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, 1996 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
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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
---- ----
189,961,969
- -----------------------------------------------------------------------------
Number of shares of Registrant's common stock outstanding
as of September 30, 1996
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
- ------------------------------
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
For Three Months Ended For Nine Months Ended
---------------------- ---------------------
<S> <C> <C> <C> <C>
Sept 30 Sept 30 Sept 30 Sept 30
Income 1996 1995 1996 1995
- ------ ------- ------- ------- -------
Net revenues............................................... $ 2,841 $ 3,425 $ 8,761 $ 9,525
Operating costs and expenses:
Cost of revenues......................................... 2,075 2,322 6,322 6,373
Research and development................................. 466 221 983 648
Marketing, general, and administrative................... 424 445 1,288 1,319
------- ------- ------- -------
Total.................................................. 2,965 2,988 8,593 8,340
------- ------- ------- -------
Profit (loss) from operations.............................. (124) 437 168 1,185
Other income (expense) net................................. 15 6 79 42
Interest on loans.......................................... 24 12 48 38
------- ------- ------- -------
Income (loss) before provision for income taxes............ (133) 431 199 1,189
Provision for income taxes................................. 15 142 108 392
------- ------- ------- -------
Net income (loss).......................................... $ (148) $ 289 $ 91 $ 797
======= ======= ======= =======
Earnings (loss) per common and common equivalent share..... $ (0.78) $ 1.48 $ 0.48 $ 4.13
Cash dividends declared per share of common stock.......... $ 0.17 $ 0.17 $ 0.51 $ 0.465
Cash Flows
- ----------
Net cash provided by operating activities.............................................. $ 246 $ 1,135
Cash flows from investing activities:
Additions to property, plant and equipment........................................... (1,696) (914)
Purchases of short-term investments.................................................. (14) (606)
Sales and maturities of short-term investments....................................... 195 801
Acquisition of business, net......................................................... (313) --
Proceeds from sale of businesses..................................................... 150 --
------- -------
Net cash used in investing activities.................................................. (1,678) (719)
Cash flows from financing activities:
Additions to loans payable........................................................... 162 42
Additions to long term debt.......................................................... 841 24
Payments on long term debt........................................................... (172) (5)
Dividends paid on common stock....................................................... (97) (78)
Sales and other common stock transactions............................................ 23 99
Other................................................................................ (2) 1
------- -------
Net cash provided by financing activities.............................................. 755 83
Effect of exchange rate changes on cash................................................ (11) 9
------- -------
Net increase (decrease) in cash and cash equivalents................................... (688) 508
Cash and cash equivalents, January 1................................................... 1,364 760
------- -------
Cash and cash equivalents, September 30................................................ $ 676 $ 1,268
======= =======
</TABLE>
2
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
Sept. 30 Dec. 31
Balance Sheet 1996 1995
- ------------- -------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................................... $ 676 $ 1,364
Short-term investments............................................. 8 189
Accounts receivable, less allowance for losses of
$62 million in 1996 and $45 million in 1995...................... 2,174 2,320
Inventories:
Raw materials.................................................... 242 299
Work in process.................................................. 728 607
Finished goods................................................... 293 434
Less progress billings........................................... (260) (205)
------- -------
Inventories (net of progress billings)......................... 1,003 1,135
------- -------
Prepaid expenses................................................... 57 57
Deferred income taxes.............................................. 474 453
------- -------
Total current assets............................................. 4,392 5,518
------- -------
Property, plant and equipment at cost................................ 7,214 5,631
Less accumulated depreciation...................................... (2,872) (2,444)
------- -------
Property, plant and equipment (net).............................. 4,342 3,187
------- -------
Deferred income taxes................................................ 220 229
Other assets......................................................... 603 281
------- -------
Total assets......................................................... $ 9,557 $ 9,215
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 207 $ 27
Accounts payable................................................... 808 1,110
Accrued and other current liabilities.............................. 1,522 2,051
------- -------
Total current liabilities........................................ 2,537 3,188
------- -------
Long-term debt....................................................... 1,677 804
Accrued retirement costs............................................. 877 801
Deferred credits and other liabilities............................... 351 327
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: 1996 - 190,101,782; 1995 - 189,526,939............ 190 190
Paid-in capital.................................................... 1,104 1,081
Retained earnings.................................................. 2,875 2,881
Less treasury common stock at cost.
Shares: 1996 - 139,813; 1995 - 138,129........................... (12) (12)
Other.............................................................. (42) (45)
------- -------
Total stockholders' equity....................................... 4,115 4,095
------- -------
Total liabilities and stockholders' equity........................... $ 9,557 $ 9,215
======= =======
</TABLE>
3
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
Earnings (loss) per common and common equivalent share are based on average
common and common equivalent shares outstanding (189.7 and 195.1 million
shares for the third quarters of 1996 and 1995, and 191.8 and 193.3 million
shares for the nine months ended September 30, 1996 and 1995). 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.
