TXN Arp

Bianca Lofton
Will Phillips
Texas Instruments
PO2

Introduction
The Chief Executive Officer of Texas Instruments is Richard K. Templeton. Texas
Instruments Corporate Headquarters is in Dallas, Texas. The ending date of the last fiscal year
was December 31
st
, 2011. Texas Instruments is one of the largest semiconductor companies in
the world. It is a highly innovative company providing many technologies such as analog chips,
embedded processing, wireless, DLP!, and education technologies (calculators). Texas
Instruments is a worldwide company with operations in over 20 countries. Its largest markets are
in the United States, Europe, and Asia. The independent accountants of Texas Instruments are
Ernst & Young LLP. The auditors found that Texas Instruments financial reports present the
financial position of Texas Instruments fairly and in accordance with the Generally Accepted
Accounting Principles (GAAP). Ernst & Young expressed an unqualified opinion thereon. The
financial statements are the responsibility of Texas Instruments management. The responsibility
of the independent accountants is to audit and express an opinion based on the financial
statements. The closing market price of Texas Instruments stock is 27.17. The dividend per share
of 2011 is $0.55 per share. Texas Instruments is traded on NASDAQ, with the ticker symbol
TXN. Texas Instruments Internet address is www.texasinstruments.com or www.ti.com.
Industry Situation and Company Plans
Texas Instruments is a leader in the Semiconductor market. Semiconductors are defined
as, materials which have conductivity between conductors (usually metals) and nonconductors
(ceramics) these materials can be pure elements such as Silicon or Germanium
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.
Semiconductors are very important in our day-to-day lives. Without them, there would be no
Television, Video Games, Computers and diagnostic equipment in hospitals would be terrible.

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"What Aie Semiconuuctois." !"#$ &'( )(*+,-./0,$-'12 0niveisity of Illinois NAST, n.u. Web. 18 Nov. 2u12.
Through the past 50 years the technology has become such that phones are becoming
smaller, faster and more dependable
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. With time, Advances in the field can improve the quality
of life and will have limitless expansionary growth
3
. Along with the ability of limitless
expansionary growth is the ability to produce new and innovative technology, which sends the
industry into an indefinite time of growth.
Texas Instruments main risk factors and external factors that are in and also effect the
semiconductor industry are as follows; a weak economy, delayed delivery of product and
inability to keep up with technology
4
. In a weak economy consumers are not as willing to
purchase goods that require semiconductors so demand for semiconductors will subsequently
follow
5
. If delivery of the product is delayed customers may become discouraged and decide to
buy from another company. Buying from another company will negatively impact profit, revenue
and competitive position
6
. Lastly, Inability to keep up with technology creates an inferior
product that will lack the size, speed and dependability that is demanded
7
. Richard K. Templeton
stated in the letter to the shareholders that even though it has a 90,000 customer base, no single
customer puts at risk more than five percent of its revenue which gives more security to Texas
Instruments when selling on credit
8
. He also states that with the acquisition of National
Semiconductor the year 2011 became important for the company. When Texas Instruments
acquired National Semiconductor it had to pay acquisition related charges of $426 million for the
Property, Plant and Equipment (PP&E); also stated that the PP&E is depreciating by $15 million

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"2011 ANNUAL REPORT." 2011 ANNUAL REPORT. Texas Instruments, 24 Feb. 2012. Web. 10 Nov. 2012.
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"The Industry Handbook: The Semiconductor Industry." Investopedia. N.p., n.d. Web. 11 Nov. 2012.
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per quarter beginning with the fourth quarter of 2011
9
. With the new company, Texas
Instruments had instant access to a portfolio with 12,000 new analog products and a group of
highly skilled analog engineers
10
.
Looking to the future, Texas Instruments is going to be exiting the wireless department
over the next few years. By doing so it has will increase investments in China, believed to be
crucial to success. Some other future goals for Texas Instruments are to capitalize on opportunity
to create the best results, and do better than the previous year
11
.
Texas Instruments is a frontrunner in the Semiconductor market. With competition from
QUALCOMM and STMicroelectronics, Texas Instruments is preceded only by QUALCOMM
with a market capitalization of $105.53 billion whereas Texas instruments market capitalization
is less than a third of the aforementioned valued at $31.74 billion. With the staggering difference
in the market cap, Texas Instruments still remains in the middle of the two competitors
12
.
Financial Statements
Income statement

The Income Statement format is most similar to a multi-step format. This format is more
useful for investors because it presents more in depth step-by-step information and calculations
of the businesss profitability than the single step income format. On the top of the following
page is Table A, showing Texas Instruments Gross Profit, Income from Operations, and Net
Income for years 2007, 2008, 2009, 2010 and 2011; as well as the percent change calculated
using year 2007 as the base year and the formula: (Year X Base Year)/ (Base Year).

