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 June 30, 2001 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.)
12500 TI Boulevard P.O. Box 660199, Dallas, Texas 75266-0199
- ------------------------------------------------------------------------------
(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
--- ---
1,734,611,289
-----------------------------------------------------------------------------
Number of shares of Registrant's common stock outstanding as of
June 30, 2001
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
- -----------------------------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
For Three Months Ended For Six Months Ended
---------------------- --------------------
June 30 June 30 June 30 June 30
Operations 2001 2000 2001 2000
- ---------- ------- ------- ------- -------
Net revenues..................................................... $ 2,037 $ 2,932 $ 4,565 $ 5,694
Operating costs and expenses:
Cost of revenues............................................... 1,523 1,486 3,028 2,907
Research and development....................................... 412 387 858 773
Selling, general and administrative............................ 400 414 748 815
------- ------- ------- ------
Total........................................................ 2,335 2,287 4,634 4,495
------- ------- ------- ------
Profit (loss) from operations.................................... (298) 645 (69) 1,199
Other income (expense) net....................................... 57 1,346 164 1,474
Interest on loans................................................ 15 20 31 41
------- ------- ------- ------
Income (loss) before income taxes and cumulative effect
of an accounting change........................................ (256) 1,971 64 2,632
Provision (benefit) for income taxes............................. (59) 675 31 886
------- ------- ------- ------
Income (loss) before cumulative effect of an accounting change... (197) 1,296 33 1,746
Cumulative effect of an accounting change........................ -- -- -- (29)
------- ------- ------- -------
Net income (loss)................................................ $ (197) $ 1,296 $ 33 $ 1,717
======= ======= ======= =======
Diluted earnings (loss) per common share:
Income (loss) before cumulative effect of an accounting change. $ (.11) $ .72 $ .02 $ .98
Cumulative effect of an accounting change...................... -- -- -- (.02)
------- ------- ------- -------
Net income (loss).............................................. $ (.11) $ .72 $ .02 $ .96
======= ======= ======= =======
Basic earnings (loss) per common share:
Income (loss) before cumulative effect of an accounting change. $ (.11) $ .76 $ .02 $ 1.02
Cumulative effect of an accounting change...................... -- -- -- (.02)
------- ------- ------- -------
Net income (loss).............................................. $ (.11) $ .76 $ .02 $ 1.00
======= ======= ======= =======
Cash dividends declared per share of common stock................ $ .021 $ .021 $ .043 $ .043
2
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
June 30 Dec. 31
Balance Sheet 2001 2000
- ------------- ------- -------
Assets
Current assets:
Cash and cash equivalents.......................................... $ 542 $ 745
Short-term investments............................................. 2,472 3,258
Accounts receivable, less allowance for losses of
$52 million in 2001 and $54 million in 2000...................... 1,666 2,204
Inventories:
Raw materials.................................................... 188 245
Work in process.................................................. 613 681
Finished goods................................................... 281 307
------- -------
Inventories.................................................... 1,082 1,233
------- -------
Prepaid expenses................................................... 122 80
Deferred income taxes.............................................. 394 595
------- -------
Total current assets............................................. 6,278 8,115
------- -------
Property, plant and equipment........................................ 9,724 9,099
Less accumulated depreciation...................................... (3,781) (3,652)
------- -------
Property, plant and equipment (net).............................. 5,943 5,447
------- -------
Investments.......................................................... 2,750 2,400
Goodwill and other acquisition-related intangibles................... 829 961
Deferred income taxes................................................ 251 106
Other assets......................................................... 651 691
------- -------
Total assets......................................................... $16,702 $17,720
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 43 $ 148
Accounts payable and accrued expenses.............................. 1,385 1,921
Income taxes payable .............................................. 174 323
Accrued retirement and profit sharing contributions................ 56 421
------- -------
Total current liabilities........................................ 1,658 2,813
------- -------
Long-term debt....................................................... 1,202 1,216
Accrued retirement costs............................................. 424 378
Deferred income taxes................................................ 463 469
Deferred credits and other liabilities............................... 288 256
Stockholders' equity:
Preferred stock, $25 par value. Authorized - 10,000,000 shares.
Participating cumulative preferred. None issued.................. -- --
Common stock, $1 par value. Authorized - 2,400,000,000 shares.
Shares issued: 2001 - 1,739,529,779; 2000 - 1,733,237,248........ 1,740 1,733
Paid-in capital.................................................... 1,291 1,185
Retained earnings.................................................. 9,282 9,323
Less treasury common stock at cost.