In the first quarter of 1996, the company issued $300 million of 6.125
percent notes due 2006.
In the third quarter of 1996, the company acquired Silicon Systems, Inc. via
a stock purchase agreement for $340 million in cash plus the assumption of a
$235 million long-term note to TDK Corp. of Japan. The cash payment,
initially financed by a draw down on TI's existing line of bank credit, was
permanently financed through the company's issuance on July 26 of $400
million of three- and four-year notes. As a result of this acquisition, the
company took a one-time charge of $192 million in the third quarter for the
value of acquired in-process R&D. There is no tax offset associated with
this one-time charge.
Beginning in 1996, the company has made reclassifications to its statement
of income to conform with current industry practices. Research and
development expense, which was previously included in cost of revenues, is
now presented separately. Also, employees' retirement and profit sharing
plans expense, previously separately reported, is now allocated throughout
operating costs and expenses, consistent with other employee benefit costs.
Prior year amounts have been reclassified to conform with the 1996
presentation.
The statements of income, statements of cash flows and balance sheet at
September 30, 1996, 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 and
Results of Operations.
Continued price declines of dynamic random access memory (DRAM) chips and
lower royalties depressed financial performance for the Registrant (the
"company" or "TI") during the third quarter of 1996.
In contrast, differentiated semiconductor products, led by digital signal
processors (DSP) and mixed-signal products, achieved record revenues.
Financial Summary
Net revenues for the quarter were $2841 million, down 17 percent from the
third quarter of 1995. The decrease resulted primarily from the continued
decline in DRAM prices and lower royalty revenues.
Profit from operations for the third quarter, exclusive of a one-time charge
of $192 million for in-process R&D associated with the purchase of Silicon
Systems, Inc. (SSi), was $68 million, compared with $437 million in the
third quarter of 1995. Including the charge, loss from operations for the
third quarter was $124 million.
Income for the quarter was $44 million, compared with $289 million in the
third quarter of 1995, or $0.23 per share, excluding the effect of the one-
time SSi charge. Including this charge, net loss for the quarter was $148
million, or $0.78 per share.
In view of the current market environment and the need to keep costs in line
with demand, TI is offering an enhanced voluntary retirement program to
about 5300 eligible U.S.-based employees, effective until December 31, 1996.
This program is expected to result in a fourth quarter 1996 charge based on
the number of people who elect to participate.
Semiconductors
Average DRAM unit prices were down about 80 percent in the third quarter of
1996, compared with the year-ago period, and about 35 percent from the
second quarter of 1996. Lower prices and the high level of fixed investment
resulted in a loss in TI's memory operations, which was larger than in the
second quarter of 1996.
Despite the major impact of lower DRAM prices, TI's semiconductor business
remained profitable in the quarter, excluding the SSi charge.
TI's joint ventures, which share in the risks and rewards of DRAM
production, helped reduce the effect of market volatility on TI, but were
not able to fully comprehend the sharp decline in average unit price.
Prices turned upward near the end of the quarter but not in time to affect
quarterly results.
The financial results of SSi are included in this quarter. The integration
of SSi's mixed-signal/analog business is proceeding faster than expected.
This acquisition provides the opportunity to couple TI's digital signal
processing leadership, manufacturing capacity and process technology with
SSi's design capability and systems expertise.
5
In the third quarter of 1996, TI's Digital Signal Processing Solutions
(DSPS) revenues were approximately 40 percent of the company's total
semiconductor revenues, up substantially from a year ago. Differentiated
product revenues approached two-thirds of the total.
TI is entering one of the most active periods of new product development in
the history of its digital signal processing business. TI believes that its
expanding range of DSP solutions and breakthrough technology will
significantly increase the performance of customers' end equipment.
Advances are also being made in value-added solutions for networking, mass
storage and wireless communications, which will take advantage of TI's
previously announced 0.18-micron process technology, TImeline(TM).
In the current market environment with uncertain near-term visibility, TI's
semiconductor business continues its focus on operational excellence and
productivity improvements to better align costs with demand.
Defense Systems & Electronics
Revenues in TI's defense systems and electronics business were up slightly
over the year-ago period, and margins remained stable. The business
continues to focus on operational excellence and cost reductions, as well as
opportunities to leverage technologies into next-generation defense systems.