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"Texas Instruments Competitors." Yahoo! Finance. N.p., n.d. Web. 13 Nov. 2012.
Table A: Texas Instruments Gross Profit, Income from Operations, and Net
Income from 2007-2011 in millions.

Based on the information in Table A, from 2007 to 2009 there has been an overall
decrease in Gross Profit, Income from Operations and Net Income. However in 2010, there was
an increase in Gross Profit of 1.67%, Income from Operations of 29.08% and Net Income of
21.49%. In 2011 there was again an overall decrease in Gross Profit by 8.1%, Income from
Operations by 1.44%, and Net Income by 15.84%. This decrease was caused by the acquisition
of National Semiconductor (5425 million), as well as the tsunami that hit Japan severely
damaged the factory that was responsible for about 10% of its revenues
13
. Taking into account
the growth in 2010 and the negative affect the earthquake had on the Operating Profit in 2011 as
well as the large business acquisition, the company should continue to grow.
Balance Sheet
Assets = Liabilities + Stockholders Equity

1S
Nanto, Dick K. "Japan's 2011 Earthquake & Tsunami: Economic Effects." Federation of American Scientists. Congressional
Research Service, 6 Apr. 2011. Web. 15 Nov.2012.

(in millions)
2007 2008 2009 2010 2011
Gross Profit 7369 6245 4999 7492 6772
Percent Change 100% -15.25% -32.16% 1.67% -8.1%
Income from
Operations
3497 2437 1991 4514 2992
Percent Change 100% -30.3% -43.06% 29.08% -1.44%
Net Income 2657 1920 1470 3228 2236
Percent Change 100% -27.74% -44.67% 21.49% -15.84%
(in millions) Assets Liabilities Stockholders Equity
Year 2011 20497 9545 10952
Year 2010 13401 2964 10437
Statement of Cash Flows
Texas Instruments cash flows from operations are more than its net income for the past
two years. This is important because Texas Instruments generates revenue through its business
operations. Texas Instruments main investing activity is in business acquisitions, as well as the
purchases and sales of short-term investments. Texas Instruments most important source of
financing is the proceeds from issuance of long-term debt and commercial paper borrowings.
From 2009 to 2010 overall cash has increased by 11.6%. While from 2010 to 2011 cash has
decreased by 24.8% however this was caused by the large business acquisition netting $5425
million.
Accounting Policies
Texas Instruments significant accounting policies for Revenue Recognition, Inventory
and Property, Plant and Equipment are listed as footnotes after the Financial Statements. Firstly,
Revenue is recognized when a sale is made directly to the customer with FOB destination and
discounts to some distributors for punctual payment. It calculates allowances based on historical
data, current economic conditions and contractual terms
14
. Second, inventory is recorded at
Lower-of-Cost (LCM) or Net Realizable Value (NRV) and it uses First in First out (FIFO)
method to calculate cost of goods sold; It writes off inventory in the period in which disposal
occurs
15
. Lastly, Property, Plant and Equipment are recorded at cost and depreciate over the
estimated useful life by Straight-Line Method; when fully depreciated, assets are written off
against accumulated depreciation; Leasehold improvements, Acquisition related intangibles and
Capitalized software licenses are amortized on a Straight- Line Basis; when fully amortized

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assets are written off against amortization
16
. After a look at the financial statements there is
nothing that should change an opinion about the financial statements because it has all been
approved by GAAP.
Recommendation
Before deciding whether or not Texas Instruments is a good company to invest in, one
must compare some of the different financial ratios to the industry in order to come to a good
conclusion. The ratios that are going to be compared are the current ratio, gross profit percentage,
interest coverage ratio, accounts receivable turnover ratio, and the price per earnings ratio.
During 2011 the current ratio for Texas Instruments was 2.24. The same ratio for the
industry was 3.13
17
, which indicates that Texas Instruments performed worse. This is important
because the current ratio indicates the companys ability to meet its current obligations
18
. While
Texas instruments has a current ratio that is lower than the industry average it is not in a bad
position, having a current ratio over 1 indicates that the company is able to pay off its
obligations
19
.
During 2011, the gross profit percentage for Texas Instruments was 49.3%. The same
ratio for the industry was 27.99%
20
, which indicates that Texas Instruments performed better.
This is important because the gross profit percentage indicates the amount of total sales revenue
that a company retains as gross profit
21
. The higher the percentage the more the company retains