Shares: 2001 - 4,918,490; 2000 - 1,184,880....................... (221) (93)
Accumulated other comprehensive income............................. 684 574
Deferred compensation.............................................. (109) (134)
------- -------
Total stockholders' equity....................................... 12,667 12,588
------- -------
Total liabilities and stockholders' equity........................... $16,702 $17,720
======= =======
3
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
For Six Months Ended
--------------------
June 30 June 30
2001 2000
------- --------
Cash Flows
- ----------
Cash flows from operating activities:
Income before cumulative effect of an accounting change .................................. $ 33 $ 1,746
Depreciation ............................................................................. 731 550
Amortization of goodwill and other acquisition-related intangibles ....................... 117 51
Deferred income taxes .................................................................... 14 31
Net currency exchange losses.............................................................. 5 7
(Increase) decrease in working capital (excluding cash
and cash equivalents, short-term investments, deferred
income taxes, and loans payable and current portion
long-term debt):
Accounts receivable ................................................................... 513 (368)
Inventories ........................................................................... 151 (135)
Prepaid expenses ...................................................................... (43) (20)
Accounts payable and accrued expenses ................................................. (508) 69
Income taxes payable .................................................................. (89) 668
Accrued retirement and profit sharing contributions ................................... (356) (105)
Gain on sale of Micron common stock ...................................................... - (1,211)
Increase in noncurrent accrued retirement costs .......................................... - 8
Other .................................................................................... 137 (53)
------ ------
Net cash provided by operating activities .................................................. 705 1,238
Cash flows from investing activities:
Additions to property, plant and equipment ............................................... (1,242) (1,204)
Purchases of short-term investments ...................................................... (1,435) (2,811)
Sales and maturities of short-term investments ........................................... 2,203 1,899
Purchases of noncurrent investments ...................................................... (177) (90)
Sales of noncurrent investments .......................................................... 39 1,613
------ ------
Net cash used in investing activities ...................................................... (612) (593)
Cash flows from financing activities:
Additions to loans payable ............................................................... - 3
Payments on loans payable ................................................................ - (2)
Additions to long-term debt .............................................................. 3 241
Payments on long-term debt ............................................................... (128) (48)
Dividends paid on common stock ........................................................... (74) (69)
Sales and other common stock transactions ................................................ 87 172
Common stock repurchase program .......................................................... (158) (99)
------ ------
Net cash provided by (used in) financing activities ........................................ (270) 198
Effect of exchange rate changes on cash .................................................... (26) (31)
------ ------
Net increase (decrease) in cash and cash equivalents ....................................... (203) 812
Cash and cash equivalents, January 1 ....................................................... 745 781
------ ------
Cash and cash equivalents, June 30 ......................................................... $ 542 $1,593
====== ======
4
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
1. Diluted earnings (loss) per common share are based on average common and
dilutive potential common shares outstanding (1,735.6 and 1,793.9 million
shares for the second quarters of 2001 and 2000, and 1,785.5 and 1,789.1
million shares for the six months ended June 30, 2001 and 2000). For the
second quarter of 2001, dilutive potential common shares have been excluded
due to the net loss for the period.
2. Included in other income (expense) net for the second quarter of 2001 are
investment write-downs of $18 million for declines in value judged to be
other-than-temporary.
3. As previously noted, Hynix Semiconductor Inc. (Hynix), formerly known as
Hyundai Electronics Industries Co., Ltd., has ongoing royalty obligations
to TI under a patent license agreement expiring December 31, 2007. Hynix
had requested renegotiation of the payment schedule and in June 2001, Hynix
and TI reached agreement on a new schedule. In June 2001, Hynix made a
payment to TI of $130 million for royalties due through December 31, 2000
plus interest, bringing the Hynix account current. Recognition of
first-half 2001 royalties from Hynix has been deferred. Also in June 2001,
TI purchased $100 million of Hynix Global Depositary Shares as part of
Hynix's total offering of $1.25 billion.
4. At June 30, 2001, in millions of dollars, $118 of the $271 aggregate
severance cost obligations for the first and second quarter 2001 worldwide
cost reduction and restructuring actions affecting a total of 5439
employees had been paid. Loss for the second quarter of 2001 includes net
special charges of $252, of which $214 is severance cost for a worldwide
cost-reduction program affecting 3778 employees and $35 relates to the
restructuring charges for the closing of three Semiconductor facilities
(Merrimack, New Hampshire; Tustin, California; and Santa Cruz, California)
affecting an additional 559 employees. Of the $35, $14 is for severance
cost and $16 is for the acceleration of depreciation over the remaining
service life of the facilities. Of the $252 net special charges, $162 is
included in cost of revenues, $84 is in selling, general and administrative
expense and $6 is in research and development expense. Also included in the
second quarter of 2001 is a $68 increase to the income tax provision to
adjust to the expected tax rate for the year.
