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, 1998 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.)
8505 Forest Lane, 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
---- ----
389,906,067
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Number of shares of Registrant's common stock outstanding as of
September 30, 1998
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
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<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
---------------------- ---------------------
Sept 30 Sept 30 Sept 30 Sept 30
Income 1998 1997 1998 1997
- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues............................................... $ 2,113 $ 2,500 $ 6,467 $ 7,322
Operating costs and expenses:
Cost of revenues......................................... 1,308 1,518 4,281 4,587
Research and development................................. 291 275 925 795
Marketing, general and administrative.................... 311 349 1,133 1,125
------- ------- ------- -------
Total.................................................. 1,910 2,142 6,339 6,507
------- ------- ------- -------
Profit from operations..................................... 203 358 128 815
Other income (expense) net................................. 65 33 258 127
Interest on loans.......................................... 19 23 55 73
------- ------- ------- -------
Income from continuing operations
before provision for income taxes........................ 249 368 331 869
Provision for income taxes................................. 85 129 113 304
------- ------- ------- -------
Income from continuing operations.......................... 164 239 218 565
Discontinued operations:
Income from operations................................... -- -- -- 52
Gain on sale............................................. -- 1,473 -- 1,473
------- ------- ------- -------
Net income ................................................ $ 164 $ 1,712 $ 218 $ 2,090
======= ======= ======= =======
Diluted earnings per common share:
Continuing operations.................................... $ 0.41 $ 0.60 $ 0.55 $ 1.42
Discontinued operations:
Income from operations................................. -- -- -- 0.13
Gain on sale........................................... -- 3.68 -- 3.71
------- ------- ------- -------
Net income .............................................. $ 0.41 $ 4.28 $ 0.55 $ 5.26
======= ======= ======= =======
Basic earnings per common share:
Continuing operations.................................... $ 0.42 $ 0.62 $ 0.56 $ 1.47
Discontinued operations:
Income from operations................................. -- -- -- 0.14
Gain on sale........................................... -- 3.81 -- 3.84
------- ------- ------- -------
Net income .............................................. $ 0.42 $ 4.43 $ 0.56 $ 5.45
======= ======= ======= =======
Cash dividends declared per share of common stock.......... $ 0.085 $ 0.085 $ 0.17 $ 0.255
Cash Flows
- ----------
Continuing Operations:
Net cash provided by operating activities............................................ $ 827 $ 1,369
Cash flows from investing activities:
Additions to property, plant and equipment......................................... (898) (914)
Purchases of short-term investments................................................ (1,096) (1,662)
Sales and maturities of short-term investments..................................... 2,027 172
Acquisition of businesses, net of cash acquired.................................... (152) --
Proceeds from sale of discontinued operations less transaction costs............... -- 2,836
Payments in connection with sale of memory business................................ (550) --
Proceeds from sale of other businesses............................................. 120 177
------- -------
Net cash provided by (used in) investing activities.................................. (549) 609
2
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
(Continued)
For Nine Months Ended
---------------------
Sept 30 Sept 30
1998 1997
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Cash Flows (continued)
- ----------
Cash flows from financing activities:
Payments on loans payable.......................................................... (4) (280)
Additions to long-term debt........................................................ -- 27
Payments on long-term debt......................................................... (55) (1)
Dividends paid on common stock..................................................... (100) (97)
Sales and other common stock transactions.......................................... 99 129
Common stock repurchase program.................................................... (167) (27)
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Net cash used in financing activities................................................ (227) (249)
Effect of exchange rate changes on cash.............................................. 14 (23)
------- -------
Cash provided by continuing operations............................................... 65 1,706
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Discontinued Operations:
Operating activities................................................................. -- 73
Investing activities................................................................. -- (16)
------- -------
Cash provided by discontinued operations............................................. -- 57
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Net increase in cash and cash equivalents.............................................. 65 1,763
Cash and cash equivalents, January 1................................................... 1,015 964
------- -------
Cash and cash equivalents, September 30................................................ $ 1,080 $ 2,727
======= =======
</TABLE>
3
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
Sept 30 Dec. 31
Balance Sheet 1998 1997
- ------------- ------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................................... $ 1,080 $ 1,015
Short-term investments............................................. 1,062 2,005
Accounts receivable, less allowance for losses of
$110 million in 1998 and $73 million in 1997..................... 1,406 1,705
Inventories:
Raw materials.................................................... 118 105
Work in process.................................................. 264 364
Finished goods................................................... 188 273
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Inventories.................................................... 570 742
------- -------
Prepaid expenses................................................... 68 59
Deferred income taxes.............................................. 538 577
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Total current assets............................................. 4,724 6,103
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Property, plant and equipment at cost................................ 6,558 7,414
Less accumulated depreciation...................................... (3,052) (3,234)
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Property, plant and equipment (net).............................. 3,506 4,180
------- -------
Investments.......................................................... 1,791 69
Deferred income taxes................................................ 110 134
Other assets......................................................... 387 363
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Total assets......................................................... $10,518 $10,849
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 268 $ 71
Accounts payable................................................... 456 698
Accrued and other current liabilities.............................. 1,480 1,727
------- -------
Total current liabilities........................................ 2,204 2,496
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Long-term debt....................................................... 1,040 1,286
Accrued retirement costs............................................. 779 731
Deferred credits and other liabilities............................... 467 422
Stockholders' equity:
Preferred stock, $25 par value. Authorized - 10,000,000 shares.
Participating cumulative preferred. None issued.................. -- --
Common stock, $1 par value. Authorized - 1,200,000,000 shares.
Shares issued: 1998 - 391,995,432; 1997 - 390,359,317............ 392 390
Paid-in capital.................................................... 1,199 1,183
Retained earnings.................................................. 4,640 4,488
Less treasury common stock at cost.
Shares: 1998 - 2,089,365; 1997 - 860,765......................... (125) (94)
Other.............................................................. (78) (53)
------- -------
Total stockholders' equity....................................... 6,028 5,914
------- -------
Total liabilities and stockholders' equity........................... $10,518 $10,849
======= =======
</TABLE>
4
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
Diluted earnings per common share are based on average common and dilutive
potential common shares outstanding (400.1 and 399.9 million shares for the
third quarters of 1998 and 1997, and 400.3 and 397.4 million shares for the
nine months ended September 30, 1998 and 1997).
