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 September 30, 1997 Commission File Number 1-3761
TEXAS INSTRUMENTS INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 75-0289970
- ------------------------ -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
13500 North Central Expressway, P.O. Box 655474, Dallas, Texas 75265-5474
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(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
---- ----
195,129,262
- -----------------------------------------------------------------------------
Number of shares of Registrant's common stock outstanding as of
September 30, 1997
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
Sept 30 Dec. 31
Balance Sheet 1997 1996
- ------------- ------- -------
Assets
Current assets:
Cash and cash equivalents.......................................... $ 2,727 $ 964
Short-term investments............................................. 1,509 14
Accounts receivable, less allowance for losses of
$66 million in 1997 and $90 million in 1996...................... 1,766 1,799
Inventories:
Raw materials.................................................... 114 111
Work in process.................................................. 363 361
Finished goods................................................... 281 231
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Inventories.................................................... 758 703
------- -------
Prepaid expenses................................................... 50 50
Deferred income taxes.............................................. 532 395
Net assets of discontinued operations.............................. -- 529
------- -------
Total current assets............................................. 7,342 4,454
------- -------
Property, plant and equipment at cost................................ 7,212 6,712
Less accumulated depreciation...................................... (3,054) (2,550)
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Property, plant and equipment (net).............................. 4,158 4,162
------- -------
Deferred income taxes................................................ 183 192
Other assets......................................................... 391 552
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Total assets......................................................... $12,074 $ 9,360
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 86 $ 314
Accounts payable................................................... 648 775
Accrued and other current liabilities.............................. 2,335 1,397
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Total current liabilities........................................ 3,069 2,486
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Long-term debt....................................................... 1,540 1,697
Accrued retirement costs............................................. 704 719
Deferred credits and other liabilities............................... 441 361
Stockholders' equity:
Preferred stock, $25 par value. Authorized - 10,000,000 shares.
Participating cumulative preferred. None issued.................. -- --
Common stock, $1 par value. Authorized - 500,000,000 shares.
Shares issued: 1997 - 195,485,898; 1996 - 190,396,797............ 195 190
Paid-in capital.................................................... 1,380 1,116
Retained earnings.................................................. 4,806 2,814
Less treasury common stock at cost.
Shares: 1997 - 356,636; 1996 - 143,525........................... (40) (12)
Other.............................................................. (21) (11)
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Total stockholders' equity....................................... 6,320 4,097
------- -------
Total liabilities and stockholders' equity........................... $12,074 $ 9,360
======= =======
2
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
For Three Months Ended For Nine Months Ended
---------------------- ---------------------
Sept 30 Sept 30 Sept 30 Sept 30
Income 1997 1996 1997 1996
- ------ ------- ------- ------- -------
Net revenues............................................... $ 2,500 $ 2,407 $ 7,322 $ 7,481
Operating costs and expenses:
Cost of revenues......................................... 1,518 1,743 4,587 5,354
Research and development................................. 275 448 795 926
Marketing, general and administrative.................... 349 393 1,125 1,192
------- ------- ------- -------
Total.................................................. 2,142 2,584 6,507 7,472
------- ------- ------- -------
Profit (loss) from operations.............................. 358 (177) 815 9
Other income (expense) net................................. 33 17 127 82
Interest on loans.......................................... 23 25 73 49
------- ------- ------- -------
Income (loss) before provision for income taxes............ 368 (185) 869 42
Provision (credit) for income taxes........................ 129 (6) 304 48
------- ------- ------- -------
Income (loss) from continuing operations................... 239 (179) 565 (6)
Discontinued operations:
Income from operations................................... -- 32 52 98
Gain on sale............................................. 1,473 -- 1,473 --
------- ------- ------- -------
Net income (loss).......................................... $ 1,712 $ (147) $ 2,090 $ 92
======= ======= ======= =======
Earnings (loss) per common and common equivalent share:
Continuing operations.................................... $ 1.20 $ (0.95) $ 2.84 $ (0.03)
Discontinued operations:
Income from operations................................. -- 0.17 0.27 0.51
Gain on sale........................................... 7.36 -- 7.41 --
------- ------- ------- -------
Net income (loss)........................................ $ 8.56 $ (0.78) $ 10.52 $ .48
======= ======= ======= =======
Cash dividends declared per share of common stock.......... $ 0.17 $ 0.17 $ 0.51 $ 0.51
Cash Flows
- ----------
Continuing Operations:
Net cash provided by operating activities............................................ $ 1,369 $ 206
Cash flows from investing activities:
Additions to property, plant and equipment......................................... (914) (1,639)
Purchases of short-term investments................................................ (1,662) (14)
Sales and maturities of short-term investments..................................... 172 195