5. Income for the first quarter of 2001 includes, in millions of dollars, net
special charges of $50, of which $11 is severance cost for 241
first-quarter employee acceptances under the U.S. voluntary retirement
program, $16 is severance cost for restructuring actions affecting 261
employees in international Semiconductor locations and $25 relates to
the closing of a Semiconductor manufacturing facility in Santa Cruz,
California. Of the $25, $16 is for severance cost for 600 employees
and $5 is for acceleration of depreciation over the remaining service
life of the facility. Of the $50 of net special charges, $44 is included
in cost of revenues, $7 is in selling, general and administrative expense,
$2 is in research and development expense, and $3 is in other income.
6. Income for the second quarter of 2000 includes, in millions of dollars, an
investment gain of $1211 in other income from the sale of 20 million shares
of Micron common stock.
5
7. Income for the first quarter of 2000 includes, in millions of dollars,
special charges of $29 associated with actions including the closing of the
Sensors & Controls manufacturing facility in Versailles, Kentucky, and TI's
acquisition of Toccata Technology ApS. Of the $29 charge, $12 was for
severance for 480 employees in Kentucky. At June 30, 2001, $6 of the
severance cost obligations had been paid. Of the $29, $20 is included in
cost of revenues, $6 is in selling, general and administrative expense, and
$3 is in research and development expense.
8. Total comprehensive income (loss), i.e., net income plus investment and
pension liability adjustments to stockholders' equity, for the second
quarters of 2001 and 2000, in millions of dollars, was negative $231 and
positive $1413. For the six months ended June 30, 2001 and 2000, it was
$143 and $3257.
9. There has been no significant change in the status of the audit
investigation concerning grants from the Italian government.
10. Federal income taxes for the interim periods presented have been included
in the accompanying financial statements on the basis of an estimated
annual rate. The estimated annualized tax rate for 2001 is 49 percent. The
primary reason the effective annualized tax rate for 2001 differs from the
35 percent statutory corporate rate is due to decreased profit combined
with tax benefits such as the credit for research activities.
11. In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with
the statements. Other intangible assets will continue to be amortized over
their useful lives. The company is currently reviewing the impact of SFAS
Nos. 141 and 142 and will be performing a fair-value analysis at a later
date in connection with the adoption of SFAS No. 142 on January 1, 2002.
12. The statements of operations and statements of cash flows for the periods
ended June 30, 2001, and the balance sheet at June 30, 2001, are not
audited but reflect all adjustments which are of a normal recurring nature
and are, in the opinion of management, necessary for a fair statement of
the results of the periods shown.
6
13. Business segment information is as follows:
For Three Months Ended For Six Months Ended
---------------------- --------------------
June 30 June 30 June 30 June 30
Business Segment Net Revenues 2001 2000 2001 2000
(millions of dollars) ------- ------- ------- -------
- -----------------------------
Semiconductor
Trade.................................... $ 1,652 $ 2,507 $ 3,824 $ 4,889
Intersegment............................. 5 4 9 9
------- ------- ------- -------
1,657 2,511 3,833 4,898
------- ------- ------- -------
Sensors & Controls
Trade.................................... 255 271 515 535
Intersegment............................. 2 - 2 -
------- ------- ------- -------
257 271 517 535
------- ------- ------- -------
Educational & Productivity Solutions
Trade.................................... 129 125 210 205
Corporate activities....................... (6) (5) (7) (3)
Divested activities........................ - 30 12 59
------- ------- ------- -------
Total...................................... $ 2,037 $ 2,932 $ 4,565 $ 5,694
======= ======= ======= =======
Business Segment Profit (Loss)
(millions of dollars)
- ------------------------------
Semiconductor.............................. $ (37) $ 634 $ 267 $ 1,246
Sensors & Controls......................... 52 54 103 105
Educational & Productivity Solutions....... 38 33 55 41
Corporate activities....................... (42) (57) (79) (127)
Special charges/gains and
acquisition-related amortization,
net of applicable profit sharing......... (309) 1,186 (418) 1,132
Interest on loans/other income (expense)
net excluding a first-quarter 2001
gain of $3 and a second-quarter 2000
gain of $1211 included above in
special charges/gains and
acquisition-related amortization......... 42 115 130 222
Divested activities........................ - 6 6 13
------- ------- ------- -------
Income (loss) before income taxes
and cumulative effect of an
accounting change........................ $ (256) $ 1,971 $ 64 $ 2,632
======= ======= ======= =======
7
14. Values for acquired in-process R&D (purchased R&D) were determined at the
acquisition date based upon the appraised value of the related
developmental projects. Purchased R&D projects were assessed, analyzed and
valued within the context and framework articulated by the Securities and
Exchange Commission herein described as the Exclusion Approach.