On September 30, 1998, TI sold its memory business, including its DRAM
manufacturing joint venture interests, to Micron Technology, Inc. As a
result, TI received 28,933,092 Micron common shares, $740 million in notes
convertible into an additional 12 million Micron common shares, and a $210
million subordinated note. The market value of the seven year, 6.5%
convertible and subordinated notes was approximately $836 million, with an
average imputed interest rate of 8.7%. The Micron shares and notes are
included in investments on the balance sheet. In addition to TI's memory
assets, Micron received $550 million in cash from TI to facilitate the
deployment of Micron's technology throughout the acquired business. TI
deferred a pre-tax gain of $127 million on the sale until the
repayment of the TI-provided financing. In connection with the sale, TI
agreed to guarantee the payment obligations of one of its former joint
ventures under a newly-syndicated $450 million principal amount credit
facility. At closing, the joint venture had borrowed $210 million under the
facility. As a result of the guarantee, TI was granted a security interest in
the joint venture's assets. In addition, the guarantee is partially offset by
certain contingent funding obligations of the joint venture shareholders.
In the second quarter of 1998, the company sold its shares in the TI-Acer DRAM
semiconductor manufacturing joint venture to Acer Corporation for $120 million
in cash. This sale resulted in a pretax gain of $83 million.
Also in the second quarter of 1998, the company announced that as a result of
various business divestitures over the past several years, the pending sale of
its memory business, and weakness in the current semiconductor market
environment, it was implementing a worldwide restructuring program in order to
more closely match the size and cost of its support functions with the
company's overall size, and further combine manufacturing resources for more
efficient operations. The plan included the elimination of approximately
3,500 jobs around the world over the next few months through voluntary
programs, attrition, outsourcing and layoffs, as well as the closing of
several facilities. As a result, the company took a pretax charge of $233
million in the second quarter, of which $126 million was included in
marketing, general and administrative expense and $107 million in cost of
revenues. Of the $233 million charge, $161 million was for severance, $55
million for asset writeoffs, and $17 million for vendor cancellation and lease
charges. Implementation of the restructuring program is on schedule.
A new accounting standard, SFAS No. 133, was issued in second quarter, 1998
and is effective in 2000. It requires that all derivatives be marked-to-
market on an ongoing basis. This applies whether the derivatives are
standalone instruments, such as forward currency exchange contracts and
interest rate swaps or embedded derivatives, such as conversion options
contained in convertible debt investments. Along with the derivatives, the
underlying hedged items are also to be marked-to-market on an ongoing basis.
These market value adjustments are to be included either in the income
statement or stockholders' equity, depending on the nature of the transaction.
The company expects to adopt the standard in the first quarter of 2000 on a
cumulative basis. The effect has not yet been determined.
5
In the first quarter of 1998, the company's DRAM manufacturing joint venture
with Hitachi, Ltd. was discontinued. In this connection, TI incurred a first
quarter pretax charge of $219 million, which is included in cost of revenues.
Also in this quarter, research and development expense included a charge of
$25 million for the value of acquired in-process research and development from
two business acquisitions.
The company adopted SFAS No. 130 beginning in the first quarter of 1998. This
accounting standard requires disclosure of total nonowner changes in
stockholders' equity, which is defined as net income plus direct adjustments
to stockholders' equity such as equity and cash investment adjustments and
pension liability adjustments. On this basis, these nonowner changes in
stockholders' equity, including net income, for the third quarters of 1998 and
1997, totaled $131 million and $1,717 million. For the nine months ended
September 30, 1998, and 1997 they totaled $193 million and $2,080 million.
Accounting standard SOP 98-1 was issued in first quarter, 1998, and is
effective in 1999. It requires capitalization of the development costs of
software to be used internally, e.g., for manufacturing or administrative
processes. The company, which currently expenses such amounts as incurred,
expects to adopt the standard in the first quarter of 1999 for developmental
costs incurred in that quarter and thereafter. The effect is not expected to
be material.
Results for the third quarter of 1997 reflect the sale of TI's defense
business, which was closed with Raytheon Company on July 11 for $2.95 billion
in cash. The net gain from this sale, after income taxes of $876 million, was
$1,473 million and was included in discontinued operations.
Results for the second quarter of 1997 included a pretax operating charge of
$44 million for the termination of joint-venture agreements in Thailand and a
$66 million pretax gain from the sale of three TI businesses, principally
software.
In the first quarter of 1997, the company sold its mobile computing business
and terminated its digital imaging printing development program. As a result,
the company took a pretax operating charge of $56 million in the first
quarter, of which $27 million was for severance for involuntary employment
reductions worldwide. These severance actions were essentially completed by
the end of the quarter and affected approximately 1,045 employees. The
balance, $29 million, was for other costs associated with the business sale
and program termination, including vendor cancellation and lease charges.
The statements of income, statements of cash flows and balance sheet at
September 30, 1998, 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.
6
Business segment information is as follows:
<TABLE>
For Three Months Ended For Nine Months Ended
----------------------------------------------------
Sept. 30 Sept. 30 Sept. 30 Sept. 30
Business Segment Net Revenues 1998 1997 1998 1997
(millions of dollars) ------- ------- ------- -------
- -----------------------------
<S> <C> <C> <C> <C>
Semiconductor
Trade.................................... $ 1,523 $ 1,664 $ 4,646 $ 4,770
Intersegment............................. 7 6 16 20
------- ------- ------- -------
1,530 1,670 4,662 4,790
------- ------- ------- -------
Materials & Controls
Trade.................................... 226 238 713 719
Intersegment............................. 1 -- 1 2
------- ------- ------- -------
227 238 714 721
------- ------- ------- -------
Educational & Productivity Solutions
Trade.................................... 133 138 374 365
Corporate activities....................... 21 34 115 113
Divested activities........................ 202 420 602 1,333
------- ------- ------- -------
Total...................................... $ 2,113 $ 2,500 $ 6,467 $ 7,322
======= ======= ======= =======
Business Segment Profit (Loss)
(millions of dollars)
- ------------------------------
Semiconductor.............................. $ 363 $ 396 $ 1,102 $ 1,111
Materials & Controls....................... 33 29 106 88
Educational & Productivity Solutions....... 32 24 70 57
Corporate activities....................... (70) (64) (166) (177)
Special charges and gains,
net of applicable profit sharing......... -- -- (394) (40)
Interest on loans/other income (expense),
excluding second quarter 1998 and 1997
gains of $83 million and $66 million
included above........................... 46 11 119 (12)
Divested activities........................ (155) (28) (506) (158)
------- ------- ------- -------
Income from continuing operations
before provision for income taxes........ $ 249 $ 368 $ 331 $ 869
======= ======= ======= =======
NOTE: Operating results and assets for the memory business, previously included in the
semiconductor segment, are included in divested activities currently and on a retroactive
basis. On this basis, total assets of the semiconductor segment at September 30, 1998 and
December 31, 1997 are $4,697 million and $4,798 million, and total assets of divested
activities are $154 million and $1,200 million.