During the quarter, the Naval Sea Systems Command awarded TI a key contract
for design and development of the Extended Range Guided Munitions (ERGM)
Projectile. As winner of this competition, TI will have the opportunity to
insert advanced technology for missile guidance into this program and
continue the company's commitment to the production of cost-effective,
precision-guided weapons. This munition, which uses low-cost global
positioning system (GPS) guidance technology, has a market potential of more
than $5 billion including future derivatives and international
opportunities.
The U.S. Army also awarded TI's defense business a contract for low-rate
production of the Improved Target Acquisition System (ITAS) program, a
second-generation Forward-Looking Infrared (FLIR) system. This represents
the successful transition from a 40-month development program into
production.
Materials & Controls
In TI's materials and controls business, revenues and margins were up from
the third quarter of 1995. The business continues to develop new
electronics-based sensors for applications in automotive, appliance and
industrial markets.
Personal Productivity Products
Revenues in TI's personal productivity products business were up more than
50 percent over the year-ago period, and up from the prior quarter,
reflecting a stronger volume of notebook computers and back-to-school
calculator shipments to retailers.
6
Volume shipments of TI's new line of TravelMate(TM) 6000 high-performance
notebooks began during the quarter, and initial customer reaction has been
favorable. The Extensa(TM) line of value-priced notebooks began to
transition to the newly announced 600 series platforms in time for the
fourth quarter selling season. Heavy product support and aggressive pricing
on older models continued to negatively impact financial results.
TI recently completed the sale of certain assets of its worldwide printer
and related supplies business to Genicom Corporation. This business
contributed about $28 million in revenues to TI in the third quarter of
1996.
Emerging Opportunities
During the quarter, an expanded leadership team with extensive systems
experience was announced in TI's digital imaging activity to make a
successful transition from development to commercial implementation. This
team will focus on overcoming production ramp-up challenges and achieving
cost reductions in a very competitive marketplace. The business will
continue to require high levels of sustained investment.
Texas Instruments Software continued its strategic direction of broadening
the applications and user base for its development tools. During the
quarter, the business announced Performer(TM), a department-level, model-
based applications development tool that combines the ease-of-use of visual
programming tools with the integrity of client/server enterprise systems.
Summary
TI's plans for 1997 are being based on moderate recovery in the world
semiconductor market, following an expected decline of about 10 percent in
1996 due to the precipitous drop in DRAM prices. In recent weeks, DRAM
prices have turned up, reflecting inventory depletion and customers'
anticipation of seasonally stronger PC sales. In addition, the average
memory content per computer is escalating because of demand for 32 megabyte
systems, as customers take advantage of lower prices. While these
developments may be favorable for the longer term, the DRAM market is likely
to remain volatile for the near term.
TI is taking several actions to improve its longer-term performance,
including the voluntary retirement program that is being offered in most
U.S. TI businesses and support areas.
TI plans to significantly reduce capital spending in 1997, following the
completion of the exceptionally high level of investment required in 1996 to
build the base for advanced logic and mixed-signal manufacturing and new R&D
facilities in Dallas. These actions will have a positive impact on cash
flow in 1997 and will allow TI to flexibly add manufacturing capacity to
meet future customer demand.
7
Additional Financial Information
<TABLE>
<CAPTION>
Change in orders, Change in net revenues,
Segment 3Q96 vs. 3Q95 3Q96 vs. 3Q95
- ------------ ----------------- -----------------------
<S> <C> <C>
Components down 30% down 25%
Defense Systems and
Electronics down 4% up 4%
Digital Products down 14% up 2%
Total down 24% down 17%
Change in orders, Change in net revenues,
Segment YTD96 vs. YTD95 YTD96 vs. YTD95
- ------------ ----------------- ----------------------
<S> <C> <C>
Components down 29% down 14%
Defense Systems and
Electronics up 3% up 2%
Digital Products down 1% up 9%
Total down 22% down 8%
</TABLE>
TI's orders for the third quarter of 1996 were $2560 million, compared with
$3390 million in the same period of 1995. Lower semiconductor orders,
driven primarily by the sharp decline in DRAM prices, accounted for the
majority of the decrease in the components segment. Semiconductor orders
were up from the second quarter 1996, reflecting higher memory orders and
the SSi acquisition. The decrease in defense electronics orders resulted
primarily from reduced High-speed Antiradiation Missile (HARM) volume. The
decrease in digital products orders was due to the effect of the divestiture
of the custom manufacturing services business in the first quarter of 1996.
TI's revenues for the third quarter of 1996 were $2841 million, compared
with $3425 million in the third quarter of 1995. The decrease in components
segment revenues resulted primarily from lower semiconductor revenues,
attributable to the drop in DRAM prices, and lower royalties.