Major assumptions, detailed in the following table, used in determining the
value of significant purchased R&D included the discount rate, the
estimated beginning date of projected operating cash flows, and the
remaining cost and time, in engineer-months, to complete the R&D projects.
The term "engineer month" refers to the average amount of research work
expected to be performed by an engineer in a month.
The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and
uncertain assumptions utilized in the valuation analysis of the purchased
R&D. Such uncertainties could give rise to unforeseen budget overruns
and/or revenue shortfalls in the event that TI is unable to successfully
complete and commercialize the projects. TI management is primarily
responsible for estimating the value of the purchased R&D in all
acquisitions accounted for under the purchase method. TI expects to
essentially meet its original return expectations for the projects.
8
Millions of Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
Cost/time to
Purchased complete R&D Year
in-process projects cash flows
Entity Acquisition Consid- Other Deferred R&D Appraisal R&D Discount -------------------- projected
acquired date eration Goodwill intan- compen- charge method focus rate At acquisi- At to begin
gibles sation tion June 2001
- --------- ----------- --------- -------- ------ -------- -------- --------- --------- -------- ---------- --------- --------
Alantro Third $277 $148 $ 81 $ 32 $ 52 Exclusion Wireless 24% $4.1/ $3.1/130 2002
Commun- quarter approach networking 256 engineer
ications, 2000 technology engineer months
Inc. for home months
and office
9
Year of Charge
----------------------------------------------------------------------
2000 2001
--------------------------------- -----------------------------------
Balance, prior Voluntary/ SC SC
actions -- primarily S&C SC and S&C E&PS involuntary site international
severance and business site restructuring severance program closings restructuring
Description* Total divestiture related closing actions action in U.S. in U.S. actions
- ------------ ----- ---------------------- ------- ------------- --------- --------- -------- -------------
BALANCE, DECEMBER 31, 2000... $ 70 $ 46 $ 11 $ 10 $ 3
CHARGES:
Severance ................... 43 $ 11 $ 16 $ 16
Asset write-downs............ 6 6
Various charges ............. 3 3
DISPOSITIONS:
Change in estimates.......... (1) (1)
Non-cash write-down of assets (6) (6)
Severance payments .......... (8) (2) (1) (1) (2) (2)
---- ---- ---- ---- ---- ---- ---- ----
BALANCE, March 31, 2001 $107 $ 44 $ 10 $ 8 $ 1 $ 11 $ 19 $ 14
---- ---- ---- ---- ---- ---- ---- ----
CHARGES:
Severance ................... $172 $ 90 $ 14 $ 68
Asset write-downs............ 16 16
Various charges ............. 8 2 5 1
Pension settlement .......... 56 48 8
DISPOSITIONS:
Change in estimates.......... (2) (2)
Non-cash write-down of assets (16) (16)
Pension payments............. (56) (48) (8)
Severance payments .......... (72) (5) (4) (2) (1) (46) (1) (13)
---- ---- ---- ---- ---- ---- ---- ----
BALANCE, June 30, 2001 $213 $ 39 $ 6 $ 6 $ - $ 57 $ 35 $ 70
==== ==== ==== ==== ==== ==== ==== ====
*Abbreviations
SC = Semiconductor Business
S&C = Sensors & Controls Business
E&PS = Educational & Productivity Solutions
10
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Registrant (the "company" or "TI") announced second-quarter financial
results that show the company's second-quarter revenue was $2037 million, down
19 percent from first quarter and consistent with the company's outlook issued
in April for a decline of about 20 percent. Orders declined 10 percent
sequentially to $1704 million. The company's second quarter results were
affected by continued weakness in electronic end-equipment markets and excess
customer inventories, which reduced demand for its Semiconductor products.
Although the downturn is not over, the company now sees some signs of
stabilization. The rate of sequential decline for the company's Semiconductor
orders has slowed and it appears that its Semiconductor revenue is nearing a
bottom.
Implementation of the company's previously announced cost-reduction measures
lowered expenses, especially in manufacturing and support functions.
Manufacturing has reduced headcount about 15 percent compared with the year-ago
period, mostly in labor-intensive assembly and test operations, and additional
savings will be realized as certain facilities complete their shutdown process.
SUMMARY OF FINANCIAL RESULTS
For the second quarter of 2001, TI reported the following:
- Total revenue for TI was $2037 million, down 31 percent from $2932
million in the year-ago quarter, and down 19 percent sequentially due
to weakness in Semiconductor.