</TABLE>
7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Registrant (the "company" or "TI") announced financial results for
the third quarter of 1998 that included diluted earnings per share (EPS) of
$0.41, compared with $0.60 in the third quarter of 1997 and $0.35 in the
second quarter of 1998. EPS includes the effect of losses in the memory
business, equivalent to $0.26 per share.
While total company performance was affected by weakness in the memory
business and the overall semiconductor market, TI's digital signal processor
(DSP) business achieved 17 percent growth over the same period a year ago,
outpacing DSP industry growth. Orders were up 8 percent from the second
quarter of 1998 for Semiconductor (which excludes the memory business).
FINANCIAL RESULTS
(Note: The sale of the memory business to Micron Technology, Inc., was
completed on September 30, 1998. In this report, TI total and semiconductor
numbers are reported without memory in the Financial Results and Semiconductor
sections. Details on TI results with memory are reported in the tables and
the Additional Financial Information section.)
TI revenues for the third quarter were $1912 million, down 8 percent from the
year-ago quarter, primarily due to the effects of continuing weakness in the
world semiconductor market. Revenues were down 4 percent from the second
quarter of 1998 due mainly to the seasonal cycle in the Educational &
Productivity Solutions (E&PS) business. Operating margins were 18.7 percent,
flat with the year-ago quarter. Compared to the second quarter of 1998,
excluding charges in that quarter, operating margins were down 1.5 percentage
points, about equally due to lower revenues in application-specific integrated
circuits (ASIC), and an increased accrual for profit sharing.
Income for the quarter was $267 million, up 3 percent from the $258 million in
the third quarter of 1997. Income was down 7 percent from the second quarter
of 1998 excluding special charges, about equally due to lower revenues in ASIC
and an increased accrual for profit sharing.
The profit-sharing accrual that was made for employees this quarter reflects
the anticipated 1998 company performance without the memory business in the
fourth quarter of 1998. Although profit-sharing expenses are accrued
quarterly, profit sharing is paid annually based on the company's full-year
operating profit margin. This year's profit-sharing expenses have been
substantially reduced by the losses incurred by the memory business during the
first three quarters of this year.
Third quarter orders were $1835 million, down from $2092 million in the year-
ago quarter reflecting weakness in the world semiconductor market. Orders
were up from the second quarter of 1998 primarily due to slightly higher
orders for semiconductor products, which offset lower orders for M&C and E&PS
products.
TI remains on target in reducing costs through the previously announced
restructuring plan. Annualized cost savings for the company from reduced
general and administrative expenses and operating costs are estimated to be
$270 million. The restructuring is expected to be substantially implemented
by year end.
8
TI's pre-tax gain of $127 million from the sale of its memory business has
been deferred until repayment by Micron of the TI-provided financing.
OUTLOOK
Despite continuing weakness in the world semiconductor market, TI expects
generally stable performance from its ongoing semiconductor business in the
fourth quarter of 1998.
End-equipment markets for digital signal processing and analog continue to
show a mixture of strength and weakness. The wireless market continues to
grow at record levels. Based on customer input, TI has revised its
expectations for the wireless market in 1998 to more than 140 million units of
digital cellular phone shipments, compared to earlier estimates of 125 million
units. The general market weakness in modems and hard-disk drives continues.
The mass market, which is largely served through distribution channels,
continues to grow at a slower rate in 1998 than in 1997, reflecting overall
semiconductor market and world economic conditions.
Visibility into 1999 market growth for TI's core businesses remains limited
due to uncertain world economies, as well as the timing of recovery in the
modem and hard-disk drive markets.
TI remains positive about the long-term outlook for the digital signal
processing and analog markets. The semiconductor industry today is
increasingly driven by a surge in digital connectivity that can be seen
primarily in the wireless and networking areas. TI believes the resulting
growth and development of new products and applications will fuel the need for
DSPs, which are the underlying processors for electronic equipment that must
function in real time.
A number of new DSP markets are beginning to emerge, including digital
cameras, satellite phones, smart antennas, voice over Internet Protocol,
digital motor control and digital TV. TI continues to invest in the
development of new markets through its $100 million venture fund. To date,
the company has invested in 12 companies focused on next-generation
applications of digital signal processors.
SEMICONDUCTOR
Semiconductor revenues were down 8 percent from the third quarter of 1997,
primarily due to weakness in the hard-disk drive and modem markets. Revenues
were even with the second quarter of 1998. Operating margins were flat with
the year-ago quarter, and down slightly from second quarter of 1998 due about
equally to lower revenues in ASIC, and an increased accrual for profit
sharing. In the quarter, TI reached a 10-year semiconductor patent cross-
license agreement with United Microelectronics Corporation (UMC) of Taiwan,
and semiconductor revenues and operating margins include a one-time catch-up
payment associated with this agreement.
Revenues in TI's digital signal processors increased 17 percent from the third
quarter of 1997, primarily due to strength in wireless communications, and
were even with the second quarter of 1998. Revenues in the analog business
declined about 11 percent from the year-ago quarter, almost all of which was
due to weakness in the hard-disk drive market. Analog revenues were about
even with second quarter 1998 levels.
DSP and mixed-signal/analog now comprise 58 percent of TI's semiconductor
revenues.
9
The remaining semiconductor revenues come from a broad range of advanced
products, including standard logic, ASIC, reduced-instruction set
microprocessors, and microcontrollers. The financial performance of these
areas generally reflected the overall market weakness for semiconductors with
revenues down substantially from the year-ago quarter. Compared with the
second quarter of 1998, revenues were down slightly.
Semiconductor orders in the third quarter were down 13 percent from the year-
ago quarter, primarily due to continuing weakness in the modem and hard-disk
drive markets. Orders were up sequentially by about 8 percent, mainly due to
growth in wireless chipsets.
MATERIALS & CONTROLS (M&C)
TI's M&C business had operating margins of 14.5 percent in the third quarter,
up 2.3 percentage points from the year-ago quarter due to gains in their best
cost producer strategy. Operating margins were down slightly from last
quarter. Revenues were down 5 percent from the year-ago quarter, at $227
million, and down 7 percent from the second quarter of 1998. Results were
affected by disruption of production at a major automotive customer.