Operating profit for the third quarter of 1996 was $68 million, excluding
the $192 million in-process R&D charge associated with the SSi acquisition,
compared with a $437 million profit from operations in the year-ago period.
Operating loss for the third quarter 1996 including the SSi charge was $124
8
million. Components segment results were down significantly, primarily due
to the precipitous drop in DRAM prices, the one-time, in-process R&D charge
and lower royalties. The digital segment was profitable, as the effect of
royalties more than offset losses in mobile computing.
For the first nine months of 1996, TI's orders were $7970 million, down 22
percent from the first nine months of 1995. The decrease in components
segment orders reflected the sharp decline in DRAM prices. The slight
increase in defense segment orders was due to volume increases in newer
programs offsetting the decline in HARM volume. In the digital segment,
increased orders for notebook computers offset the order decline from the
sale of TI's custom manufacturing services business.
Net revenues for the first nine months of 1996 were $8761 million, down
eight percent from $9525 million in the first nine months of 1995. The
decrease in components segment revenues reflected lower semiconductor
revenues, primarily from the sharp drop in DRAM prices and lower royalties.
The increase in digital segment revenues was from notebook computers, which
more than offset the effect of the divestiture of custom manufacturing
services.
Excluding the SSi charge, TI's profit from operations for the first nine
months of 1996 was $360 million, compared with $1185 million in the first
nine months of 1995. Essentially all the decrease was in semiconductors and
royalties. Profit from operations including the SSi charge was $168
million. The first nine months of 1995 included a profit sharing accrual of
$242 million. There is no year-to-date accrual for profit sharing in 1996.
Earnings per share for the nine months ended September 30, 1996, exclusive
of the SSi charge, were $1.46, versus $4.13 for the year-ago period.
Including the SSi charge, earnings per share for the same nine-month period
were $0.48.
During the first three quarters of 1996, cash and cash equivalents plus
short-term investments decreased by $869 million to $684 million. Net cash
provided by operating activities was negatively impacted by the pay-out of
1995 profit sharing in the first quarter. Investments in property, plant
and equipment were $1696 million for the first three quarters, and the sale
of TI's custom manufacturing business generated $132 million of cash in the
first half of 1996. In the third quarter, TI acquired SSi via a stock
purchase agreement for $340 million in cash plus the assumption of a $235
million long-term note to TDK Corp. of Japan. The cash payment, initially
financed by a draw down on TI's existing line of bank credit, was
permanently financed through the company's issuance on July 26 of $400
million of three- and four-year notes.
The outstanding balance of commercial paper was $150 million at the end of
the third quarter, up from $72 million at the end of the second quarter and
zero at the end of 1995. Other financing activities included the first
quarter issuance of $300 million of 6.125 percent notes due 2006; the
balance increase of Italian lira mortgage notes of $102 million in the
second quarter; and the August 28 redemption, at par, of $150 million of
nine percent notes due 1999. At September 30, 1996, the debt-to-total-
capital ratio was .31, up from .23 at second quarter's end, and .17 at year-
end 1995.
9
Royalty revenues were $117 million lower in the third quarter of 1996 than
in the year-ago period. The decrease is primarily due to the previously
reported expiration of patent licenses, principally the license with Samsung
Electronics Co., Ltd., with which the company remains in litigation.
Negotiations continue with other companies for renewal of expired licenses.
However, these negotiations by their nature are not predictable as to
outcome or timing.
TI's backlog of unfilled orders as of September 30, 1996, was $3784 million,
down $751 million from the end of last year's third quarter. Backlog is
down $744 million from year-end 1995, primarily because of decreases in
semiconductors and defense systems and electronics, and down $141 million
from the end of the second quarter of 1996, primarily because of lower
backlog in defense electronics.
Excluding the SSi charge, TI-funded R&D expense was $274 million in the
third quarter of 1996, compared with $221 million in the same period of
1995. For the first nine months of 1996, excluding the SSi charge, TI-
funded R&D was $791 million, compared with $648 million for the first nine
months of 1995. The increases were driven primarily by investments in
semiconductors. Including the charge, R&D expense for the three-month and
nine-month periods was $466 million and $983 million.
Capital expenditures in the third quarter of this year were $534 million,
compared with $392 million in the third quarter of 1995, and $1696 million
for the first nine months of 1996, compared with $914 million in the first
nine months of 1995. Capital expenditures for 1996 are projected to be
about $2.3 billion.
Depreciation in the third quarter of 1996 was $265 million, compared with
$192 million in the third quarter of 1995, and $687 million for the first
nine months of 1996, compared with $551 million in the same period of 1995.