Acquisition of business, net....................................................... -- (313)
Proceeds from sale of discontinued operations less transaction costs............... 2,836 --
Proceeds from sale of other businesses............................................. 177 150
------- -------
Net cash provided by (used in) investing activities.................................. 609 (1,621)
Cash flows from financing activities:
Additions to loans payable......................................................... -- 162
Payments on loans payable.......................................................... (280) (2)
Additions to long-term debt........................................................ 27 841
Payments on long-term debt......................................................... (1) (172)
Dividends paid on common stock..................................................... (97) (97)
Sales and other common stock transactions.......................................... 102 23
Other.............................................................................. - -
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Net cash provided by (used in) financing activities.................................. (249) 755
Effect of exchange rate changes on cash.............................................. (23) (11)
------- -------
Cash provided by (used in) continuing operations..................................... 1,706 (671)
------- -------
Discontinued Operations:
Operating activities................................................................. 73 40
Investing activities................................................................. (16) (57)
------- -------
Cash provided by (used in) discontinued operations................................... 57 (17)
------- -------
Net increase (decrease) in cash and cash equivalents................................... 1,763 (688)
Cash and cash equivalents, January 1................................................... 964 1,364
------- -------
Cash and cash equivalents, September 30................................................ $ 2,727 $ 676
======= =======
3
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
Earnings per common and common equivalent share are based on average common
and common equivalent shares outstanding (200.0 and 189.7 million shares for
the third quarters of 1997 and 1996, and 198.7 and 191.8 million shares for
the nine months ended September 30, 1997 and 1996). Shares issuable upon
exercise of dilutive stock options and upon conversion of dilutive convertible
debentures are included in average common and common equivalent shares
outstanding.
Results for the third quarter of 1997 reflect the sale of TI's defense
business, which was closed with Raytheon Company on July 11 for $2.95 billion
in cash. The net gain from this sale, after income taxes of $876 million, was
$1,473 million and was included in discontinued operations.
On July 29, 1997, TI gave notice of redemption for the $103.2 million
outstanding balance of its 2.75% convertible subordinated debentures due 2002.
In response, essentially all of the debenture holders elected to convert their
debentures into TI common stock. This resulted in the issuance of 2,488,175
shares of TI common stock in the third quarter.
On September 18, 1997, TI's Board of Directors declared a two-for-one stock
split in the form of a 100 percent stock dividend on the common stock to
shareholders of record October 24, 1997. Number of shares and per-share
amounts herein do not reflect the two-for-one stock split.
TI announced on October 14, 1997, a continuous fixed-spread tender offer for
any or all of its 9.0% notes due 2001, its 9.25% notes due 2003 and its 8.75%
notes due 2007. The offering period extends from October 15 through October
21, with cash settlement on October 24, 1997. Each of the series of notes has
$150 million in principal outstanding. There will be an extraordinary charge
in the fourth quarter of 1997 depending on the quantity and price of debt
tendered.
Results for the second quarter of 1997 include a pretax operating charge of
$44 million for the termination of joint-venture agreements in Thailand and a
$66 million pretax gain from the sale of three TI businesses, principally
software.
In the first quarter of 1997, the company sold its mobile computing business
and terminated its digital imaging printing development program. As a result,
the company took a pretax charge of $56 million in the first quarter, of which
$27 million was for severance for involuntary employment reductions worldwide.
These severance actions were essentially completed by the end of the quarter
and affected approximately 1,045 employees. The balance, $29 million, was for
other costs associated with the business sale and program termination,
including vendor cancellation and lease charges.
Accounting policy on derivatives: Net currency exchange gains and losses from
forward currency exchange contracts to hedge net balance sheet exposures are
charged or credited on a current basis to other income (expense) net. Gains
and losses from forward currency exchange contracts to hedge specific
transactions are deferred and included in the measurement of the related
transactions. Gains and losses from interest rate swaps are included on the
accrual basis in interest expense. Gains and losses from terminated forward
currency exchange contracts and interest rate swaps are deferred and
recognized consistent with the terms of the underlying transaction.
The statements of income, statements of cash flows and balance sheet at
September 30, 1997, are not audited but reflect all adjustments which are of a
normal recurring nature and are, in the opinion of management, necessary to a
fair statement of the results of the periods shown.
4
ITEM 2. Management's Discussion and Analysis of Financial Condition
andResults of Operations.
Higher operating margins for semiconductors drove continued improvements in
profitability for the Registrant (the "company" or "TI") in the third quarter
of 1997, led by ongoing strength in digital signal processing solutions and
other differentiated semiconductors.
TI's operating margin increased to 14.3 percent in the quarter, up from 0.6
percent in the third quarter of 1996, excluding a one-time charge in the year-
ago period. Semiconductor margins were up more than 12 points from the year-
ago level, and also increased sequentially from the second quarter of 1997.