- Cost of revenues in the second quarter was $1523 million, compared
with $1486 million in the year-ago quarter. Cost of revenues increased
primarily due to severance charges resulting from restructuring
activities.
- Research and development (R&D) totaled $412 million, up from $387
million in the second quarter of 2000 primarily due to amortization of
acquisition-related intangibles as well as severance charges.
- Selling, general and administrative expense in the quarter was $400
million, down from $414 million in the year-ago quarter as savings
from reduced profit sharing and bonus accruals and from cost-reduction
actions were substantially offset by severance charges resulting from
restructuring activities.
- Other income (expense) net decreased from $1346 million in the second
quarter of 2000 to $57 million in the second quarter of 2001,
primarily due to decreased net investment gains. In the second quarter
of 2000, TI realized a gain of $1211 million on the sale of Micron
common stock.
- The income tax rate for the quarter was 23 percent.
- TI orders in the second quarter were $1704 million, down from $3355
million in the year-ago quarter and $1898 million in the first quarter
due to weakness in Semiconductor.
Results for the second quarter of 2001 include net special charges of $252
million, of which $214 million is severance cost for a worldwide cost-reduction
program and $35 million relates to the restructuring charges for the closing of
three Semiconductor facilities (Merrimack, New Hampshire; Tustin, California;
and Santa Cruz, California). In addition, TI recorded a $68 million increase to
11
the income tax provision to adjust to the expected tax rate for the year. Also
included is amortization of goodwill and other acquisition-related intangibles
of $58 million.
For the first quarter of 2001, results include net special charges of $50
million, of which $11 million is severance cost for first-quarter employee
acceptances under the U.S. voluntary retirement program, $16 million is
severance cost for restructuring actions in international Semiconductor
locations, and $25 million relates to the closing of a Semiconductor
manufacturing facility in Santa Cruz, California. Also included is
amortization of goodwill and other acquisition-related intangibles of
$59 million.
For the second quarter of 2000, results include an investment gain of $1211
million in other income from the sale of 20 million shares of Micron common
stock. Also included is amortization of goodwill and other acquisition-related
intangibles of $25 million.
For the first quarter of 2000, results include special charges of $29 million
associated with actions including the closing of the Sensors & Controls
manufacturing facility in Versailles, Kentucky, and TI's acquisition of Toccata
Technology ApS. Also included is amortization of goodwill and other
acquisition-related intangibles of $25 million.
Additional information relating to these items appears below under the heading
"Special Charges and Gains."
OUTLOOK
Third-quarter revenue is expected to decline 10 to 15 percent sequentially as
many of TI's Semiconductor customers continue to reduce inventories in an
environment of weak demand for their own products.
Specifically, TI expects the following for the third quarter:
- - In Semiconductor, wireless revenue will increase slightly from the second
quarter but will be more than offset by declines in other products.
- - Non-Semiconductor revenue will increase sequentially as seasonal declines
in Sensors & Controls are more than offset by a seasonal increase in sales
of educational calculators for Educational & Productivity Solutions.
- - Operating margin will decline sequentially about 10 points before the
effect of special charges and amortization of acquisition-related
intangibles as a result of lower revenue.
- - Non-operating income will decline to about $20 million due to reduced
interest income.
- - Earnings per share will decline to a loss of a few cents before the effect
of special charges and amortization of acquisition-related intangibles.
For 2001, TI expects the following:
- - R&D of $1.6 billion, excluding acquisition-related amortization and
purchased in-process R&D, unchanged from the company's prior estimate and
even with last year.
- - Capital expenditures of $1.8 billion, unchanged from the prior estimate and
down 35 percent from last year.
- - Depreciation of $1.6 billion, up 30 percent from last year.
12
SEMICONDUCTOR
Semiconductor revenue in the second quarter was $1657 million, down from $2511
million in the same period of 2000 and $2176 million in the first quarter due to
broad-based weakness in demand.
As a result of lower revenue, Semiconductor had a $37 million operating loss,
compared with an operating profit of $634 million in the year-ago period and
$304 million in the first quarter.
Analog revenue was down 28 percent from the year-ago period and 24 percent
sequentially due to lower shipments across a breadth of products. DSP revenue
decreased 41 percent from the year-ago quarter and 17 percent sequentially due
to lower shipments primarily in wireless and catalog products. Analog and DSP
comprised about 65 percent of TI's Semiconductor revenue.
TI's remaining Semiconductor revenue decreased from the year-ago quarter and
sequentially.
TI's Semiconductor revenue in key markets was as follows:
- - Wireless revenue declined 49 percent compared with the year-ago quarter and
21 percent sequentially.