TIRIS(TM) products continue to gain acceptance and new market applications,
particularly in automotive and retail segments. In September, Frost &
Sullivan awarded the TIRIS business its annual Market Engineering award, given
each year for the company that has "exhibited world-class leadership in the
radio frequency identification (RFID) industry."
EDUCATIONAL & PRODUCTIVITY SOLUTIONS (E&PS)
Revenues for E&PS were down slightly from the third quarter of 1997 to $133
million. Operating margins were up more than six points from the year-ago
quarter, reflecting improvements in costs. This business typically delivers
peak financial performance in the second and third quarters, due primarily to
the school-year cycle.
The new TI-89 graphing calculator began shipping in mid-August. The product
has been well received, with the majority of educational dealers selling out
of their inventory soon after receiving initial shipments. E&PS also made
good progress in its long-term expansion strategy, with the signing of a
memorandum of understanding with the Ministry of Education in China. Under
this agreement, the Chinese government and TI will cooperate to promote the
use of mathematics and science educational tools in China.
DIGITAL IMAGING
Revenues for Digital Imaging were up from a year ago. During the quarter, the
business achieved several new design-ins in growth sectors of the market:
ultraportable projectors, video wall, and large venue. In September, Plus
Corporation, a Japanese customer, launched the industry's first XGA resolution
ultraportable projector.
DIVESTED ACTIVITIES
Revenues for the memory business were down 52 percent from the year-ago
quarter to $202 million, due to sharply lower DRAM prices. Revenues were up
moderately from the second quarter of 1998, primarily due to increased
shipments. Loss from operations in the quarter was $155 million, equivalent
to $0.26 per share, versus a loss of $29 million in the year-ago quarter. In
the second quarter of 1998, the loss from operations was $222 million,
equivalent to $0.36 per share. The decrease from the second quarter was due
primarily to increased shipments and slightly better pricing in the second
half of the third quarter.
10
ADDITIONAL FINANCIAL INFORMATION
(Note: TI total numbers in this section include the memory business.
Semiconductor numbers exclude memory.)
TI revenues for the third quarter were $2113 million, down 15 percent from the
year-ago quarter, primarily due to sharply lower prices for DRAMs. Revenues
were about flat with the second quarter of 1998.
TI revenues for the first nine months of 1998 were $6467 million, compared
with $7322 million in the first nine months of 1997. Almost all of the
decrease in revenues was due to lower DRAM prices. The decrease in
semiconductor revenues for the first nine months of 1998 was primarily due to
weakness in the hard-disk drive market. The decrease in M&C was due primarily
to Asian market conditions, and the increase in E&PS was due to increased
demand for graphing calculators.
TI's third quarter 1998 operating margins were 9.6 percent, down from 14.3
percent in the third quarter of 1997, primarily due to increased pricing
pressures in DRAMs. Operating margins were up 1.3 percentage points from the
second quarter of 1998 due to decreased losses in memory, excluding special
charges in the second quarter. For the first nine months of 1998, excluding
special items: TI operating margins were 9.4 percent, down 3.2 percentage
points from the year-ago period primarily due to lower DRAM prices.
Semiconductor operating margins were about flat. The improvement in M&C and
E&PS resulted from product cost reductions.
Including special items: TI operating margins for the first nine months of
1998 were 2.0 percent, down 9.2 percentage points from the same period a year
ago.
TI's third quarter income was $164 million, down from $239 million in the
third quarter of 1997, primarily due to increased loss in memory. In the
first nine months of 1998, excluding special items, income was $482 million,
compared with $591 million in the year-ago time period, and diluted earnings
per share were $1.20, compared with $1.49. Including special items, income
was $218 million, compared with $565 million in the first nine months of 1997,
and diluted earnings per share were $0.55, compared with $1.42.
TI third-quarter 1998 orders were $2020 million, down from $2449 million in
the third quarter of 1997. The majority of the change is attributed to lower
memory orders, while the remainder is due to general market weakness across
other semiconductor products.
For the first nine months of 1998, TI's orders were $6091 million, compared
with $7605 million from the same period a year ago. About half of the decline
was due to lower memory orders, with the remainder essentially due to general
market weakness across other semiconductor products. Semiconductor orders for
the first nine months were down, due to lower demand from hard-disk drive and
modem customers. M&C orders were slightly down, primarily due to Asian market
conditions, and E&PS orders were up as a result of increased graphing
calculator volume.
Results for the first quarter of 1998 include special charges of $244 million,
primarily for discontinuing the DRAM manufacturing joint venture with Hitachi,
Ltd. Last year's first quarter results included a special charge of $56
million, primarily related to severance actions and other costs associated
with the sale of TI's mobile computing business. Special items for the second
quarter of 1998 included a charge of $233 million for worldwide restructuring
of support functions and consolidation of manufacturing operations, and an $83
million gain on the sale of TI's shares of the TI-Acer joint venture to Acer
11
Corporation. Last year's second quarter included a special charge of $44
million for the termination of joint-venture agreements in Thailand and a $66
million gain on the sale of three businesses, primarily software. There were
no special items in the third quarters of 1998 and 1997.
The income tax rate for the first nine months of 1998 was 34 percent, which is
the estimated rate for the full year.
During the first nine months of 1998, cash and cash equivalents plus short-
term investments decreased by $878 million to $2142 million. The
discontinuance of the joint venture with Hitachi and the acquisition of those
operating assets required $281 million of cash in the first quarter. In
addition, $91 million of cash was used to purchase the remaining outstanding
shares of Amati Communications Corporation's common stock in the first
quarter. Under the terms of the sale of TI's memory business to Micron
Technology, TI provided $550 million of cash financing to Micron and received
approximately 28.9 million shares of Micron common stock valued at $881
million as of the closing date, $740 million of 6.5 percent convertible notes,
and a $210 million 6.5 percent subordinated note. As of the closing date, the
market value of the convertible and subordinated notes was approximately $836
million, with an average yield to maturity of 8.7 percent. The Micron shares
and notes are included in investments on the balance sheet. Per the terms of
the sale, TI expects to make an additional cash payment to Micron in the
fourth quarter of about $130 million as a result of lower than expected levels
of working capital within the memory business at closing.
Cash flow from operating activities net of additions to property, plant and
equipment was a use of $71 million in the first nine months of 1998.