The company has announced a number of strategic developments to widen its
leadership in the rapidly growing market of digital signal processing
solutions. Most recently, TI disclosed a floating-point member of its
powerful TMS320C6x digital signal processor (DSP) family. The 'C67x is the
first DSP to offer peak performance of 1 billion floating-point calculations
per second, and will enable applications requiring powerful analysis such as
space exploration equipment, unprecedented virtual reality, next-generation
medical imaging, and 3-D graphics and voice recognition for personal computer
interfaces.
FINANCIAL SUMMARY
During the quarter TI announced a two-for-one stock split in the form of a 100
percent stock dividend on the common stock, payable on November 21, 1997, to
shareholders of record October 24, 1997. In this report, the numbers are pre-
split.
TI's orders for the third quarter of 1997 were $2449 million, compared with
$2284 million in the same period of 1996.
Revenues for the third quarter of 1997 were $2500 million, up 4 percent from
the year-ago period. Financial results in the third quarter of 1996 included
revenues from TI businesses that have since been sold, primarily software,
mobile computing and printers. Excluding the sold businesses, orders and
revenues were up 21 percent and 19 percent, respectively, from the year-ago
period.
Earnings per share (EPS) from continuing operations were $1.20, compared with
$0.06 in the year-ago period excluding a one-time charge. The year-ago EPS of
$0.06 excludes the one-time charge of $192 million in the third quarter of
1996 for in-process R&D associated with the purchase of Silicon Systems, Inc.
(SSi). Including the charge, EPS from continuing operations in the year-ago
quarter was a loss of $0.95.
Profit from operations (PFO) from continuing operations was $358 million
versus $15 million, excluding the charge in the year-ago period. Including
the charge in the third quarter of 1996, the loss from continuing operations
was $177 million.
Net income from continuing operations was $239 million versus $13 million,
excluding the charge in the third quarter of 1996. Including the charge in
the year-ago quarter, net loss was $179 million.
Net income from discontinued operations in the third quarter includes the net
gain of $1473 million ($7.36 per share) from the sale of TI's defense business
to Raytheon Company, which closed on July 11, 1997. Throughout the report,
the defense operation is reported as a discontinued business.
5
To reflect the company's operating structure after the recent business
divestitures, the financial results discussed below are organized around TI's
three principal businesses: Semiconductor (SC), Materials & Controls (M&C),
and Educational & Productivity Solutions (E&PS). Operating profits of these
businesses include the effects of profit sharing and exclude the effects of
special charges and gains. Semiconductor results include the effects of all
semiconductor-related royalty revenues. Results for digital imaging, PC-
related royalty revenues and divested businesses are excluded from the three
principal businesses, but are included in TI's consolidated results.
SEMICONDUCTOR
Semiconductor orders were up 27 percent from the third quarter of 1996, with
particular strength in wireless communications and networking. Although
orders for digital signal processing solutions were up strongly, semiconductor
orders in total were down slightly from the second quarter of 1997, primarily
due to lower memory prices.
Semiconductor revenues increased 22 percent from the third quarter of 1996,
primarily due to strength in digital signal processing and mixed-
signal/analog. Revenues were up slightly from the second quarter of 1997,
reflecting strength in wireless communications.
Semiconductor PFO improved substantially from the year-ago quarter, up more
than fourfold, due to strength in digital signal processing, mixed-
signal/analog and other differentiated semiconductors. In addition, memory
improved substantially from a year ago, but continued at a loss. Despite a
somewhat larger loss in memory from the second quarter to the third quarter of
1997, semiconductor PFO was up.
Semiconductor revenues, including royalties from semiconductor licensees, now
represent about 84 percent of TI's revenues. Digital signal processors plus
mixed-signal/analog represent about 40 percent of semiconductor. Memory, made
up primarily of dynamic random access memories (DRAMs), now accounts for about
20 percent of semiconductor. The remainder of semiconductor is made up
primarily of a broad range of advanced products, including application
specific integrated circuits, reduced-instruction set microprocessors,
microcontrollers and standard logic.
MATERIALS & CONTROLS
Revenues for TI's Materials & Controls business were up 9 percent from the
year-ago period, but down slightly from the second quarter of 1997 due to
seasonal weakness in the heating, ventilation and air conditioning market.
Orders were up slightly from the year-ago period.
Operating margins remained at double-digit levels, up from the third quarter
of 1996, but down from the prior quarter on lower revenues.
M&C's next generation TIRIS(TM) vehicle theft deterrent products received
strong market reception over the quarter, with European, U.S. and Japanese
automobile manufacturers working with the ignition system integrators to
greatly expand the number of models using this technology.
The M&C business has made steady progress in reducing manufacturing costs over
the past several months, including recently announced plans for consolidation
of some sites in North America. This business will continue to take cost-
reduction actions as it focuses on increasing margins and moving into higher
growth, electronics-based markets.
6
EDUCATIONAL & PRODUCTIVITY SOLUTIONS
Orders and revenues for the E&PS business, made up largely of calculators,
were up slightly from the year-ago period, but down from the traditionally
high second quarter.