Return on invested capital (ROIC) and return on common equity (ROCE) are
measures TI uses to monitor progress in building shareholder value.
Excluding the SSi charge, for the four quarters ending September 30, 1996,
ROIC was 10.7 percent, and ROCE was 14.4 percent. Including the one-time
charge, ROIC for the same period was 7.1 percent, and ROCE was 9.6 percent.
For the four quarters ending September 30, 1995, ROIC was 23.3 percent, and
ROCE was 29.3 percent.
Trademarks: TImeline, TravelMate, Extensa and Performer are trademarks of
Texas Instruments Incorporated.
10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously discussed in Item 3 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995 (the "Form 10-K"), on
January 1, 1996, the Registrant filed three lawsuits in Federal District
Court for the Eastern District of Texas against Samsung Electronics
Company, Ltd. (Samsung) of Korea and its two U.S. subsidiaries. In each
of these cases, the Registrant is seeking injunctive relief and damages
due to Samsung's infringement of several of the Registrant's patents
relating to the manufacture of semiconductor devices, including DRAMs.
Also as previously discussed in the Form 10-K, on January 1, 1996, Samsung
filed a lawsuit in Federal District Court for the Northern District of
Texas seeking injunctive relief against the Registrant, alleging that the
Registrant is infringing several of Samsung's patents, and seeking a
declaratory judgment that certain of the Registrant's patents are either
invalid, not infringed or unenforceable against Samsung, and that certain
of the Registrant's intellectual property licensing practices are unfair.
Since that date, Samsung has voluntarily dismissed this case and replead
many of these claims as counter-claims against the Registrant in the
pending cases filed by the Registrant in the Eastern District of Texas.
Samsung has also alleged as a counter-claim in the Eastern District of
Texas that the Registrant's intellectual property licensing practices
violate federal anti-trust laws.
On September 13, 1996, Samsung filed a lawsuit against Registrant in the
District Court for Angelina County, Texas. Samsung alleges that although
Registrant participated in developing certain industry standards,
Registrant failed to disclose to the committees developing those standards
issued patents and pending patent applications covering the standards.
Samsung alleges further that Registrant's attempt to enforce those patents
violates state anti-trust law and unfair competition law and constitutes a
breach of Registrant's fiduciary duty and fraud. Samsung is seeking an
implied license to all of Registrant's patents and an unspecified amount
of damages. Samsung has also filed a motion for a temporary injunction,
seeking to force Registrant to disclose all pending patent applications
covering proposed standards prior to those standards being voted on by
standards setting committees. Samsung's temporary injunction motion also
seeks to preclude Registrant from enforcing certain of Registrant's
patents, which Samsung alleges cover the Semiconductor Equipment
Manufacturers International Standard relating to communications between
machines.
Other litigation between Samsung and the Registrant was discussed in
Item 1 of the Registrant's Form 10-Q for the quarter ended March 31, 1996.
11
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Designation of
Exhibits in
this Report Description of Exhibit
-------------- -----------------------------
10 Texas Instruments Incorporated
Top Officer and Board Member
Retirement Practices.*
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) Report on Form 8-K
None.
* Executive compensation plans and arrangements: Texas Instruments
Incorporated Top Officer and Board Member Retirement Practices.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995:
With the exception of historical information, the matters discussed or
incorporated by reference in this Report on 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, commercialization of new
technologies, the regulatory and trade environment, and other risks
indicated in filings with the Securities and Exchange Commission.
12
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 17, 1996
13
Exhibit Index
Designation of Paper (P)
Exhibits in or
this Report Description of Exhibit Electronic (E)
- ---------------- ----------------------- --------------
10 Texas Instruments Incorporated E
Top Officer and Board Member
Retirement Practices.
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
EXHIBIT 10
----------
Adopted: 11-28-73
Revised: 09-19-96
STATEMENT OF POLICY
THE BOARD OF DIRECTORS
TEXAS INSTRUMENTS INCORPORATED
TOP OFFICER AND BOARD MEMBER RETIREMENT PRACTICES
-------------------------------------------------
The need for an orderly succession of top TI officers is expressed in the
Statement of Policy entitled "Assurance of Organizational Health". As a
stimulus to the desired succession, this Statement of Policy provides for
optional early retirement of some officers and mandatory retirement of all
officers and Board members in accordance with government age discrimination
regulations.
A. POLICY
1. Retirement of all TI officers for whom it is permitted by the Age
Discrimination in Employment Act is mandatory at age 65.
2. A Board member will not be eligible to stand for reelection to the
Board after attaining age 70.
