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 March 31, 2001 Commission File Number 1-3761
TEXAS INSTRUMENTS INCORPORATED
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(Exact name of Registrant as specified in its charter)
Delaware 75-0289970
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(State of Incorporation) (I.R.S. Employer Identification No.)
12500 TI Boulevard P.O. Box 660199, Dallas, Texas 75266-0199
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 972-995-3773
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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
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1,735,984,427
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Number of shares of Registrant's common stock outstanding as of
March 31, 2001
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.)
For Three Months Ended
----------------------
Mar. 31 Mar. 31
Income 2001 2000
- ------ ------- -------
Net revenues.......................................................... $ 2,528 $ 2,761
Operating costs and expenses:
Cost of revenues.................................................... 1,505 1,420
Research and development............................................ 446 386
Selling, general and administrative................................. 348 401
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Total............................................................. 2,299 2,207
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Profit from operations................................................ 229 554
Other income (expense) net............................................ 107 128
Interest on loans..................................................... 16 21
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Income before provision for income taxes and cumulative
effect of an accounting change...................................... 320 661
Provision for income taxes............................................ 90 211
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Income before cumulative effect of an accounting change............... 230 450
Cumulative effect of an accounting change............................. -- (29)
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Net income............................................................ $ 230 $ 421
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Diluted earnings per common share:
Income before cumulative effect of an accounting change............. $ .13 $ .25
Cumulative effect of an accounting change........................... -- (.01)
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Net income.......................................................... $ .13 $ .24
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Basic earnings per common share:
Income before cumulative effect of an accounting change............. $ .13 $ .26
Cumulative effect of an accounting change........................... -- (.01)
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Net income.......................................................... $ .13 $ .25
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Cash dividends declared per share of common stock..................... $ .021 $ .021
2
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
Mar. 31 Dec. 31
Balance Sheet 2001 2000
- ------------- ------- -------
Assets
Current assets:
Cash and cash equivalents.......................................... $ 304 $ 745
Short-term investments............................................. 2,785 3,258
Accounts receivable, less allowance for losses of
$63 million in 2001 and $54 million in 2000...................... 1,948 2,204
Inventories:
Raw materials.................................................... 218 245
Work in process.................................................. 678 681
Finished goods................................................... 284 307
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Inventories.................................................... 1,180 1,233
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Prepaid expenses................................................... 140 80
Deferred income taxes.............................................. 547 595
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Total current assets............................................. 6,904 8,115
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Property, plant and equipment........................................ 9,702 9,099
Less accumulated depreciation...................................... (3,709) (3,652)
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Property, plant and equipment (net).............................. 5,993 5,447
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Investments.......................................................... 2,661 2,400
Goodwill and other acquisition-related intangibles................... 874 961
Deferred income taxes................................................ 116 106
Other assets......................................................... 694 691
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Total assets......................................................... $17,242 $17,720
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Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 46 $ 148
Accounts payable................................................... 795 997
Accrued and other current liabilities.............................. 1,042 1,668
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Total current liabilities........................................ 1,883 2,813
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Long-term debt....................................................... 1,228 1,216
Accrued retirement costs............................................. 356 378
Deferred income taxes................................................ 495 469
Deferred credits and other liabilities............................... 278 256
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 - 1,737,306,923; 2000 - 1,733,237,248........ 1,737 1,733
Paid-in capital.................................................... 1,249 1,185
Retained earnings.................................................. 9,517 9,323
Less treasury common stock at cost.