Operating margins continued in the high teens, up from the year-ago period,
but down somewhat from the level of the second quarter. Because of the
school-year cycle, this business typically delivers peak financial performance
in the second and third quarters and operates near break-even in the first and
fourth quarters of the year.
The business further strengthened its relationships with the academic
community in the United States and Canada by holding about 300 "Teachers
Training with Technology" sessions this summer. E&PS also progressed in its
expansion strategy in Europe, winning its first order from the Portugal
Ministry of Industry, which endorsed graphing calculators earlier this year.
OUTLOOK
Based on our recent survey of U.S. end-equipment manufacturers, inventories of
semiconductors remain at low levels. The outlook remains positive for
continued moderate recovery of the world semiconductor market, although the
near-term rate of growth is being restrained by DRAM pricing pressures and
weakness in the Japanese economy. TI believes the semiconductor market in
1998 will grow at or above the long-term growth trend of the industry. The
company sees particular strength in wireless communications and networking,
applications important to digital signal processing and mixed-signal/analog
products, where TI is a leader.
A recent report by market research firm Dataquest forecasts digital signal
processing as the fastest growing product area in the semiconductor market.
TI estimates the digital signal processing and related mixed-signal/analog
market will grow more than tenfold to about $50 billion over the next ten
years.
TI is taking several actions to accelerate the growth of its digital signal
processing solutions. Recent announcements include a $100 million venture
fund to help seed the growth of new DSP applications, and $25 million for
additional university research focused on DSP.
In early September, TI formally opened the Kilby Center, the world's most
advanced research center for silicon manufacturing. The facility will serve
as the technology base for the ongoing creation of TI's leading edge DSP
solutions.
Investment also continues in digital imaging, with emphasis on reducing costs
in a very competitive market environment. Work continues with customers for
development of new products that make full use of the advantages of TI's
technology for higher brightness and lower weight in display systems.
In order to more closely link compensation with company performance and to
attract and retain the finest talent, TI also recently announced an extensive
restructuring of its total compensation package. TI believes this is one of
the most competitive packages in the industry -- one that provides top pay for
top performance on both an individual and company level.
7
ADDITIONAL FINANCIAL INFORMATION
Change in orders Change in revenues,
Business 3Q97 vs. 3Q96 3Q97 vs. 3Q96
- --------- ---------------- -------------------
SC up 27% up 22%
M&C up 2% up 9%
E&PS up 6% up 3%
Total TI up 7% up 4%
Change in orders, Change in revenues,
Business 3QYT97 vs. 3QYT96 3QYTD97 vs. 3QYTD96
- -------- ----------------- -------------------
SC up 30% up 11%
M&C up 9% up 7%
E&PS up 4% up 4%
Total TI up 11% down 2%
For the first nine months of 1997, TI's orders were $7605 million, compared
with $6847 million for the first nine months of 1996. Excluding the sold
businesses, TI orders were up 26 percent. The increase in SC orders resulted
from strong demand for digital signal processing solutions. The M&C orders
were up due to TIRIS and electronic-based sensors and the E&PS orders were up
as a result of increased instructional calculator volume.
Revenues for the first nine months of 1997 were $7322 million, compared with
$7481 million in the first nine months of 1996. Excluding the sold
businesses, TI revenues were up 11 percent versus down 2 percent as reported.
The increase in SC resulted from higher DSPS revenues and higher royalties.
The increase in M&C revenue was due primarily to TIRIS and electronic-based
sensors and the increase in E&PS was the result of increased instructional
calculator volume.
TI's PFO from continuing operations for the first nine months of 1997 was $815
million, compared with $9 million in the first nine months of 1996. The
increase was primarily from higher semiconductor profits due to improved
margins, increased revenues and higher semiconductor royalties, the absence of
losses in mobile computing, and the absence of the $192 million charge in
third quarter 1996.
Net income from continuing operations for the first nine months of 1997 was
$565 million, compared with a loss of $6 million in the first nine months of
1996. Earnings per share were $2.84, compared with a loss of $0.03.
Interest income in the quarter was up $42 million from the year-ago period,
primarily as a result of investment of net proceeds from the sale of the
defense business to Raytheon.
The income tax rate for the first nine months of 1997 was 35 percent, which is
the current estimate of the rate for the full year.
During the first nine months of 1997, cash and cash equivalents plus short-
term investments increased by $3258 million to $4236 million. The cash
8
sale of TI's defense operations to Raytheon on July 11, 1997, accounts for
most of the increase. In addition, the sale of three other TI businesses
generated $177 million of cash in the second quarter. Year-to-date cash
flow from operating activities net of additions to property, plant, and
equipment was $455 million. In the fourth quarter, TI anticipates using
approximately $700 million of cash to pay taxes on the gain from the sale
of TI's defense operations.
In announcing the stock split, referenced earlier in this report, TI
indicated that its Board had elected to hold the cash dividend at its
current rate (8.5 cents per share when adjusted for the split).