- - Revenue from TI's catalog products, which includes DSP and high-performance
Analog, declined 36 percent from the year-ago quarter and 29 percent
sequentially.
- - Broadband communications revenue, which includes digital subscriber line
(DSL) and cable modems, quadrupled compared with the year-ago quarter and
was even with the first quarter.
Semiconductor orders were $1321 million, down 55 percent from the year-ago
quarter and 12 percent sequentially. Orders decreased across most product
areas, although wireless increased sequentially.
SENSORS & CONTROLS
Sensors & Controls revenue was $257 million, down 5 percent from the year-ago
quarter due to lower shipments in control products and about even with the first
quarter.
Operating profit was $52 million, or 20.2 percent of revenue, down from $54
million in the year-ago quarter due to lower revenue. Operating profit was $51
million in the first quarter.
EDUCATIONAL & PRODUCTIVITY SOLUTIONS (E&PS)
E&PS revenue was $129 million, compared with $125 million in the year-ago
quarter. Sequentially, revenue increased $48 million due to retail stocking for
back-to-school sales.
Operating profit was $38 million, or 29.2 percent of revenue, compared with $33
million in the year-ago quarter. Operating profit more than doubled from the
first quarter due to the seasonal increase in revenue.
FIRST HALF 2001
For the first six months of 2001, TI reported the following:
13
- - TI revenue was $4565 million, down from $5694 million in the first six
months of 2000, due to Semiconductor. The decrease in Semiconductor revenue
for the first six months of 2001 was primarily due to a combination of weak
electronic end-equipment markets and excess customer inventories. The
decrease in Sensors & Controls was primarily due to lower shipments in
control products and the increase in E&PS was primarily due to retail
stocking for back-to-school sales.
- - Cost of revenues was $3028 million compared with $2907 million in the
year-ago period. Cost of revenues increased primarily due to severance
charges resulting from restructuring activities.
- - R&D totaled $858 million, compared to $773 million in the first six months
of 2000. The increase was primarily due to increased investment in
semiconductor technologies.
- - Selling, general and administrative expense was $748 million, down from
$815 million in the year-ago period as savings from reduced profit sharing
and bonus accruals and from cost-reduction actions were substantially
offset by severance charges resulting from restructuring activities.
- - Other income (expense) net decreased from $1474 million in the first six
months of 2000 to $164 million in the first six months of 2001, primarily
due to decreased net investment gains. In the second quarter of 2000, TI
realized a gain of $1211 million on the sale of Micron common stock.
- - The income tax rate was 49 percent.
- - Orders were $3601 million, down from $6350 million from the same period a
year ago, primarily due to weakness in Semiconductor. Semiconductor orders
for the first six months were down, primarily due to a combination of weak
electronic end-equipment markets and excess customer inventories. Sensors &
Controls orders were down, due to overall market weakness. E&PS orders were
about even.
FINANCIAL CONDITION
In the first six months of 2001, cash and cash equivalents plus short-term
investments decreased by $989 million to $3014 million, primarily due to capital
expenditures. During the second quarter of 2001, cash and cash equivalents plus
short-term investments decreased by $75 million to $3014 million, primarily due
to the repurchase of the company's common stock.
Cash flow from operating activities was $705 million in the first half of 2001.
Capital expenditures totaled $1242 million in the first six months of 2001,
compared with $1204 million in the first half of 2000.
Depreciation for the first half of 2001 was $731 million, compared with $550
million in the same period a year ago.
Debt-to-total-capital ratio was 0.09 at the end of the second quarter, versus
0.10 at the end of 2000.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the statements. Other intangible
assets will continue to be amortized over their useful lives. The company is
currently reviewing the impact of SFAS Nos. 141 and 142 and will be performing a
14
fair-value analysis at a later date in connection with the adoption of SFAS No.
142 on January 1, 2002.
SPECIAL CHARGES AND GAINS
Second Quarter of 2001
At June 30, 2001, $118 million of the $271 million aggregate severance cost
obligations for the first and second quarter 2001 worldwide cost reduction and
restructuring actions affecting a total of 5439 employees had been paid. In
total, these first and second quarter 2001 actions are expected to result in
annualized savings of approximately $400 million. In the second quarter of
2001, pretax charges of $252 million net were taken, of which $214 million was
severance cost for a worldwide cost-reduction program affecting 3778 employees
and $35 million relates to the restructuring charges for the closing of three
Semiconductor facilities (Merrimack, New Hampshire; Tustin, California; and
Santa Cruz, California) affecting an additional 559 employees. Of the $35
million charge, $14 million was for severance cost and $16 million was for the
acceleration of depreciation over the remaining service life of the facilities.