Shares: 2001 - 1,322,496; 2000 - 1,184,880....................... (96) (93)
Accumulated other comprehensive income............................. 718 574
Deferred compensation ............................................. (123) (134)
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Total stockholders' equity....................................... 13,002 12,588
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Total liabilities and stockholders' equity........................... $17,242 $17,720
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3
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
For Three Months Ended
----------------------
Mar. 31 Mar. 31
2001 2000
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Cash Flows
- ----------
Cash flows from operating activities:
Income before cumulative effect of an accounting change ....... $ 230 $ 450
Depreciation .................................................. 344 262
Amortization of acquisition-related costs ..................... 59 25
Deferred income taxes ......................................... 21 29
Net currency exchange losses................................... 1 1
(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 ........................................ 234 (10)
Inventories ................................................ 54 (133)
Prepaid expenses ........................................... (61) (15)
Accounts payable ........................................... (186) 193
Accrued and other current liabilities ...................... (609) (302)
Increase (decrease) in noncurrent accrued retirement costs .... (9) 4
Other ......................................................... 41 (3)
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Net cash provided by operating activities ....................... 119 501
Cash flows from investing activities:
Additions to property, plant and equipment .................... (900) (647)
Purchases of short-term investments ........................... (527) (968)
Sales and maturities of short-term investments ................ 1,002 1,209
Purchases of noncurrent investments ........................... (48) (43)
Sales of noncurrent investments ............................... 33 54
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Net cash used in investing activities ........................... (440) (395)
Cash flows from financing activities:
Payments on loans payable ..................................... - (2)
Additions to long-term debt ................................... 3 243
Payments on long-term debt .................................... (108) (29)
Dividends paid on common stock ................................ (37) (35)
Sales and other common stock transactions ..................... 42 94
Common stock repurchase program ............................... (7) (66)
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Net cash provided by (used in) financing activities ............. (107) 205
Effect of exchange rate changes on cash ......................... (13) (18)
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Net increase (decrease) in cash and cash equivalents ............ (441) 293
Cash and cash equivalents, January 1 ............................ 745 781
------ ------
Cash and cash equivalents, March 31 ............................. $ 304 $1,074
====== ======
4
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
1. Diluted earnings per common share are based on average common and dilutive
potential common shares outstanding (1,785.4 and 1,782.0 million shares for
the first quarters of 2001 and 2000).
2. Included in other income (expense) net for the first quarter of 2001 are
investment write-downs of $35 million for declines in value determined to
be other-than-temporary.
3. 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. As previously noted, Hynix
has requested a renegotiation of the payment schedule of the obligations.
Agreement on revisions to the payment schedule has not yet been reached.
Pending future developments, TI is deferring the recognition of royalty
revenues from Hynix. TI, which has significant legal remedies available,
believes its recorded receivable balance from Hynix, $129 million at March
31, 2001, is collectible.
4. 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 (which covers the corporate, semiconductor and sensors & controls
activities and expired April 16, 2001), $16 is severance cost for
restructuring actions affecting 261 employees in international
semiconductor locations, mostly in Germany, and $25 relates to the
fourth-quarter 2001 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 an
increase in cost of revenues, $7 in selling, general and administrative
expense, $2 in research and development expense, and $3 in other income. At
March 31, 2001, $2 of the aggregate severance cost obligations had been
paid.
5. Income for the first quarter of 2000 included, 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 March 31, 2001, $2 of the
severance cost obligation had been paid. Of the $29 charge, $20 was
included in cost of revenues, $6 in selling, general and administrative
expense, and $3 in research and development expense.
6. Total comprehensive income, i.e., net income plus investment and pension
liability adjustments to stockholders' equity, for the first quarters of
2001 and 2000 was $374 million and $1844 million.
7. There has been no significant change in the status of the audit concerning
grants from the Italian government.
8. The statements of income, statements of cash flows and balance sheet at
March 31, 2001, 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.
5
9. Business segment information is as follows:
For Three Months Ended
----------------------
Mar. 31 Mar. 31
Business Segment Net Revenues 2001 2000
(millions of dollars) ------- -------
- -----------------------------
Semiconductor
Trade.................................... $ 2,172 $ 2,382
Intersegment............................. 4 5
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2,176 2,387
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Sensors & Controls
Trade.................................... 260 264
Intersegment............................. - -
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260 264
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Educational & Productivity Solutions
Trade.................................... 81 79
Corporate activities....................... (2) 2
Divested activities........................ 13 29
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Total...................................... $ 2,528 $ 2,761
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Business Segment Profit (Loss)
(millions of dollars)
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Semiconductor.............................. $ 304 $ 612
Sensors & Controls......................... 51 52
Educational & Productivity Solutions....... 17 8
Corporate activities....................... (38) (70)
Special charges/gains and
acquisition-related amortization,
net of applicable profit sharing......... (109) (54)
Interest on loans/other income (expense)
net, excluding a first-quarter
2001 gain of $3 million included above
in special charges/gains and
acquisition-related amortization......... 89 107
Divested activities........................ 6 6
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Income before provision for income taxes
and cumulative effect of an
accounting change........................ $ 320 $ 661
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6
10. Acquisition-related purchased in-process research and development (R&D)
charges were zero in the first quarter of 2001 and $3 million in the first
quarter of 2000. These charges are for R&D from business purchase
acquisitions. 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.