During the third quarter TI began a stock repurchase plan with the goal of
neutralizing the dilutive effect of shares to be issued upon the exercise
of stock options under the new employee stock purchase plan and stock
option/incentive plans. In September, TI purchased $27 million of its
common stock.
In connection with the restructuring of the performance package discussed
earlier in this report, and in accordance with pension accounting rules,
the company expects to record a non-cash pension curtailment gain in the
fourth quarter of 1997.
The outstanding balance of commercial paper was reduced from $300 million
to zero during the second quarter of 1997. The company's outstanding 2.75%
Convertible Subordinated Debentures due 2002 in the principal amount of
$103 million were called for redemption and converted to TI common stock in
the third quarter of 1997. The debt-to-total-capital ratio was .20 at the
end of the third quarter, down from the year-end 1996 level of .33.
TI announced on October 14, 1997 a continuous, fixed-spread tender offer
for any or all of its 9.0% notes due 2001, its 9.25% notes due 2003 and its
8.75% notes due 2007. The offering period extends from October 15 through
October 21, 1997, unless extended. Each of the series of notes has $150
million in principal outstanding. While there will be an extraordinary
charge in the fourth quarter of 1997 depending on the quantity tendered,
the debt repurchase is expected to be slightly accretive to future period
earnings.
TI's backlog of unfilled orders as of September 30, 1997, was $1861
million, up $153 million from the third quarter of 1996 and down $56
million from the second quarter of 1997.
TI's R&D was $275 million in the third quarter of 1997, compared with $256
million in the third quarter of 1996, excluding the one-time $192 million
charge for in-process R&D associated with the SSi acquisition. R&D for the
first nine months of 1997 was $795 million, compared with $734 million in
the first nine months of 1996, excluding the charge. R&D for the full year
is expected to be $1.1 billion.
Capital expenditures in the third quarter of this year were $351 million,
compared with $517 million in the third quarter of 1996, and $914 million
for the first nine months of 1997, compared with $1639 million for the
first nine months of 1996. Capital spending for 1997 is now projected at
$1.2 billion, up slightly from the previous projection for the year.
Depreciation in the third quarter of 1997 was $287 million, compared with
$244 million in the third quarter of 1996, and $806 million for the first
9
nine months of 1997, compared with $629 million for the same period of
1996. Depreciation for the total year is projected at $1.1 billion.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
In connection with the Registrant's litigation with Fujitsu Limited
("Fujitsu") discussed in Item 3 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996, the Tokyo High Court on
September 10, 1997 upheld the ruling that Fujitsu's production of 1-megabit
and 4-megabit DRAM and 32K EPROMs does not infringe the Registrant's
Japanese patent on the invention of the integrated circuit (the "Kilby"
patent). The Registrant is appealing the court's decision to the Supreme
Court of Japan.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Designation of
Exhibits in
this Report Description of Exhibit
-------------- -----------------------------
10(b)(iii) Amendment No. 3 to TI Deferred
Compensation Plan
10(g) Texas Instruments Directors
Deferred Compensation Plan
11 Computation of primary and fully
diluted earnings per common and
common equivalent share.
12 Computation of Ratio of Earnings
to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges
and Preferred Stock Dividends.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
10
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995:
With the exception of historical information, the matters discussed in this
Form 10-Q are forward-looking statements that involve risks and
uncertainties including, but not limited to, economic conditions, product
demand and industry capacity, competitive products and pricing,
manufacturing efficiencies, new product development, ability to enforce
patents, availability of raw materials and critical manufacturing
equipment, new plant startups, the regulatory and trade environment, and
other risks indicated in filings with the Securities and Exchange
Commission.
Trademarks: TIRIS is a trademark of Texas Instruments Incorporated.
SIGNATURE
Pursuant to the requirements 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: /s/ William A. Aylesworth
William A. Aylesworth
Senior Vice President, Treasurer
and Chief Financial Officer
Date: October 16, 1997
11
Exhibit Index
Designation of Paper (P)
Exhibits in or
this Report Description of Exhibit Electronic (E)
- ---------------- ----------------------- --------------
10(b)(iii) Amendment No. 3 to TI E
Deferred Compensation Plan
10(g) Texas Instruments Directors E
Deferred Compensation Plan
11 Computation of Primary and E
Fully Diluted Earnings Per
Common and Common Equivalent
Share.
12 Computation of Ratio of E
Earnings to Fixed Charges and
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends.
27 Financial Data Schedule E
12
[DESCRIPTION] EXHIBIT 10(b)(iii)
EXHIBIT 10(b)(iii)
------------------
AMENDMENT NO. 3
TO
TI DEFERRED COMPENSATION PLAN
TEXAS INSTRUMENTS INCORPORATED, a Delaware Corporation with its principal
offices in Dallas, Texas (hereafter "TI") hereby amends the TI Deferred
Compensation Plan (hereafter the "Plan") established by the Company as of
October 19, 1994, in the respects set forth below:
1. Section 1-4 of the Plan hereby is amended so as to read as follows:
"Sec. 1-4. Compensation. "Compensation" means, with respect to a Plan
Year, a Participant's annual award under the Texas Instruments Executive
Officer Performance Plan and a Participant's annual cash incentive award
approved by the Chief Executive Officer or his delegate.