Capital expenditures totaled $200 million in the third quarter versus $351
million in the third quarter of 1997, and $898 million for the first nine
months of 1998, compared to $914 million in the first nine months of 1997.
Capital expenditures are projected to be about $1.1 billion for 1998.
Depreciation for the third quarter of 1998 was $305 million compared to $287
million in the same quarter a year ago, and $878 million for the first nine
months of 1998 compared to $806 million for the same period a year ago.
Depreciation for 1998 is projected to be at $1.1 billion.
During the first nine months of 1998, TI repurchased approximately 2.9 million
shares of common stock as part of its previously stated intent to neutralize
the potential dilutive effect of shares to be issued under employee stock
options.
At the end of the third quarter, the debt-to-total-capital ratio was .18, down
slightly compared to the 1997 year-end value of .19.
YEAR 2000
Since 1995, TI has been actively engaged in addressing Year
2000 (Y2K) issues. These result from the use of two-digit, rather than
four-digit, year dates in software, a practice which could cause
date-sensitive systems to malfunction or fail because they may not
recognize or process date information correctly.
State of Readiness: To manage its Y2K program, TI has divided its
efforts into four program areas:
o Information Technology (computer hardware, software, and
electronic data interchange (EDI) interfaces);
o Physical Plant (manufacturing equipment and facilities);
o Products (including product development); and
o Extended Enterprise (suppliers and customers).
12
For each of these program areas, TI is using a four-step approach:
o Ownership (creating awareness, assigning tasks);
o Inventory (listing items to be assessed for Y2K readiness);
o Assessment (prioritizing the inventoried items, assessing
their Y2K readiness, planning corrective actions, making
initial contingency plans); and
o Corrective Action Deployment (implementing corrective
actions, verifying implementation, finalizing and executing
contingency plans).
At September 30, 1998, the Ownership and Inventory steps were
essentially complete for all program areas. The target completion
dates for priority items by remaining steps are as follows:
Assessment -- December 1998; Corrective Action Deployment -- June 1999.
To date, TI has achieved approximately two-thirds of its Assessment
goals for its four program areas. The Assessment status for each
program area is as follows:
o Information Technology: Substantially all of TI's business
strategic information systems (manufacturing, marketing,
financial, and human resources) have been assessed,
corrected and verified, and corrected systems have been
deployed. Hardware assessment is in process and on schedule
for completion. TI is assessing the readiness of its EDI
interfaces with major customers and suppliers and expects
timely completion.
o Physical Plant: Manufacturing equipment assessment has been
substantially completed and corrective actions scheduled.
Facilities assessment is in process and is approximately
two-thirds completed. These efforts are expected to be
completed on schedule.
o Products: TI continues to assess the readiness of its
current products and is providing product status information
on its company web site. This effort includes semiconductor
devices sold within the past 5 years. Divested product lines
are not part of the assessment. The assessment to date has
identified date-related issues with certain of TI's
semiconductor development tool products. The company
believes these issues are unlikely to cause significant
problems for TI customers. Product assessments are expected
to be completed on time.
o Extended Enterprise: In 1997, TI began contacting its
suppliers regarding their Y2K readiness. TI's Y2K supplier
program includes assessing the readiness of its suppliers
with a particular focus on those considered essential for
prevention of a material disruption of TI's business
operations. The assessment is ongoing and on schedule. TI
is also discussing Y2K status with selected strategic
customers.
Costs to Address Y2K Issues: TI's estimated aggregate costs for its
Y2K activities from 1995 through 2000 are expected to range from
$70 million to $90 million. To date, TI has spent approximately
$50 million.
Risks of Y2K Issues and Contingency Plans: TI continues to assess the
Year 2000 issues relating to its physical plant, products, suppliers
and customers, as well as legal risks that may be associated with
discontinued products and divested product lines. TI's contingency
planning process is intended to mitigate worst-case business
disruptions. The company is preparing contingency plans to address
13
worst-case issues such as delays in product delivery, which could
potentially result from events such as supply chain disruptions. As
noted above, the company expects its contingency plans to be complete
by June 1999.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Information concerning market risk is contained on pages 19, 39 and 40 of the
Registrant's 1997 annual report to stockholders and is incorporated by
reference to such annual report.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
Beginning May 1, 1998, the Registrant filed lawsuits in United States District
Courts in Texas and Virginia, and in the United Kingdom, The Netherlands,
France, Germany and Japan against Hyundai Electronics Industries Co., Ltd. or
related entities (collectively, "Hyundai") seeking injunctive relief for
alleged infringement of over a dozen of the Registrant's patents relating to
the manufacture and sale of semiconductor devices, including DRAMs. Hyundai
has responded by filing an action in United States District Court in New York
based on a contract claim that its cross-license agreement with the Registrant
has not yet expired, and by filing lawsuits in United States District Courts
in Texas, Virginia and Delaware and a counterclaim in the Registrant's U.K.
action, seeking injunctive relief against Registrant for alleged infringement
of Hyundai's patents relating to the manufacture and sale of semiconductor
devices, including DRAMs.
On September 3, 1998, Hyundai's action filed in United States District Court
in New York was dismissed with prejudice. On September 24, 1998, a Judicial
Panel for Multi-District Litigation denied Hyundai's motion for consolidation
and transfer. On October 9, 1998, the District Court for the Eastern District
of Virginia transferred two lawsuits filed by Hyundai and one filed by the
Registrant to the United States District Court for the Eastern District of
Texas.
14
<TABLE>
<CAPTION>
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Designation of
Exhibits in
this Report Description of Exhibit
-------------- -----------------------------
<S> <C> <C>
2.2 Second Amendment to Acquisition
Agreement dated as of September 30, 1998
between Texas Instruments Incorporated
and Micron Technology, Inc. (incorporated
by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K
dated October 15, 1998)
4(a) Certificate of Designation
relating to the Registrant's
Participating Cumulative Preferred Stock
4(b) Rights Agreement dated as of
June 18, 1998 between the Registrant and
Harris Trust and Savings Bank as Rights
Agent which includes, as Exhibit B, the
the form of Right Certificate (incorporated
by reference to Exhibit 1 to the
Registrant's Registration Statement on
Form 8-A dated June 23, 1998)
4(c) Amendment dated as of September 18, 1998
to the Rights Agreement (incorporated by
reference to Exhibit 2 to the Registrant's
Amendment No. 1 to Registration Statement
on Form 8-A dated September 23, 1998)
11 Computation of Basic and Diluted
Earnings Per Common and Dilutive Potential
Common 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
</TABLE>
(b) Report on Form 8-K
The Registrant filed the following reports on Form 8-K with the Securities
and Exchange Commission during the quarter ended September 30, 1998: Form
8-K dated July 1, 1998, relating to the sale of the Registrant's
semiconductor memory business to Micron Technology, Inc., Form 8-K dated
July 3, 1998, which included a news release regarding the Registrant's
adoption of a new stockholder rights plan.