3. The Board of Directors may make available to certain top officers
the option to retire at or any time after attaining age 58. This
option is separate from and in addition to the early retirement
provisions in the TI Employees Pension Plan applicable to all
personnel. Those eligible will include the Chairman of the Board,
the President, the Vice Chairmen, and other personnel specified by
the Board. In determining such eligibility, the Board will
ordinarily review all employees in job grades specified by the
Board. However, a few individuals not in such job grades may also
be offered the early retirement option. The Board may specify
minimum lengths of service as a condition of eligibility.
Officers other than the Chairman, the President and the Vice
Chairmen will be advised of their forthcoming eligibility at any
time after the Board has acted to make the option available to
them (usually after attaining age 53). Individuals other than the
Chairman, the President and the Vice Chairmen to whom the option
may be offered will be recommended to the Board by the
Compensation Committee upon the suggestion from the Chairman and
President.
Anyone electing optional early retirement will enter into an
Early Retirement Agreement, which includes a non-compete clause,
and will receive Supplemental Early Retirement Compensation,
determined in accordance with Appendix A made a part of this
statement of policy.
- Retirement Practices... Page 1 -
a. Advising Officers of Early Retirement Options. It will be the
responsibility of the Chairman to ensure that any individual
receiving an early retirement option from the Board is so advised
by the officer to whom the individual is responsible in written
form acceptable to the Secretary of the Company.
b. Compensation and Benefits for a Top Officer Exercising Early
Retirement. In addition to the benefits to which a retiree is
entitled under current and future TI benefit programs, an officer
who exercises his or her option to retire early, at age 58 or some
older age, will receive compensation under an Early Retirement
Agreement which provides for supplemental early retirement
payments determined in accordance with Appendix A attached hereto.
c. Early Retirement Agreement. An agreement which includes a non-
compete clause will be entered into with each top officer when he
or she elects early retirement. Such agreement will be
substantially in the form provided in Appendix B attached hereto,
with such changes as may be approved by the Chief Executive
Officer and counsel for TI, provided that, the Chairman of the
Board shall approve changes in, and shall execute, agreements with
Vice Chairmen. Determinations of whether an activity is or is
reasonably expected to be competitive with TI and whether there
would be significant harm to TI from such competition shall be
made by the Chief Executive Officer of TI or his designee after
consulting with counsel for the Company. It will be the
responsibility of the Secretary of the Company to make periodic
appropriate inquiries and advise the Board that the non-compete
clause is not violated.
d. Initiation of Optional Early Retirement. An individual who elects
optional early retirement will be responsible for advising in
written form, acceptable to the Secretary of the Company, the
officer to whom he or she reports of his or her intended date of
early retirement. Such advice should precede the date of
retirement to accomplish sufficiently an orderly succession.
- Retirement Practices...Page 2 -
STATEMENT OF POLICY
THE BOARD OF DIRECTORS
TEXAS INSTRUMENTS INCORPORATED
APPENDIX A
TOP OFFICER AND BOARD MEMBER RETIREMENT PRACTICES
-------------------------------------------------
SUPPLEMENTAL EARLY RETIREMENT PAYMENTS
--------------------------------------
Those employees who are designated by the Board for entitlement to
supplemental early retirement payments are entitled to the following upon
retirement in accordance with the Top Officer and Board Member Retirement
Practices statement of policy:
1. Retirement income from TI Employees Pension Trust calculated in
full compliance with the provisions of the TI Employees Pension
Plan in effect at the time of retirement.
2. Retiree medical insurance for the retirees and their eligible
dependents as described in the TI Retiree Medical Insurance
Certificate in effect at the time of retirement.
3. Benefits under any other programs to which they may become
entitled in the future as retirees.
4. Supplemental early retirement payments as described below.
Determination of Supplemental Early Retirement Payments
- -------------------------------------------------------
Calculation of this payment results from the following:
Normal retirement annual benefit at age 65, as defined below
times
Reduction percentage appropriate to attained age at early
retirement from reduction percentage table below
minus
Early retirement annual benefit from the TI Employees Pension
Trust, as defined below
equals
Annual supplemental early retirement payment for life.
Normal retirement annual benefit at age 65 is the benefit which would have
been payable to an individual retiring at age 65 and electing the option of
annual payment for life from the TI Employees Pension Trust, assuming the top
officer would have continued to work to age 65 at a rate of compensation equal
to the average annual eligible earnings during his or her last three years
before retiring.
- Retirement Practices-Appendix A...Page 1 -
Reduction percentage appropriate to attained age at early retirement is:
Percentage Appropriate
Age to Attained Age
58 89.5%
59 91.0
60 92.5
61 94.0
62 95.5
63 97.0
64 98.5
65 100.0
Early retirement annual benefit from TI Employees Pension Trust is the annual
retirement benefit for an individual electing the option of single life
annuity annual payments for life from the TI Employees Pension Trust payable
at the individual's early retirement date.