This Amendment shall be effective as of January 1, 1998.
EXECUTED as of this 15th day of October, 1997.
TEXAS INSTRUMENTS INCORPORATED
BY: /s/ RICHARD J. AGNICH
[DESCRIPTION] EXHIBIT 10(g)
EXHIBIT 10(g)
-------------
TEXAS INSTRUMENTS DIRECTORS
DEFERRED COMPENSATION PLAN
As Adopted September 18, 1997
The purpose of this plan (the "Plan") is to provide Directors (as herein
defined) of Texas Instruments Incorporated ("TI" or the "Company") with the
opportunity to defer certain portions of the compensation paid to them as
Directors and to select from among investment alternatives with respect to
such deferred compensation.
Section 1. Definitions.
(a) "Board" means the Board of Directors of the Company, as constituted
from time to time.
(b) "Cash Account" means the bookkeeping account established pursuant to
Section 4 on behalf of each Director who elects pursuant to Section 3 to have
any of his or her Deferred Compensation credited to a cash account.
(c) "Deferred Compensation" means that portion of any Director's Eligible
Compensation that he or she elects pursuant to Section 2 to be deferred in
accordance with this Plan.
(d) "Director" means a member of the Board who is not an employee of the
Company or any subsidiary thereof.
(e) "Eligible Compensation" means the cash portion of any compensation
payable by the Company to a Director for his or her services as a Director but
shall not include any reimbursement by the Company of expenses incurred by a
Director incidental to attendance at a meeting of the Company's stockholders,
the Board, or any committee of the Board, or of any other expense incurred on
behalf of the Company.
(f) "Fair Market Value" means the average of the high and low prices of
TI common stock on the date the determination is made (or, if there is no
trading on the New York Stock Exchange on such date, then on the first
previous date on which there is such trading) as reported in "New York Stock
Exchange Composite Transactions" in The Wall Street Journal.
(g) "Secretary" means the Secretary of the Company.
(h) "Stock Unit Account" means the bookkeeping account established,
pursuant to Section 5, on behalf of each Director who elects, pursuant to
Section 3, to have any of his or her Deferred Compensation credited to a stock
unit account.
(i) "Year" means a calendar year.
1
Section 2. Deferral Election.
Each Director may elect, with respect to any Year, that all or any portion of
his or her Eligible Compensation be deferred in accordance with the terms of
this Plan.
Section 3. Investment Alternatives.
Each Director may elect that his or her Deferred Compensation for any Year be
credited to a cash account or a stock unit account or to any combination
thereof.
Section 4. Cash Accounts.
(a) TI shall establish and maintain a separate unfunded Cash Account for
each Director who has elected that any portion of his or her Deferred
Compensation be credited to a cash account.
(b) As of the date on which any amount of a Director's Deferred
Compensation becomes payable, his or her Cash Account shall be credited with
an amount equal to that portion of such Deferred Compensation as such Director
has elected be credited to his or her Cash Account.
(c) As of the last day of each month, interest on each Cash Account shall
be credited on the average of the balances on the first and last day of such
month. Interest shall be credited at a rate equivalent to the average yield
on corporate bonds rated Aaa by Moody's Investors Service on September 30 of
the preceding Year (or if there is no such yield reported for such date, then
on the next preceding date for which such a yield is reported) as published in
Federal Reserve Statistical Release H.15, or at such other rate as may be
determined by the Board Organization and Nominating Committee for each Year.
Section 5. Stock Unit Accounts.
(a) TI shall establish and maintain a separate unfunded Stock Unit
Account for each director who has elected that any portion of his Deferred
Compensation be credited to a stock unit account.
(b) As of each date on which any amount of a Director's Deferred
Compensation becomes payable, his or her Stock Unit Account shall be credited
with that number of units as are equal to the number of full or fractional
shares of TI common stock as could be purchased at the Fair Market Value with
the portion of such Deferred Compensation as such Director has elected be
credited to his or her Stock Unit Account.
(c) As of the payment date for each dividend on TI common stock declared
by the Board, there shall be credited to each Stock Unit Account that number
of units as are equal to the number of full or fractional shares of TI common
stock as could be purchased at the Fair Market Value on the payment date for
such dividend with an amount equal to the product of: (i) the dividend per
share, and (ii) the number of units in such account immediately prior to the
record date for such dividend.