Of the $252 million, $162 million was included in cost of revenues, $84 million
is in selling, general and administrative expense and $6 million is in research
and development expense. Also included was a $68 million increase to the income
tax provision to adjust to the expected tax rate for the year.
First Quarter of 2001
In the first quarter of 2001, pretax charges of $50 million net were taken, of
which $11 million was for severance cost for 241 first-quarter employee
acceptances under the U.S. voluntary retirement program, $16 million was for
severance cost for restructuring actions affecting 261 employees in
international Semiconductor locations, and $25 million relates to the closing of
a Semiconductor manufacturing facility in Santa Cruz, California. Of the $25
million charge, $16 million was for severance cost for 600 employees and $5
million was for acceleration of depreciation over the remaining service life of
the facility. Of the $50 million, $44 million was included in cost of revenues,
$7 million is in selling, general and administrative expense, $2 million is in
research and development expense, and $3 million is in other income.
Second Quarter of 2000
In the second quarter of 2000, an investment gain of $1211 million, included in
other income, was realized from the sale of 20 million shares of Micron common
stock.
Purchased In-Process R&D Charges
Values for acquired in-process R&D (purchased R&D) were determined at the
acquisition date based upon the appraised value of the related developmental
projects. Purchased R&D projects were assessed, analyzed and valued within the
context and framework articulated by the Securities and Exchange Commission
herein described as the Exclusion Approach.
Major assumptions, detailed in the following table, used in determining the
value of significant purchased R&D included the discount rate, the estimated
beginning date of projected operating cash flows, and the remaining cost and
time, in engineer-months, to complete the R&D projects. The term "engineer
month" refers to the average amount of research work expected to be performed by
an engineer in a month.
The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and uncertain
15
assumptions utilized in the valuation analysis of the purchased R&D. Such
uncertainties could give rise to unforeseen budget overruns and/or revenue
shortfalls in the event that TI is unable to successfully complete and
commercialize the projects. TI management is primarily responsible for
estimating the value of the purchased R&D in all acquisitions accounted for
under the purchase method. TI expects to essentially meet its original return
expectations for the projects.
16
Millions of Dollars
- -----------------------------------------------------------------------------------------------------------------------------------
Cost/time to
Purchased complete R&D Year
in-process projects cash flows
Entity Acquisition Consid- Other Deferred R&D Appraisal R&D Discount -------------------- projected
acquired date eration Goodwill intan- compen- charge method focus rate At acquisi- At to begin
gibles sation tion June 2001
- --------- ----------- --------- -------- ------ -------- -------- --------- --------- -------- ---------- --------- ---------
Alantro Third $277 $148 $ 81 $ 32 $ 52 Exclusion Wireless 24% $4.1/ $3.1/130 2002
Commun- quarter approach networking 256 engineer
ications, 2000 technology engineer months
Inc. for home months
and office
17
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Information concerning market risk is contained on pages B-43 and B-44 of the
Registrant's proxy statement for the 2001 annual meeting of stockholders and is
incorporated by reference to such proxy statement.
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders held on April 19, 2001, the
stockholders voted upon the election of directors.
The Board nominees were elected as directors with the following vote:
Nominee For Withheld
James R. Adams 1,508,719,506 8,278,810
David L. Boren 1,508,703,241 8,295,075
James B. Busey 1,508,574,138 8,424,178
Daniel A. Carp 1,508,866,014 8,132,302
Thomas J. Engibous 1,508,420,528 8,577,788
Gerald W. Fronterhouse 1,507,362,581 9,635,735
David R. Goode 1,508,924,184 8,074,132
Wayne R. Sanders 1,509,023,214 7,975,102
Ruth J. Simmons 1,508,528,387 8,469,929
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Designation of
Exhibits in
This Report Description of Exhibit
-------------- -----------------------------
11 Computation of Basic and Diluted Earnings
Loss) Per Common and Dilutive Potential
Common Share.
12 Computation of Ratio of Earnings to Fixed
Charges.
(b) Reports on Form 8-K.
During the quarter ended June 30, 2001, the Registrant filed reports on Form 8-K
dated May 14 and June 18, 2001, each confirming its outlook for the second
quarter of 2001 as set forth in the Outlook Section included in Item 2 of its
Form 10-Q for the quarter ending March 31, 2001.
18
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: This Form 10-Q includes "forward-looking statements" intended to qualify
for the safe harbor from liability established by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements generally can
be identified by phrases such as TI or its management "believes," "expects,"
"anticipates," "foresees," "forecasts," "estimates" or other words or phrases of
similar import. Similarly, such statements herein that describe the company's
business strategy, outlook, objectives, plans, intentions or goals also are
forward-looking statements. All such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those in forward-looking statements.