Although the annual supplemental early retirement payment from the calculation
above represents the annual payment payable for life, the employee may, at his
or her option, choose to have the benefit paid through age 68. This adjusted
amount is calculated as follows:
(1) Convert the annual payment if paid for life to a present value
lump sum amount using the same lump sum conversion provision that
is used for converting an annual pension payment for life to a
lump sum payment for the TIer under the TI Pension Plan in effect
at the time of retirement.
(2) Convert the lump sum amount from (1) above to annual payment under
early retirement agreement by multiplying the lump sum amount by
the following factor:
N
I (1 + I)
------------
N-1
(1 + I)
Where
I = The annual interest rate used in the lump sum
conversion table described in (1) above.
N = One-twelfth of the number of whole calendar
months which will expire between the date of
the individual's retirement and the TIer's 69th
birthday (N may be an improper fraction).
The payments, whether paid for life or through age 68, are converted to monthly
payments by dividing the annual payment by 12.
If a retiree elects payments through age 68 and should die before attaining age
69, such payments shall be made to his or her heirs, legatees, distributees,
or personal representatives as if retiree were still living.
If a retiree elects payments for life, he or she may elect a 50% joint and
survivors payment which will be computed by use of the factors in use for
computation of the joint and survivor annuity normal form of benefit payable
under the TI Employees Pension Plan at the TIer's early retirement date.
- Retirement Practices-Appendix A...Page 2 -
STATEMENT OF POLICY
THE BOARD OF DIRECTORS
TEXAS INSTRUMENTS INCORPORATED
APPENDIX B
TOP OFFICER AND BOARD MEMBER RETIREMENT PRACTICES
-------------------------------------------------
Those employees who have been offered and elected optional early retirement
under the Top Officer and Board Member Retirement Practices statement of
policy will enter into an early retirement agreement, a sample of which is as
follows:
EARLY RETIREMENT AGREEMENT
This Agreement, made this day of , 19 , by Texas Instruments
Incorporated (hereinafter "TI") and (hereinafter
"Retiree") witnesseth:
Recitals
--------
A. Retiree has been employed by TI for approximately years and
has acquired sensitive information concerning TI's business and financial
policies, practices and plans;
B. Retiree is eligible for early retirement pursuant to the terms of
TI's pension plan and expects to take early retirement on ,
19 , at which time Retiree will be entitled to retirement benefits including
profit sharing and pension benefits;
C. TI desires Retiree to refrain from competition with TI after
retirement;
D. Retiree is willing to refrain from competition with TI in
accordance with the terms hereof.
Covenants
---------
Now, therefore, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:
1. From the date hereof through * Retiree shall not,
without the prior approval of TI, (i) as partner, director, officer, employee
or consultant, engage in any activity which is or is reasonably expected to be
competitive to TI; (ii) have an ownership interest in any such competing or
potentially competing business whose stock is not publicly traded; or
(iii) own more than five percent of the outstanding stock in any such
competing or potentially competing business whose stock is publicly traded.
It is the intent of the Retiree and TI to limit the instances in which this
paragraph will prohibit Retiree from participating in economic activities
which might be in competition with TI to those activities which would cause
significant harm to TI.
* Date immediately prior to date of 69th birthday.
- Retirement Practices - Appendix B...Page 1 -
2. TI shall pay to Retiree monthly payments of $
each beginning on , 19 , and ending with a final payment on
, 19 . This is in addition to any benefits payable under
TI's Pension Plan or other benefit plan. If Retiree should die prior to
attaining age 69, payment shall be made to Retiree's heirs, legatees,
distributees, or personal representatives as if Retiree were still living.
3. Retiree and TI agree that if Retiree, during retirement, engages
in any business activity which competes substantially with the business of TI,
the Retiree shall forfeit all rights to any future payments he or she would
have received under this agreement. The TI Board of Directors will in its
sole and absolute discretion determine at any time what business activities
compete substantially with the business of TI and also may waive the
provisions of this paragraph.
4. Retiree shall not be an employee of TI hereunder. Retiree shall
upon request of TI, unless prevented by valid reasons such as health, act as a
consultant to TI as an independent contractor for such periods of time (not
exceeding the equivalent of days per year) as TI shall request, at
such rates of compensation as TI and Retiree shall mutually agree upon.
5. Retiree shall keep confidential, shall not use for his or her own
benefit and shall not disclose to others any nonpublic TI information learned
by Retiree in the course of his or her activities as a former employee of TI.
