies.

Does TI's balance sheet pose any near-term concerns for investors?

Leverage improved, with the debt-to-total-capital ratio falling to 0.28 and a stated goal of about 0.25. Cash plus short-term investments reached $888 million. However, the $200 million 2.75% convertible subordinated debentures due 2002 could be redeemed at holders' option starting September 1994, and management said it was evaluating financing alternatives in anticipation of that possibility.

What was the impact of the 1993 accounting changes on reported results?

TI adopted SFAS No. 106 (retiree health care accrual), which produced a $294 million charge, and SFAS No. 109 (deferred taxes), which produced a $290 million credit. Their net effect was a $4 million charge ($0.04 per share). Excluding these items, 1993 income before the cumulative effect was $476 million, which is the comparable base for underlying performance.

TXN 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 21, 1994. Cited figures are marked; the original filing is the authoritative source.

Texas Instruments' 1993 10-K shows a company in strong recovery.

Net revenues rose 15% to $8,523 million^a from $7,440 million, and profit from operations jumped 73% to $728 million. Net income reached $472 million, or $5.03 per share, versus $247 million ($2.50) in 1992. Growth was driven almost entirely by the Components segment (semiconductors), where segment profit doubled to $689 million, and by royalty revenue, which climbed 33% to $521 million.

Profit after tax return on assets improved to 8.1% from 4.1%, approaching management's sustainable 8-10% target. Results were helped by a one-time $290 million^b tax credit and a $294 million charge for retiree health care accounting changes, which nearly offset each other in the cumulative effect line (net $4 million charge). Management signaled continued momentum for 1994, forecasting roughly 15% growth in world semiconductor demand and raising capital expenditures to about $1 billion (from $730 million) to expand submicron CMOS capacity and a new Dallas wafer fab.

R&D spending is expected to rise to about $700 million^c. Offsetting this, defense electronics is expected to keep declining as post-Desert Storm orders fade, and the digital products segment, particularly software productivity tools, underperformed expectations.

Investors should note several risks disclosed in the filing: ongoing patent litigation with Fujitsu over the Kilby integrated circuit patent in Japan, a $200 million^d convertible debenture that may be redeemed in late 1994, government procurement investigations affecting defense contractors, and a backlog of $3.8 billion of which about 25% (defense) will not be filled within the year. Overall leverage improved, with the debt-to-total-capital ratio falling to 0.28 from 0.33 and a target of about 0.25.

02—Key points

Key Highlights

Net revenues of $8.52 billion, up 15% from $7.44 billion in 1992, with virtually all growth from semiconductors.
Net income of $472 million ($5.03 per share), roughly doubling EPS from $2.50 in 1992, though including a $4 million net cumulative accounting charge.
Components segment profit doubled to $689 million, while royalty revenue rose 33% to $521 million from patent licensing.
Profit after tax return on assets improved to 8.1% from 4.1%, moving toward the 8-10% sustainable target.
1994 outlook: capital spending expected to rise to about $1 billion and R&D to about $700 million, with the market forecast to grow about 15%.
Defense electronics revenue fell 7% in 1993 and is expected to keep declining; the digital products software business missed expectations.
Balance sheet strengthened: debt-to-total-capital ratio fell to 0.28 and $200 million of convertible debentures may be redeemed by holders starting September 1994.

03—Questions

Frequently Asked Questions

What drove Texas Instruments' improved profitability in 1993?
Most of the improvement came from the semiconductor business in the Components segment, where operating results improved on higher shipments of new products, better margins, and cycle-time reductions. Higher royalty income from patent licenses with PC makers and semiconductor manufacturers also contributed substantially, rising to $521 million from $391 million.
What are the main risks to TI's outlook for 1994?
Key risks include continued decline in defense electronics as Desert Storm replenishment orders do not recur, weakness in the Japanese and German economies, cyclical swings in semiconductor demand, and the ongoing Kilby patent litigation with Fujitsu in Japan, whose timing and outcome are uncertain. The company also faces government procurement investigations affecting defense contractors and environmental cleanup obligations, though management did not expect these to be materially adverse.
How is TI investing for future growth?
TI plans capital expenditures of about $1 billion in 1994, up from $730 million, mainly for submicron CMOS capacity and a new wafer-fabrication facility in Dallas intended to shorten the time to move new chips into volume production. R&D spending is expected to rise to about $700 million from $590 million, with most of the increase going to new semiconductor technologies.
Does TI's balance sheet pose any near-term concerns for investors?
Leverage improved, with the debt-to-total-capital ratio falling to 0.28 and a stated goal of about 0.25. Cash plus short-term investments reached $888 million. However, the $200 million 2.75% convertible subordinated debentures due 2002 could be redeemed at holders' option starting September 1994, and management said it was evaluating financing alternatives in anticipation of that possibility.
What was the impact of the 1993 accounting changes on reported results?
TI adopted SFAS No. 106 (retiree health care accrual), which produced a $294 million charge, and SFAS No. 109 (deferred taxes), which produced a $290 million credit. Their net effect was a $4 million charge ($0.04 per share). Excluding these items, 1993 income before the cumulative effect was $476 million, which is the comparable base for underlying performance.

04—Continue

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