Annual Report (Form 10-K), fiscal year 1994

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.
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.
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.
ITEM 2.



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.
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.
ITEM 3.

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.
ITEM 4.

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.
PART II
ITEM 5.

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.

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.

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.
ITEM 8.


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.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
PART III
ITEM 10.



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.

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.

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.

ITEM 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
ITEM 14.

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
(b) Reports on Form 8-K
None.
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
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
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
AND FINANCIAL STATEMENT SCHEDULE (Item 14(a))
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.
SCHEDULE II ------------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES ALLOWANCE FOR LOSSES (In Millions of Dollars) Years Ended December 31, 1994, 1993, and 1992
EXHIBIT INDEX