7
Millions of Dollars
- ---------------------------------------------------------------------------------------------------------------------------------
Purchased Cost/time to complete Year
in-process R&D 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 At to begin
gibles sation acquisition Mar. 2001
- -------- ----------- ------- -------- ------ -------- ------- --------- ---------- ---- ----------- ---------- -------
Alantro Third $277 $148 $ 81 $ 32 $ 52 Exclusion Wireless 24% $4.1/ $6.5/260 2002
Commun- quarter approach networking 256 engineer
ications, 2000 technology engineer months
Inc. for home months
and office
Dot Third $467 $302 $ 46 $119 $ 60 Exclusion Architec- 20% $2.9/ Project 2003
Wireless, quarter approach ture for 172 completed
Inc. 2000 third engineer
generation months
(3G) wire-
less de-
vices for
delivering
voice and
high speed
data to
mobile
users
8
11. The following is a reconciliation of individual restructuring accruals (in millions of dollars).
Year of Charge
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2000 2001
--------------------------------- ----------------------------------
Balance, prior Voluntary SC SC
actions -- primarily S&C SC and S&C E&PS retirement site international
severance and business site restructuring severance program closing 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
Incremental depreciation... 5 5
Various charges ........... 4 4
DISPOSITIONS:
Severance payments ........ (8) (2) (1) (1) (2) - (2)
Non-cash asset charges (6) - - - (6) -
Change in estimates........ (1) - (1) - - -
---- ---- ---- ---- ---- ---- ---- ----
BALANCE, MARCH 31, 2001 $107 $ 44 $ 10 $ 8 $ 1 $ 11 $ 19 $ 14
==== ==== ==== ==== ==== ==== ==== ====
*Abbreviations
SC = Semiconductor Business
S&C = Sensors & Controls Business
E&PS = Educational & Productivity Solutions Business
9
12. The company adopted SFAS No. 133 in the first quarter of 2001. The standard
requires that all derivatives be marked-to-market on an ongoing basis.
Along with the derivatives, underlying hedged items are also to be
marked-to-market on an ongoing basis. The standard, which did not have a
material impact on the company, was adopted effective January 1, 2001, on a
cumulative basis. The cumulative effect of the accounting change on prior
years was insignificant and is not separately presented. Following is a
discussion of derivatives held by the company at March 31, 2001.
Designated fair value hedge: the company has interest rate swaps that, with
no ineffectiveness, change the characteristics of the interest payments on
its $300 million of 6.125% notes due 2006 from fixed-rate payments to
short-term LIBOR-based variable rate payments in order to achieve a mix of
interest rates on the company's long-term debt, which over time is expected
to moderate financing costs.
Other derivatives: the company uses short-term forward currency exchange
contracts to minimize the adverse earnings impact from the effect of
exchange rate fluctuations on the company's non-U.S. dollar net balance
sheet exposures (the U.S. dollar is the functional currency for financial
reporting). At March 31, 2001, the company had forward currency exchange
contracts outstanding, in millions of dollars, of $419 (including $122 to
buy euros, $113 to sell yen and $46 to buy Taiwan dollars).
The company uses short-term TI stock collars (cash settlement only) to
minimize the adverse earnings impact from the effect of stock market value
fluctuations on the portion of the company's deferred compensation
obligations denominated in TI stock ($30 million at March 31, 2001).
The company has several stock investment warrants considered derivatives.
At March 31, 2001, their aggregate value was less than $0.5 million.
13. The $29 million cumulative effect of an accounting change in first quarter
2000 related to the company's adoption that year of Staff Accounting
Bulletin No. 101 on revenue recognition.
10
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Registrant (the "company" or "TI") announced first-quarter financial results
that show revenue in the quarter was $2528 million, down 17 percent
sequentially. Results were impacted by a combination of weak electronic
end-equipment demand and excess customer inventories, resulting in reduced
demand for its semiconductor products.
Early in the first quarter, TI began an aggressive cost-reduction plan to limit
the impact of reduced revenue on profitability. Actions have included a
voluntary retirement program, shortened workweeks in some areas, and
consolidation of certain manufacturing operations. Overhead costs were
significantly reduced, maintaining selling, general and administrative expenses,
excluding acquisition-related amortization and special charges, at the same
percentage of revenue as in the fourth quarter. To further align the company's
expenses with near-term revenue expectations, TI will lay off about 2,500, or 6
percent, of its employees worldwide. These reductions will begin in the second
quarter and the company will take associated special charges at that time. Most
of these job eliminations are in support functions and manufacturing. In total,
these actions are expected to result in annualized savings of approximately $400
million when completed.
