Texas Instruments 2005 Annual Report Download - page 56

For the year, inventory increased by $17 million compared with the end of 2004, primarily in work-in-process, with fourth-
quarter finished goods below desired levels. Days of inventory at the end of the fourth quarter were 62, the same as at
the end of 2004.
Depreciation in 2005 was $1.38 billion, a decrease of $104 million from 2004.
Beginning in the first quarter of 2006, we will change our method of depreciation from an accelerated to a straight-line
method on our existing and future property, plant and equipment assets. This change is the result of a study that was
conducted regarding the usage pattern of our long-lived depreciable assets. The study indicated a trend toward more
consistent utilization of assets as we have focused our product portfolio on differentiated products and supplemented our
internal semiconductor manufacturing with supply from foundries. As part of the same study, we determined that
estimated useful lives of the property, plant and equipment assets are appropriate and, consequently, will not be
changed. Under SFAS No. 154, a change in depreciation method is treated as a change in estimate and prior-period
results will not be restated. We expect depreciation to decline about $350 million in 2006 compared with 2005, with about
half of this reduction coming from the change in our method of depreciation.
Liquidity and Capital Resources
Our primary source of liquidity is our $1.22 billion of cash and cash equivalents and $4.12 billion of short-term investments,
totaling $5.34 billion. Other sources of liquidity are: (a) authorized borrowings of $500 million for commercial paper, backed
by a 364-day revolving credit facility, and (b) a new revolving credit facility for $175 million entered into by our Japan
subsidiary in connection with our decision to repatriate earnings under the AJCA (see discussion below and in Note 8 to
the Financial Statements for additional information). As of December 31, 2005, these facilities were not being utilized.
For the year, cash flow from operations increased $626 million, or 20 percent, to $3.77 billion, primarily due to higher
net income.
Net cash used in investing activities was $1.69 billion for 2005 compared with $1.16 billion for 2004. In 2005 there were
$421 million of net purchases of short-term cash investments compared with $135 million of cash received from net sales
of short-term cash investments in 2004.
Capital expenditures of $1.33 billion increased by $32 million from 2004. Our capital expenditures in 2005 were primarily
for assembly and test equipment, advanced wafer fabrication equipment and construction of our new 300-millimeter
manufacturing facility in Richardson, Texas.
For 2005, net cash used in financing activities was $3.54 billion compared with $1.15 billion in 2004, primarily reflecting
increased repurchases of our common stock. We used $4.15 billion of cash to repurchase 153.2 million shares of our
common stock in 2005 compared with $753 million used to repurchase 30.1 million shares of our common stock in 2004.
Dividends paid in 2005 of $173 million compared with $154 million in 2004, reflect the effect of increases in the quarterly
dividend rate in the fourth quarters of 2004 and 2005. The quarterly cash dividend rate was increased to $0.025 per share
beginning with the dividend declared on October 21, 2004. The quarterly cash dividend rate was increased again to $0.03
per share beginning with the dividend declared on October 20, 2005.
Cash proceeds received from the exercise of employee stock options in 2005 were $461 million compared with $192
million in 2004. In 2004, we repaid $435 million of maturing long-term debt.
In 2005, to avail ourselves of tax savings provided for under the AJCA, we repatriated $1.29 billion of previously
undistributed earnings of non-U.S. subsidiaries. (See Note 18 to the Financial Statements for a discussion of the tax
impact.) During the fourth quarter, our Japan subsidiary borrowed $275 million in order to facilitate this process.
At the end of 2005, TI’s debt-to-total capital ratio was 0.05, up from 0.03 at the end of 2004 due to the borrowing
associated with the non-U.S. earnings repatriation.
In January 2006, the board of directors authorized the repurchase of an additional $5 billion of our common stock.
Cumulatively, our board of directors has authorized $10 billion in stock repurchases since September 2004.
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TEXAS INSTRUMENTS 2005 ANNUAL REPORT