2
(d) In the event that the Secretary shall determine that any dividend or
other distribution (whether in the form of cash, stock or other securities or
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase or exchange
of stock or other securities of the Company, issuance of warrants or other
rights to purchase stock or other securities of the Company, or other similar
corporate transaction or event affects the Stock Unit Accounts such that an
adjustment is determined by the Secretary to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Secretary shall, in such manner
as he or she may deem equitable, adjust the number of units in the Stock Unit
Accounts.
Section 6. Form and Time of Election.
A Director's election to defer all or any portion of his or her Eligible
Compensation for any Year shall be irrevocable. The election shall be made in
writing in the form ("Election Form") prescribed by the Secretary. Except as
hereinafter provided, to be effective, an Election Form for any Year shall be
required to be received by the Secretary on or before December 31 of the
preceding Year. In the case of a Director's initial election to the Board,
the Election Form for the year of election shall be received not more than 30
days following his or her election and, unless received on the date of
election, shall be effective only for Eligible Compensation earned after
receipt of the Election Form.
Section 7. Allocation of Balances in Previously Established Accounts.
At such time (on or before December 31, 1997) as the Secretary shall
determine, each Director with a cash account established on his or her behalf
under the Company's previous deferred compensation program for directors may
elect, in such manner as may be prescribed by the Secretary, to have the
balance in such previously established account credited to a cash account or a
stock unit account or to any combination thereof. Any such election shall be
irrevocable, and any cash account or stock unit account credited pursuant to
such election shall for all purposes be deemed to have been established under
this Plan.
Section 8. Form and Time of Distributions.
Distributions of amounts credited to each Director's Cash Account shall be
made in cash. Distribution of units credited to each director's Stock Unit
Account shall be made by issuing to such Director an equivalent number of
shares of TI common stock; provided, however, that no fractional shares will
be issued and any fractional unit will be distributed by payment of cash in
the amount represented by such fractional unit based on the Fair Market Value
on the date preceding the date of payment. Any shares of TI common stock
distributed under the Plan shall consist of treasury shares. Except as
otherwise hereinafter provided, distributions shall be made (a) on the first
day of the month following such Director's termination of service on the Board
for any reason other than death, or (b) at such later time as the Director has
elected in accordance with the terms of this Plan. Notwithstanding the
foregoing, an earlier distribution may be made, at the discretion of the
Secretary, upon a finding that a Director is suffering a significant financial
hardship caused by a recent event or events not within such Director's
control; provided, however, that in such event, the cash or shares distributed
shall be limited to those amounts necessary to accommodate the financial
hardship, as determined by the Secretary.
3
Section 9. Death of Director.
Notwithstanding the foregoing, in the event of the death of a Director prior
to receipt by such Director of the full amount of cash and number of shares to
be distributed to the Director, all such cash and/or shares will be
distributed to the beneficiary or beneficiaries designated by the Director, or
if no beneficiary has been designated, to the Director's estate as soon as
practicable following the month in which the death occurred.
Section 10. Accounts Unsecured.
Until distributed, all amounts credited to any Cash Accounts or represented by
units credited to any Stock Unit Account shall be property of TI, available
for TI's use, and subject to the claims of TI's general creditors. The rights
of any Director or beneficiary to distributions under this Plan are not
subject to anticipation, alienation, sale, transfer, assignment, or
encumbrance, and shall not be subject to the debts or liabilities of any
Director or beneficiary.
Section 11. Certain Rights Reserved by TI.
TI reserves the right to suspend, modify or terminate this Plan at any time,
and, in such event, shall have the right to distribute to each Director all
amounts in such Director's Cash Account or shares of TI common stock
equivalent to units in such Director's Stock Unit Account, including, in the
case of Stock Unit Accounts, the right to distribute cash equivalent to the
units in such Accounts.
Section 12. Certain Affiliations.
In the event that any Director terminates his or her membership on the Board
and becomes affiliated with a government agency or with any private company or
firm that the Board Organization and Nominating Committee believes to be in
competition with TI, the Board may, at its discretion, require a distribution
of all amounts in any Director's Cash Account or shares equivalent to units in
such Director's Stock Unit Account.
Section 13. Administration and Interpretation of Plan.
The Secretary shall have full power and authority to construe, interpret and
administer this Plan. The Secretary may issue rules and regulations for
administration of the Plan. All decisions of the Secretary shall be final,
conclusive and binding upon all parties, including the Company, the
stockholders and the directors. In the event of the absence or inability to
act of the Secretary, any Assistant Secretary shall have the authority to act
in his place.
Subject to the terms of the Plan and applicable law, the Secretary shall have
full power and authority to: (i) interpret and administer the Plan and any
instrument or agreement relating thereto; (ii) establish, amend, suspend or
waive such rules and regulations and appoint such agents as the Secretary
shall deem appropriate for the proper administration of the Plan; and
(iii) make any other determination and take any other action that the
Secretary deems necessary or desirable for the administration of this Plan.
4
[DESCRIPTION] Exhibit 11
EXHIBIT 11
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
PRIMARY AND FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except per-share amounts.)