SUMMARY OF FINANCIAL RESULTS
For the first quarter of 2001, TI reported the following:
- Total revenue for TI was $2528 million, down 8 percent from $2761
million in the year-ago quarter and down 17 percent sequentially due
to weakness in semiconductor.
- Cost of revenues in the first quarter was $1505 million, compared with
$1420 million in the year-ago quarter. Cost of revenues increased
primarily due to increased manufacturing overhead.
- Research and development (R&D) totaled $446 million, up from $386
million in the first quarter of 2000 primarily due to increased
investment in DSP and 300mm process technology.
- Selling, general and administrative expense in the quarter was $348
million, down from $401 million in the year-ago quarter primarily due
to reduced profit sharing and bonus accruals. The decrease was more
than the total decrease in TI revenues, on a percentage basis.
- Other income (expense) net decreased from $128 million in the first
quarter of 2000 to $107 million in the first quarter of 2001, due to
decreased net investment gains.
- The income tax rate for the quarter was 28.2 percent.
- TI orders in the first quarter were $1898 million, down from $2996
million in the year-ago quarter and $2772 million in the fourth
quarter of 2000 due to weak electronic end-equipment demand and excess
customer inventories.
Results for this quarter 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 (which covers the corporate, semiconductor and
sensors & controls activities and expired April 16, 2001), $16 million is
severance cost for restructuring actions in international semiconductor
locations, mostly in Germany, and $25 million relates to the fourth-quarter 2001
closing of a semiconductor manufacturing facility in Santa Cruz, California.
11
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.
For the fourth quarter of 2000, the company recorded a pretax charge of $3
million for a severance action by the Educational & Productivity Solutions
(E&PS) business affecting 51 jobs in Europe and the U.S. The company also
recorded a charge of $9 million in the quarter for additional pooling of
interests transaction costs from the third-quarter 2000 Burr-Brown Corporation
acquisition.
In the fourth quarter of 2000, TI recognized a gain of $88 million from the sale
of its memory business. Gain recognition had previously been deferred pending
repayment of the remaining TI-provided financing for the 1998 transaction, which
occurred in the fourth quarter of 2000. TI also recognized a gain of $56
million from the sale of the materials portion of the Sensors & Controls
business. In addition, TI recorded a $69 million credit to the provision for
income taxes from the reduction of deferred tax valuation allowances, primarily
in Japan.
Additional information relating to these items appears below under the heading
"Special Charges and Gains."
OUTLOOK
TI expects revenue to decline about 20 percent sequentially in the second
quarter as semiconductor customers continue to work through excess inventories
in an environment in which consumption of their electronic end-equipment
products continues to be weak. Due to continuing uncertain economic conditions,
it is unclear when demand for TI's semiconductor products will strengthen.
Specifically, TI expects the following for the second quarter:
- Revenue from semiconductor to decline sequentially, with weakness
affecting almost all product areas;
- Revenue from TI's non-semiconductor activities, including Sensors &
Controls and E&PS, to increase sequentially, primarily reflecting
seasonal retail stocking for back-to-school sales of calculators;
- Operating margin to decline to about breakeven in the second quarter
before the effect of special charges and amortization of
acquisition-related intangibles as a result of lower revenue; and
- Non-operating income to decline to about $40 million sequentially due
to reduced investment gains and interest income.
For 2001, TI expects the following:
- R&D of $1.6 billion, excluding acquisition-related amortization and
purchased in-process R&D, down from the prior estimate of $1.7
billion;
- Capital expenditures of $1.8 billion, down from the prior estimate of
$2.0 billion;
- Depreciation of $1.5 billion, unchanged from the prior estimate; and
- Amortization of acquisition-related costs of $240 million.
12
SEMICONDUCTOR
Semiconductor revenue in the first quarter was $2176 million, down from $2387
million in the same period in 2000 and $2695 million in the fourth quarter of
2000 due to weak demand across a breadth of products.
Semiconductor operating profit for the first quarter was $304 million, or 14.0
percent of revenue, compared with $612 million in the year-ago period and $679
million in the fourth quarter of 2000, primarily due to reduced product revenue
and, to a lesser extent, lower royalties.