IN WITNESS WHEREOF, the parties hereto have executed these presents on
the date set forth above.
TEXAS INSTRUMENTS INCORPORATED
By_____________________________
Retiree
- Retirement Practices- Appendix B...Page 2 -
<TABLE>
<CAPTION>
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
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss)............................................ $(147,574) $288,661 $ 91,258 $796,884
Add:
Interest, net of tax and profit sharing effect, on
convertible debentures assumed converted............... -- 416 -- 1,233
------ ------- ------- -------
Adjusted net income (loss)................................... $(147,574) $289,077 $ 91,258 $798,117
======= ======= ======= =======
Earnings (loss) per Common and Common Equivalent Share:
Weighted average common shares outstanding................... 189,723 188,300 189,565 187,070
Weighted average common equivalent shares:
Stock option and compensation plans...................... -- 3,804 2,280 3,273
Convertible debentures................................... -- 2,975 -- 2,980
------- ------- ------- -------
Weighted average common and common equivalent shares......... 189,723 195,079 191,845 193,323
======= ======= ======= =======
Earnings (loss) per Common and Common Equivalent Share....... $ (0.78) $ 1.48 $ 0.48 $ 4.13
Earnings (loss) per Common Share Assuming Full Dilution:
Weighted average common shares outstanding................... 189,723 188,300 189,565 187,070
Weighted average common equivalent shares:
Stock option and compensation plans...................... -- 4,014 2,662 4,283
Convertible debentures................................... -- 2,975 -- 2,980
------- ------- ------- -------
Weighted average common and common equivalent shares......... 189,723 195,289 192,227 194,333
======= ======= ======= =======
Earnings (loss) per Common Share Assuming Full Dilution...... $ (0.78) $ 1.48 $ 0.47 $ 4.11
</TABLE>
<TABLE>
<CAPTION>
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
--------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
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.......$ (250) $ 433 $ 755 $1,098 $1,679 $1,236 $ 258
Add interest attributable to
rental and lease expense............. 43 42 38 40 41 31 34
----- ----- ----- ----- ----- ----- -----
$ (207) $ 475 $ 793 $1,138 $1,720 $1,267 $ 292
===== ===== ===== ===== ===== ===== =====
Fixed charges:
Total interest on loans (expensed
and capitalized).......................$ 59 $ 57 $ 55 $ 58 $ 69 $ 53 $ 75
Interest attributable to rental
and lease expense...................... 43 42 38 40 41 31 34
----- ----- ----- ----- ----- ----- -----
Fixed charges..............................$ 102 $ 99 $ 93 $ 98 $ 110 $ 84 $ 109
===== ===== ===== ===== ===== ===== =====
Combined fixed charges and
preferred stock dividends:
Fixed charges..........................$ 102 $ 99 $ 93 $ 98 $ 110 $ 84 $ 109
Preferred stock dividends
(adjusted as appropriate to a
pretax equivalent basis)............. 34 55 29 -- -- -- --
----- ----- ----- ----- ----- ----- -----
Combined fixed charges and
preferred stock dividends............$ 136 $ 154 $ 122 $ 98 $ 110 $ 84 $ 109
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges......... * 4.8 8.5 11.6 15.6 15.1 2.7
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to combined
fixed charges and preferred
stock dividends.......................... ** 3.1 6.5 11.6 15.6 15.1 2.7
===== ===== ===== ===== ===== ===== =====
</TABLE>
* Not meaningful. The coverage deficiency was $309 million in 1991.
** Not meaningful. The coverage deficiency was $343 million in 1991.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from THE
CONSOLIDATED FINANCIAL STATEMENTS OF TEXAS INSTRUMENTS INCORPORATED AND
SUBSIDIARIES AS OF SEPTEMBER 30, 1996, AND FOR THE NINE MONTHS THEN ENDED,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 676
<SECURITIES> 8
<RECEIVABLES> 2,174
<ALLOWANCES> 62
<INVENTORY> 1,003
<CURRENT-ASSETS> 4,392
<PP&E> 7,214
<DEPRECIATION> 2,872
<TOTAL-ASSETS> 9,557
<CURRENT-LIABILITIES> 2,537
<BONDS> 1,677
0
0
<COMMON> 190
<OTHER-SE> 3,925
<TOTAL-LIABILITY-AND-EQUITY> 9,557
<SALES> 8,761
<TOTAL-REVENUES> 8,761
<CGS> 6,322
<TOTAL-COSTS> 6,322
<OTHER-EXPENSES> 983
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> 199
<INCOME-TAX> 108
<INCOME-CONTINUING> 91
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91
<EPS-PRIMARY> .48
<EPS-DILUTED> 0
</TABLE>