For Three Months Ended For Nine Months Ended
---------------------- ---------------------
Sept 30 Sept 30 Sept 30 Sept 30
1997 1996 1997 1996
--------- -------- --------- -------
Income (loss) from continuing operations................... $ 239,301 $(179,585) $ 564,840 $ (6,538)
Add:
Interest, net of tax and profit sharing effect, on
convertible debentures assumed converted............. -- -- -- --
--------- -------- --------- -------
Income (loss) from continuing operations................... 239,301 (179,585) 564,840 (6,538)
Discontinued operations:
Income from operations................................... -- 32,011 52,718 97,796
Gain on sale............................................. 1,472,710 -- 1,472,710 --
--------- -------- --------- -------
Net income (loss).......................................... $1,712,011 $(147,574) $2,090,268 $ 91,258
========= ======== ========= =======
Earnings (loss) per Common and Common Equivalent Share:
Weighted average common shares outstanding................. 193,190 189,723 191,803 189,565
Weighted average common equivalent shares:
Stock option and compensation plans.................... 5,204 -- 4,721 2,280
Convertible debentures................................. 1,580 -- 2,184 --
------- ------- ------- -------
Weighted average common and common equivalent shares....... 199,974 189,723 198,708 191,845
======= ======= ======= =======
Earnings (loss) per Common and Common Equivalent Share:
Income (loss) from continuing operations................. $ 1.20 $ (0.95) $ 2.84 $ (0.03)
Discontinued operations:
Income from operations................................. -- 0.17 0.27 0.51
Gain on sale........................................... 7.36 -- 7.41 --
------- ------- ------- -------
Net income (loss)........................................ $ 8.56 $ (0.78) $ 10.52 $ 0.48
======= ======= ======= =======
Earnings (loss) per Common Share Assuming Full Dilution:
Weighted average common shares outstanding................. 193,190 189,723 191,803 189,565
Weighted average common equivalent shares:
Stock option and compensation plans.................... 5,635 -- 6,094 2,662
Convertible debentures................................. 1,580 -- 2,184 --
------- ------- ------- -------
Weighted average common and common equivalent shares....... 200,405 189,723 200,081 192,227
======= ======= ======= =======
Earnings (loss) per Common Share Assuming Full Dilution:
Income (loss) from continuing operations................. $ 1.19 $ (0.95) $ 2.82 $ (0.03)
Discontinued operations:
Income from operations................................. -- 0.17 0.27 0.50
Gain on sale........................................... 7.35 -- 7.36 --
------- ------- ------- -------
Net income (loss)........................................ $ 8.54 $ (0.78) $ 10.45 $ 0.47
======= ======= ======= =======
[DESCRIPTION] Exhibit 12
EXHIBIT 12
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Dollars in millions)
For Nine Months
Ended Sept. 30
--------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes
and fixed charges:
Income (loss) before cumulative
effect of accounting changes,
interest expense on loans,
capitalized interest amortized,
and provision for income taxes..... $ 242 $ 561 $ 943 $1,530 $ 65 $ 102 $ 955
Add interest attributable to
rental and lease expense........... 42 38 40 41 44 33 31
----- ----- ----- ----- ----- ----- -----
$ 284 $ 599 $ 983 $1,571 $ 109 $ 135 $ 986
===== ===== ===== ===== ===== ===== =====
Fixed charges:
Total interest on loans (expensed
and capitalized)..................... $ 57 $ 55 $ 58 $ 69 $ 108 $ 75 $ 91
Interest attributable to rental
and lease expense.................... 42 38 40 41 44 33 31
----- ----- ----- ----- ----- ----- -----
Fixed charges............................ $ 99 $ 93 $ 98 $ 110 $ 152 $ 108 $ 122
===== ===== ===== ===== ===== ===== =====
Combined fixed charges and
preferred stock dividends:
Fixed charges........................ $ 99 $ 93 $ 98 $ 110 $ 152 $ 108 $ 122
Preferred stock dividends
(adjusted as appropriate to a
pretax equivalent basis)........... 55 29 -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Combined fixed charges and
preferred stock dividends.......... $ 154 $ 122 $ 98 $ 110 $ 152 $ 108 $ 122
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges....... 2.9 6.4 10.0 14.3 * 1.3 8.1
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to combined
fixed charges and preferred
stock dividends........................ 1.8 4.9 10.0 14.3 * 1.3 8.1
===== ===== ===== ===== ===== ===== =====
* Not meaningful. The coverage deficiency was $43 million in 1996.
5
1,000,000
9-MOS
DEC-31-1997
SEP-30-1997
2,727
1,509
1,766
66
758
7,342
7,212
3,054
12,074
3,069
1,540
0
0
195
6,125
12,074
7,322
7,322
4,587
4,587
795
0
73
869
304
565
1,525
0
0
2,090
10.52
0