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"Financials: Texas Instruments Inc." Reuters. N.p., Nov. 2012. Web. 18 Nov. 2012.
18
Waybright, Jeffrey, and Robert S. Kemp. "12: Financial Statement Analysis." Financial Accounting. Second ed. Upper Saddle
River, NJ: Prentice Hall, 2010. 651-76. Print.
19
"Dictionary." Investopedia: Educating the World about Finance. N.p., n.d. Web. 18 Nov. 2012.
2u
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"Dictionary." Investopedia: Educating the World about Finance. N.p., n.d. Web. 18 Nov. 2012.
on each dollar
22
. Based on the information Texas Instruments has a strong gross profit
percentage.
During 2011, the interest coverage ratio for Texas Instruments was 71.24. The same ratio
for the industry was 36.67
23
, which indicates that Texas Instruments performed better. This is
important because the interest coverage ratio measures how many times operating income can
cover interest expense
24
. Texas Instruments has a high interest coverage ratio which indicates
that it has an abundance of operating income to cover its interest expense.
During 2011, the accounts receivable turnover ratio for Texas Instruments was 8.97. The
same ratio for the industry was 5.92
25
, which indicates that Texas Instruments performed better.
This is important because the accounts receivable turnover ratio indicates the companys ability
to collect cash from its credit customers
26
. If a company had a low accounts receivable turnover
ratio it would indicate that it was not able to collect its cash from credit customers and it should
most likely stop lending credit to its customers.
During 2011, the price per earnings ratio for Texas Instruments was 14.01. The same
ratio for the industry was 12.5
27
, which indicates that Texas Instruments performed better. This is
important because the price per earnings ratio indicates the value that the stock market places on

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"Semiconductor - Broad Line Overview: Industry Center - Yahoo! Finance." Yahoo! Finance. N.p., n.d. Web. 18 Nov. 2012.
one dollar of a companys earnings
28
. A high price per earnings ratio indicates that the business
is doing well, and is expecting more growth in the future
29
.
After comparing Texas Instruments ratios to the industry, Texas Instruments seems to be
a strong company with a steady future. According to the analysts at Reuters.com, 14 say to
buy/outperform, while 26 say to hold, and none say to sell
30
. Based on the research Texas
Instruments would make for a good investment.

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"Analyst: Texas Instruments Inc." Reuters. N.p., n.d. Web. 18 Nov. 2012.
Work Cited
"Analyst: Texas Instruments Inc." Reuters. N.p., n.d. Web. 18 Nov. 2012.
<http://www.reuters.com/finance/stocks/analyst?symbol=TXN.O>.
"Dictionary." Investopedia: Educating the World about Finance. N.p., n.d. Web. 18 Nov.
2012. <http://www.investopedia.com/>.
<http://www.reuters.com/finance/stocks/financialHighlights?symbol=TXN.O>.
Nanto, Dick K. "Japan's 2011 Earthquake & Tsunami: Economic Effects." Federation of
American Scientists. Congressional Research Service, 6 Apr. 2011. Web. 15 Nov.
2012.<http://www.fas.org/sgp/crs/row/R41702.pdf>.
"Semiconductor - Broad Line Overview: Industry Center - Yahoo! Finance." Yahoo!
Finance. N.p., n.d. Web. 18 Nov. 2012. <http://biz.yahoo.com/ic/830.html>.
"Texas Instruments Competitors." Yahoo! Finance. N.p., n.d. Web. 13 Nov. 2012.
<http://finance.yahoo.com/q/co?s=TXN+Competitors>.
"The Industry Handbook: The Semiconductor Industry." Investopedia. N.p., n.d. Web. 11
Nov. 2012. <http://www.investopedia.com/features/industryhandbook/
semiconductor.asp>.
Waybright, Jeffrey, and Robert S. Kemp. "12: Financial Statement Analysis." Financial
Accounting. Second ed. Upper Saddle River, NJ: Prentice Hall, 2010. Print.
"What Are Semiconductors?" What Are Semiconductors? University of Illinois MAST,
n.d. Web. 18 Nov. 2012. <http://matse1.matse.illinois.edu/sc/ware.html>.
"2011 ANNUAL REPORT." 2011 ANNUAL REPORT. Texas Instruments, 24 Feb. 2012.
Web. 10 Nov. 2012. <http://www.ti.com/corp/docs/investor/ar11/index.html>

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