We urge you to carefully consider the following important factors that could
cause actual results to differ materially from the expectations of the company
or its management:
- - Market demand for Semiconductors, particularly for digital signal
processors and analog chips in key markets, such as telecommunications and
computers;
- - TI's ability to develop, manufacture and market innovative products in a
rapidly changing technological environment;
- - TI's ability to compete in products and prices in an intensely competitive
industry;
- - TI's ability to maintain and enforce a strong intellectual property
portfolio and obtain needed licenses from third parties;
- - Timely completion and successful integration of announced acquisitions;
- - Global economic, social and political conditions in the countries in which
TI and its customers and suppliers operate, including fluctuations in
foreign currency exchange rates;
- - Losses or curtailments of purchases from key customers;
- - TI's ability to recruit and retain skilled personnel; and
- - Availability of raw materials and critical manufacturing equipment.
For a more detailed discussion of these factors, see the text under the heading
"Cautionary Statements Regarding Future Results of Operations" in Item 1 of the
company's most recent Form 10-K. The forward-looking statements included in this
Form 10-Q are made only as of the date of this Form 10-Q and the company
undertakes no obligation to update the forward-looking statements to reflect
subsequent events or circumstances.
19
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: July 27, 2001
20
EXHIBIT 11
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
EARNINGS (LOSS) PER COMMON AND DILUTIVE POTENTIAL COMMON SHARE
For Three Months Ended For Six Months Ended
---------------------- ---------------------
June 30 June 30 June 30 June 30
2001 2000 2001 2000
--------- --------- --------- ---------
Income (loss) before cumulative effect of an accounting change..... $ (197) $ 1,296 $ 33 $ 1,746
Add: Interest, net of tax effect, on convertible
debentures assumed converted.............................. -- 2 -- 2
--------- --------- --------- ---------
Adjusted income (loss) before cumulative effect
of an accounting change.......................................... (197) 1,298 33 1,748
Cumulative effect of an accounting change.......................... -- -- -- (29)
--------- --------- --------- ---------
Adjusted net income (loss) in millions............................. $ (197) $ 1,298 $ 33 $ 1,719
========= ========= ========= =========
Diluted earnings (loss) per common and dilutive potential common share:
Weighted average common shares outstanding (in thousands).......... 1,735,623 1,712,756 1,735,086 1,708,716
Weighted average dilutive potential common shares:
Stock option and compensation plans............................ -- 75,507 50,390 76,439
Convertible debentures............................................ -- 5,625 -- 3,925
--------- --------- --------- ---------
Weighted average common and dilutive potential common shares....... 1,735,623 1,793,888 1,785,476 1,789,080
========= ========= ========= =========
Diluted earnings (loss) per common share:
Income (loss) before cumulative effect of an accounting change... $ (0.11) $ 0.72 $ 0.02 $ 0.98
Cumulative effect of an accounting change........................ -- -- -- (0.02)
--------- --------- --------- ---------
Net income (loss).................................................. $ (0.11) $ 0.72 $ 0.02 $ 0.96
========= ========= ========= =========
Basic earnings (loss) per common share:
Weighted average common shares outstanding (in thousands).......... 1,735,623 1,712,756 1,735,086 1,708,716
========= ========= ========= =========
Basic earnings (loss) per common share:
Income (loss) before cumulative effect of an accounting change... $ (0.11) $ 0.76 $ 0.02 $ 1.02
Cumulative effect of an accounting change........................ -- -- -- (0.02)
--------- --------- --------- ---------
Net income (loss).................................................. $ (0.11) $ 0.76 $ 0.02 $ 1.00
========= ========= ========= =========
Exhibit 12
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
For Six Months
Ended June 30
----------------
1996 1997 1998 1999 2000 2000 2001
---- ---- ---- ---- ---- ---- ----
Earnings:
Income from continuing operations
before income taxes plus fixed
charges and amortization of
capitalized interest less
interest capitalized.................. $ 190 $ 973 $ 815 $2,205 $4,702 $ 2,696 $ 120
====== ====== ====== ====== ====== ======= =====
Fixed charges:
Total interest on loans (expensed
and capitalized) ..................... 108 115 86 84 98 51 40
Interest attributable to rental
and lease expense..................... 44 44 41 30 32 15 17
--- --- --- --- --- --- ---
Fixed charges............................. $ 152 $ 159 $ 127 $ 114 $ 130 $ 66 $ 57
====== ====== ====== ====== ====== ====== =====
Ratio of earnings to fixed charges........ 1.2 6.1 6.4 19.3 36.2 40.8 2.1