15
"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 the company or its management "believes,"
"expects," "anticipates," "foresees" or other words or phrases of similar
import. Similarly, statements herein that describe the company's business
strategy, 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 the forward-looking statements. Important factors that could cause
actual results to differ materially from the expectations of the company or
its management include, among others: (i) global economic conditions;
(ii) product demand and industry capacity; (iii) timing of customer inventory
corrections; (iv) competitive products and pricing; (v) fluctuation in
exchange rates; (vi) realization of savings from announced worldwide
restructuring and consolidation of manufacturing operations;
(vii) manufacturing efficiencies; (viii) new product development;
(ix) timely completion by customers and suppliers of their Year 2000 programs,
accurate assessment of Year 2000 readiness, and the effectiveness of Year 2000
corrective actions; (x) availability of raw materials and critical
manufacturing equipment; (xi) the regulatory and trade environment; and
(xii) the ability to enforce patents. Readers are urged to consider these
factors carefully in evaluating the forward-looking statements. 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 publicly
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: October 22, 1998
16
<TABLE>
<CAPTION>
Exhibit Index
Designation of Paper (P)
Exhibits in or
this Report Description of Exhibit Electronic (E)
- ---------------- ----------------------- --------------
<S> <C> <C>
2.1 Second Amendment to Acquisition E
Agreement dated as of September 30, 1998
between Texas Instruments Incorporated
and Micron Technology, Inc. (incorporated
by reference to Exhibit 1 to the
Registrant's Registration Statement on
Form 8-A dated June 23, 1998)
4(a) Certificate of Designation E
relating to the Registrant's
Participating Cumulative
Preferred Stock
4(b) Rights Agreement dated as of E
June 18, 1998 between the
Registrant and Harris Trust
and Savings Bank, as Rights
Agent which includes, as
Exhibit B, the form of Right
Certificate (incorporated
by reference to Exhibit 1 to the
Registrant's Registration Statement
on Form 8-A dated June 23, 1998)
4(c) Amendment dated as of September 18, E
1998 to the Rights Agreement (
incorporated by reference to Exhibit 2
to the Registrant's Amendment No. 1
to Registration Statement on Form 8-A
dated September 23, 1998)
4(c) Amendment dated as of September E
18, 1998 to the Rights Agreement
(incorporated by reference to Amendment
No. 1 to Form 8-A dated September
23, 1998)
11 Computation of Basic and E
Diluted Earnings Per Common
and Dilutive Potential
Common 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
</TABLE>
[TYPE] EX-4(a)
[DESCRIPTION] EXHIBIT 4(a)
EXHIBIT 4(a)
------------
CERTIFICATE OF DESIGNATION
OF
SERIES B PARTICIPATING CUMULATIVE
PREFERRED STOCK
OF
TEXAS INSTRUMENTS INCORPORATED
Pursuant to Section 151 of the
General Corporation Law of the
State of Delaware
We, William A. Aylesworth, Senior Vice President, Treasurer
and Chief Financial Officer, and O. Wayne Coon, Vice President and Assistant
Secretary, of Texas Instruments Incorporated, a corporation organized and
existing under the General Corporation Law of the State of Delaware
("Delaware Law"), in accordance with the provisions thereof, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of
directors by the Certificate of Incorporation of the Corporation, the Board
of Directors on June 18, 1998, adopted the following resolution creating a
series of Preferred Stock in the amount and having the designation, voting
powers, preferences and relative, participating, optional and other special
rights and qualifications, limitations and restrictions thereof as follows:
Section 1. Designation and Number of Shares. The shares of
such series shall be designated as "Series B Participating Cumulative
Preferred Stock" (the "Series B Preferred Stock"), and the number of shares
constituting such series shall be 2,200,000. Such number of shares of the
Series B Preferred Stock may be increased or decreased by resolution of the
Board of Directors; provided that no decrease shall reduce the number of
shares of Series B Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares issuable upon exercise or
conversion of outstanding rights, options or other securities issued by the
Corporation.
Section 2. Dividends and Distributions.
(a) The holders of shares of Series B Preferred Stock
shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the third
Monday of February, May, August and November of each year
(each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of any share or
fraction of a share of Series B Preferred Stock, in an amount
per share (rounded to the nearest cent) equal to the greater
of (i) $1.00 and (ii) subject to the provision for adjustment
hereinafter set forth, 1000 times the aggregate per share
amount of all cash dividends or other distributions and 1000
times the aggregate per share amount of all non-cash dividends
or other distributions (other than (A) a dividend payable in
shares of Common Stock, par value $1.00 per share, of the
Corporation (the "Common Stock") or (B) a subdivision of the
outstanding shares of Common Stock (by reclassification or
otherwise)), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share
of Series B Preferred Stock. If the Corporation shall at any
time after June 18, 1998 (the "Rights Declaration Date") pay
any dividend on Common Stock payable in shares of Common Stock
or effect a subdivision or combination of the outstanding
shares of Common Stock (by reclassification or otherwise) into
a greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of Series
B Preferred Stock were entitled immediately prior to such
event under clause 2(a)(ii) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or
distribution on the Series B Preferred Stock as provided in
paragraph 2(a) above immediately after it declares a dividend
or distribution on the Common Stock (other than as described
in clauses 2(a)(ii)(A) and 2(a)(ii)(B) above); provided that
if no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend
Payment Date (or, with respect to the first Quarterly Dividend
Payment Date, the period between the first issuance of any
share or fraction of a share of Series B Preferred Stock and
such first Quarterly Dividend Payment Date), a dividend of
$1.00 per share on the Series B Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(c) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series B Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series B Preferred Stock, unless the
date of issue of such shares is on or before the record date
for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue and be
cumulative from the date of issue of such shares, or unless
the date of issue is a date after the record date for the
determination of holders of shares of Series B Preferred Stock
entitled to receive a quarterly dividend and on or before such
Quarterly Dividend Payment Date, in which case dividends shall
begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on shares of Series B Preferred Stock
in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series B
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall not be
more than 60 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. In addition to any other voting
rights required by law, the holders of shares of Series B Preferred Stock
shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter
set forth, each share of Series B Preferred Stock shall
entitle the holder thereof to 1000 votes on all matters
submitted to a vote of stockholders of the Corporation. If
the Corporation shall at any time after the Rights Declaration
Date pay any dividend on Common Stock payable in shares of
Common Stock or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to
which holders of shares of Series B Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which
is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) Except as otherwise provided herein or by law, the
holders of shares of Series B Preferred Stock and the holders
of shares of Common Stock shall vote together as a single
class on all matters submitted to a vote of stockholders of
the Corporation.