Analog revenue was up 2 percent from the year-ago period, and declined 17
percent sequentially due to lower shipments. DSP revenue decreased 28 percent
from the same quarter a year ago and 21 percent sequentially due to lower
shipments. Analog and DSP comprised about 65 percent of TI's semiconductor
revenue.
TI's remaining semiconductor revenue decreased from the year-ago quarter and
from the fourth quarter of 2000.
TI's semiconductor revenue in TI's key markets was as follows:
- wireless declined 34 percent compared with the year-ago quarter and 25
percent sequentially;
- catalog products, which includes DSP and high-performance Analog,
increased 4 percent from the year-ago quarter and declined 15 percent
sequentially; and
- broadband communications, which includes digital subscriber lines
(DSL) and cable modems, was more than six times that of the year-ago
quarter and increased 15 percent sequentially, driven by strength in
DSL which grew more than 50 percent sequentially.
Semiconductor orders were down 42 percent from the year-ago quarter and 39
percent sequentially, reflecting weakness across almost all product areas.
SENSORS & CONTROLS
Sensors & Controls revenue was $260 million, about even with the year-ago
quarter. Sequentially, revenue increased 4 percent due to seasonal gains in
control products.
Operating profit was $51 million, or 19.5 percent of revenue, compared with $52
million in the year-ago quarter. Operating profit increased 20 percent from $42
million in the fourth quarter of 2000 due to lower production costs.
EDUCATIONAL & PRODUCTIVITY SOLUTIONS (E&PS)
E&PS revenue was $81 million, compared with $79 million in the year-ago quarter.
Sequentially, revenue increased 23 percent as sales growth resumed following
fourth-quarter inventory adjustments in the retail channel.
Operating profit was $17 million, or 21.2 percent of revenue, up from $8 million
in the year-ago quarter due to higher gross margin. Operating profit almost
tripled from $6 million in the fourth quarter of 2000 primarily due to increased
revenue.
ADDITIONAL FINANCIAL INFORMATION
During the first three months of 2001, cash and cash equivalents plus short-term
investments decreased by $914 million to $3089 million, primarily due to capital
expenditures.
13
Cash flow from operating activities was $119 million for the quarter.
Capital expenditures totaled $900 million in the first quarter of 2001 versus
$647 million in the year-ago quarter.
Depreciation for the first quarter of 2001 was $339 million, excluding the
acceleration of depreciation associated with the fourth quarter closing of a
semiconductor manufacturing facility in Santa Cruz, California, versus $262
million in the year-ago quarter.
At the end of quarter, the debt-to-total-capital ratio was 0.09, versus 0.10 at
the end of 2000.
SPECIAL CHARGES AND GAINS
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 (which covers the
corporate, semiconductor and sensors & controls activities and expired April 16,
2001), $16 million was for severance cost for restructuring actions affecting
261 employees in international semiconductor locations, mostly in Germany, and
$25 million relates to the fourth-quarter 2001 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 of net special charges, $44 million was an increase in cost of
revenues, $7 million in selling, general and administrative expense, $2 million
in research and development expense, and $3 million in other income. As of
March 31, 2001, $2 million of the aggregate severance cost obligations had been
paid. In total, these first-quarter actions, plus other actions affecting the
second quarter discussed herein, are expected to result in annualized savings of
approximately $400 million when completed.
Fourth Quarter of 2000
In the fourth quarter of 2000, TI recognized a gain of $88 million from the sale
of its memory business. Gain recognition had previously been deferred pending
repayment of the remaining TI-provided financing for the 1998 transaction, which
occurred in the fourth quarter of 2000. TI also recognized a gain of $56
million from the sale of the materials portion of the Sensors & Controls
business.
In the fourth quarter of 2000, TI recorded a $69 million credit to the provision
for income taxes from the reduction of deferred tax valuation allowances,
primarily in Japan. The company also recorded a pretax charge of $3 million,
included in selling, general and administrative expense, for a severance action
by E&PS affecting 51 jobs in Europe and the U.S. As of March 31, 2000, $2
million of the severance costs had been paid. The primary benefit from this
action is reduced personnel costs, which are estimated to reach $6 million
annually. The benefit began in the first quarter of 2001. The company also
recorded a charge of $9 million in the quarter for additional pooling of
interests transaction costs from the third-quarter 2000 Burr-Brown Corporation
acquisition ($5 million included in selling, general and administrative expense
and $4 million in cost of revenues).