(c) (i) If at any time dividends on any Series B
Preferred Stock shall be in arrears in an amount equal to six
quarterly dividends thereon, the occurrence of such
contingency shall mark the beginning of a period (herein
called a "default period") which shall extend until such time
when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly
dividend period on all shares of Series B Preferred Stock then
outstanding shall have been declared and paid or set apart for
payment. During each default period, all holders of Preferred
Stock and any other series of Preferred Stock then entitled as
a class to elect directors, voting together as a single class,
irrespective of series, shall have the right to elect two
Directors.
(ii) During any default period, such voting right
of the holders of Series B Preferred Stock may be
exercised initially at a special meeting called pursuant
to subparagraph 3(c)(iii) hereof or at any annual meeting
of stockholders, and thereafter at annual meetings of
stockholders, provided that neither such voting right nor
the right of the holders of any other series of Preferred
Stock, if any, to increase, in certain cases, the
authorized number of Directors shall be exercised unless
the holders of 10% in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The
absence of a quorum of holders of Common Stock shall not
affect the exercise by holders of Preferred Stock of such
voting right. At any meeting at which holders of
Preferred Stock shall exercise such voting right
initially during an existing default period, they shall
have the right, voting as a class, to elect Directors to
fill such vacancies, if any, in the Board of Directors as
may then exist up to two Directors or, if such right is
exercised at an annual meeting, to elect two Directors.
If the number which may be so elected at any special
meeting does not amount to the required number, the size
of the Board of Directors will be automatically increased
without any action on the part of the holders of
Preferred Stock as shall be necessary to permit the
election by them of the required number. After the
holders of the Preferred Stock shall have exercised their
right to elect Directors in any default period and during
the continuance of such period, the number of Directors
shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant
to the rights of any equity securities ranking senior to
or pari passu with the Series B Preferred Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing default period, have previously
exercised their right to elect Directors, the Board of
Directors may order, or any stockholder or stockholders
owning in the aggregate not less than 10% of the total
number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of
special meeting of holders of Preferred Stock, which
meeting shall thereupon be called by the President, a
Vice President or the Secretary of the Corporation.
Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant
to this paragraph 3(c)(iii) shall be given to each holder
of record of Preferred Stock by mailing a copy of such
notice to him at his last address as the same appears on
the books of the Corporation. Such meeting shall be
called for a time not earlier than 20 days and not later
than 60 days after such order or request or in default of
the calling of such meeting within 60 days after such
order or request, such meeting may be called on similar
notice by any stockholder or stockholders owning in the
aggregate not less than 10% of the total number of shares
of Preferred Stock outstanding, irrespective of series.
Notwithstanding the provisions of this paragraph
3(c)(iii), no such special meeting shall be called during
the period within 60 days immediately preceding the date
fixed for the next annual meeting of stockholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation if
applicable, shall continue to be entitled to elect the
whole number of Directors until the holders of Preferred
Stock shall have exercised their right to elect two
Directors voting as a class, after the exercise of which
right (x) the Directors so elected by the holders of
Preferred Stock shall continue in office until their
successors shall have been elected by such holders or
until the expiration of the default period, and (y) any
vacancy in the Board of Directors may (except as
provided in paragraph 3(c)(ii) hereof) be filled by vote
of a majority of the remaining Directors theretofore
elected by the holders of the class of stock which
elected the Director whose office shall have become
vacant. References in this paragraph 3(c) to Directors
elected by the holders of a particular class of stock
shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the
foregoing sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock
as a class to elect Directors shall cease, (y) the term
of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of
Directors shall be such number as may be provided for in
the certificate of incorporation or bylaws irrespective
of any increase made pursuant to the provisions of
paragraph 3(c)(ii) hereof (such number being subject,
however, to change thereafter in any manner provided by
law or in the certificate of incorporation or bylaws).
Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining
Directors.
(d) The Certificate of Incorporation of the Corporation
shall not be amended in any manner (whether by merger or
otherwise) so as to adversely affect the powers, preferences
or special rights of the Series B Preferred Stock without the
affirmative vote of the holders of a majority of the
outstanding shares of Series B Preferred Stock, voting
separately as a class.
(e) Except as otherwise provided herein, holders of
Series B Preferred Stock shall have no special voting rights,
and their consent shall not be required for taking any
corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not
declared, on outstanding shares of Series B Preferred Stock
shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, or make any other
distributions on, any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution
or winding up) to the Series B Preferred Stock;
(ii) declare or pay dividends on, or make any
other distributions on, any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred
Stock, except dividends paid ratably on the Series B
Preferred Stock and all such other parity stock on which
dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares
are then entitled;
(iii) redeem, purchase or otherwise acquire for
value any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding
up) to the Series B Preferred Stock; provided that the
Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in
exchange for shares of stock of the Corporation ranking
junior (as to dividends and upon dissolution,
liquidation or winding up) to the Series B Preferred
Stock; or
(iv) redeem, purchase or otherwise acquire for
value any shares of Series B Preferred Stock, or any
shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding
up) with the Series B Preferred Stock, except in
accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to
all holders of Series B Preferred Stock and all such
other parity stock upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences
of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment
among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for value any
shares of stock of the Corporation unless the Corporation
could, under paragraph 4(a), purchase or otherwise acquire
such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series B
Preferred Stock redeemed, purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock without designation as to
series and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors as permitted
by the Certificate of Incorporation or as otherwise permitted under Delaware
Law.