First Quarter of 2000
In the first quarter of 2000, pretax charges of $29 million were taken,
associated with actions including the closing of the sensors & controls
14
manufacturing facility in Versailles, Kentucky, and TI's acquisition of Toccata
Technology ApS. Of the $29 million charge, $12 million was for severance for
the elimination of 480 jobs in Kentucky. Of the $29 million, $20 million is
included in cost of revenues, $6 million in selling, general and administrative
expense and $3 million in research and development. The primary benefit from
the Kentucky action is reduced personnel costs, which are estimated to reach $10
million annually. The benefit began in the fourth quarter of 2000. As of March
31, 2001, $2 million of the severance cost had been paid.
Purchased In-Process R&D Charges
Acquisition-related purchased in-process R&D charges were zero in the first
quarter of 2001 and $3 million in the first quarter of 2000. These charges are
for R&D from business purchase acquisitions. 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.
15
Millions of Dollars
- ---------------------------------------------------------------------------------------------------------------------------------
Purchased Cost/time to complete Year
in-process R&D 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 At to begin
gibles sation acquisition Mar. 2001
- -------- ----------- ------- -------- ------ -------- ------- --------- ---------- ---- ----------- ---------- -------
Alantro Third $277 $148 $ 81 $ 32 $ 52 Exclusion Wireless 24% $4.1/ $6.5/260 2002
Commun- quarter approach networking 256 engineer
ications, 2000 technology engineer months
Inc. for home months
and office
Dot Third $467 $302 $ 46 $119 $ 60 Exclusion Architec- 20% $2.9/ Project 2003
Wireless, quarter approach ture for 172 completed
Inc. 2000 third engineer
generation months
(3G) wire-
less de-
vices for
delivering
voice and
high speed
data to
mobile
users
16
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 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 Per Common
and Dilutive Potential
Common Share
12 Computation of Ratio of
Earnings to Fixed Charges
(b) Reports on Form 8-K.
None.
"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;
17
- - 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.
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: April 26, 2001
18
EXHIBIT 11
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
EARNINGS PER COMMON AND DILUTIVE POTENTIAL COMMON SHARE
For Three Months Ended
----------------------
Mar. 31 Mar. 31
2001 2000
-------- --------
Income before cumulative effect of an accounting change........ $ 230 $ 450
Cumulative effect of an accounting change...................... -- (29)
-------- --------
Net income (in millions)....................................... $ 230 $ 421
======== ========
Diluted earnings per common and dilutive potential common share:
- ---------------------------------------------------------------
Weighted average common shares outstanding (in thousands)...... 1,734,543 1,704,675
Weighted average dilutive potential common shares:
Stock option and compensation plans........................ 50,886 77,347
--------- ---------
Weighted average common and dilutive potential common shares... 1,785,429 1,782,022
========= =========
Diluted earnings per common share:
Income before cumulative effect of an accounting change...... $ .13 $ .25
Cumulative effect of an accounting change.................... -- (.01)
-------- --------
Net income .................................................... $ .13 $ .24
======== ========
Basic earnings per common share:
- -------------------------------
Weighted average common shares outstanding (in thousands)...... 1,734,543 1,704,675
========= =========
Basic earnings per common share:
Income before cumulative effect of an accounting change...... $ .13 $ .26
Cumulative effect of an accounting change.................... -- (.01)
-------- --------
Net income..................................................... $ .13 $ .25
======== ========
Exhibit 12
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
For Three Months
Ended March 31
---------------
1996 1997 1998 1999 2000 2000 2001
------ ------ ------ ------ ------ ------ ------
Earnings:
Income before income taxes plus
fixed charges and amortization of
capitalized interest less
interest capitalized.................. $ 190 $ 973 $ 815 $2,205 $4,702 $ 692 $ 349
====== ====== ====== ====== ====== ====== ======
Fixed charges:
Total interest on loans (expensed
and capitalized) ..................... $ 108 $ 115 $ 86 $ 84 $ 98 $ 25 $ 21
Interest attributable to rental
and lease expense..................... 44 44 41 30 32 7 9
------ ------ ------ ------ ------ ------ ------
Fixed charges............................. $ 152 $ 159 $ 127 $ 114 $ 130 $ 32 $ 30
====== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges........ 1.2 6.1 6.4 19.3 36.2 21.6 11.6