Section 6. Liquidation, Dissolution and Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (1) to the holders of shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received $1.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment; provided that the holders of shares of
Series B Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal
to 1000 times the aggregate amount to be distributed per share to holders of
Common Stock, or (2) to the holders of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series
B Preferred Stock, except distributions made ratably on the Series B
Preferred Stock and all such other parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. If the Corporation shall at any time
after the Rights Declaration Date pay any dividend on Common Stock payable in
shares of Common Stock or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case
the aggregate amount to which holders of shares of Series B Preferred Stock
were entitled immediately prior to such event under the proviso in clause (1)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. Consolidation, Merger, Etc. If the Corporation
shall enter into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash or any other property, then in any such case the
shares of Series B Preferred Stock shall at the same time be similarly
exchanged for or changed into an amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 1000 times the aggregate
amount of stock, securities, cash or any other property, as the case may be,
into which or for which each share of Common Stock is changed or exchanged.
If the Corporation shall at any time after the Rights Declaration Date pay
any dividend on Common Stock payable in shares of Common Stock or effect a
subdivision or combination of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series B
Preferred Stock shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The Series B Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series B Preferred Stock shall rank
junior (as to dividends and upon liquidation, dissolution and winding up) to
all other series of the Corporation's preferred stock except any series that
specifically provides that such series shall rank junior to the Series B
Preferred Stock.
Section 10. Fractional Shares. Series B Preferred Stock may
be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of
all other rights of holders of Series B Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate this 23rd day of June, 1998.
/s/ WILLIAM A. AYLESWORTH
William A. Aylesworth
Senior Vice President, Treasurer and
Chief Financial Officer
/s/ O. WAYNE COON
O. Wayne Coon
Vice President and Assistant Secretary
[TYPE] EX-11
[DESCRIPTION] EXHIBIT 11
EXHIBIT 11
----------
<TABLE>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
EARNINGS PER COMMON AND DILUTIVE POTENTIAL COMMON SHARE
(In thousands, except per-share amounts.)
For Three Months Ended For Nine Months Ended
---------------------- ---------------------
Sept 30 Sept 30 Sept 30 Sept 30
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income from continuing operations............................. $ 164,332 $ 239,301 $ 218,470 $ 564,840
Add:
Interest, net of tax and profit sharing effect, on
convertible debentures assumed converted................ -- -- -- --
--------- --------- --------- ---------
Income from continuing operations............................. 164,332 239,301 218,470 564,840
Discontinued operations:
Income from operations...................................... -- -- -- 52,718
Gain on sale................................................ -- 1,472,710 -- 1,472,710
--------- --------- --------- ---------
Net income.................................................... $ 164,332 $1,712,011 $ 218,470 $2,090,268
========= ========= ========= =========
Diluted Earnings per Common and Dilutive Potential Common Share:
Weighted average common shares outstanding..................... 390,297 386,381 390,364 383,607
Weighted average dilutive potential common shares:
Stock option and compensation plans........................ 9,759 10,408 9,927 9,440
Convertible debentures..................................... -- 3,159 -- 4,368
------- ------- ------- -------
Weighted average common and dilutive potential common shares... 400,056 399,948 400,291 397,415
======= ======= ======= =======
Diluted Earnings per Common Share:
Income from continuing operations............................ $ 0.41 $ 0.60 $ 0.55 $ 1.42
Discontinued operations:
Income from operations..................................... -- -- -- 0.13
Gain on sale............................................... -- 3.68 -- 3.71
------- ------- ------- -------
Net income................................................... $ 0.41 $ 4.28 $ 0.55 $ 5.26
======= ======= ======= =======
Basic Earnings per Common Share:
Weighted average common shares outstanding..................... 390,297 386,381 390,364 383,607
======= ======= ======= =======
Basic Earnings per Common Share:
Income from continuing operations............................ $ 0.42 $ 0.62 $ 0.56 $ 1.47
Discontinued operations:
Income from operations..................................... -- -- -- 0.14
Gain on sale............................................... -- 3.81 -- 3.84
------- ------- ------- -------
Net income................................................... $ 0.42 $ 4.43 $ 0.56 $ 5.45
======= ======= ======= =======
</TABLE>
[TYPE] EX-12
[DESCRIPTION] EXHIBIT 12
<TABLE>
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
-----------------
1993 1994 1995 1996 1997 1997 1998
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and fixed charges:
Income (loss) before extraordinary item
and cumulative effect of accounting
changes, interest expense on loans,
capitalized interest amortized,
and provision for income taxes..... $ 561 $ 943 $1,530 $ 65 $ 825 $ 955 $ 399
Add interest attributable to
rental and lease expense........... 38 40 41 44 44 31 30
----- ----- ----- ----- ----- ----- -----
$ 599 $ 983 $1,571 $ 109 $ 869 $ 986 $ 429
===== ===== ===== ===== ===== ===== =====
Fixed charges:
Total interest on loans (expensed
and capitalized)..................... $ 55 $ 58 $ 69 $ 108 $ 114 $ 91 $ 64
Interest attributable to rental
and lease expense.................... 38 40 41 44 44 31 30
----- ----- ----- ----- ----- ----- -----
Fixed charges............................ $ 93 $ 98 $ 110 $ 152 $ 158 $ 122 $ 94
===== ===== ===== ===== ===== ===== =====
Combined fixed charges and
preferred stock dividends:
Fixed charges........................ $ 93 $ 98 $ 110 $ 152 $ 158 $ 122 $ 94
Preferred stock dividends
(adjusted as appropriate to a
pretax equivalent basis)........... 29 -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Combined fixed charges and
preferred stock dividends.......... $ 122 $ 98 $ 110 $ 152 $ 158 $ 122 $ 94
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges....... 6.4 10.0 14.3 * 5.5 8.1 4.6
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to combined
fixed charges and preferred
stock dividends........................ 4.9 10.0 14.3 * 5.5 8.1 4.6
===== ===== ===== ===== ===== ===== =====
* Not meaningful. The coverage deficiency was $43 million in 1996.
</TABLE>
<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, 1998, 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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,080
<SECURITIES> 1,062
<RECEIVABLES> 1,406
<ALLOWANCES> 110
<INVENTORY> 570
<CURRENT-ASSETS> 4,724
<PP&E> 6,558
<DEPRECIATION> 3,052
<TOTAL-ASSETS> 10,518
<CURRENT-LIABILITIES> 2,204
<BONDS> 1,040
0
0
<COMMON> 392
<OTHER-SE> 5,636
<TOTAL-LIABILITY-AND-EQUITY> 10,518
<SALES> 6,467
<TOTAL-REVENUES> 6,467
<CGS> 4,281
<TOTAL-COSTS> 4,281
<OTHER-EXPENSES> 925
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 331
<INCOME-TAX> 113
<INCOME-CONTINUING> 218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218
<EPS-PRIMARY> .56
<EPS-DILUTED> .55
</TABLE>
