SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999 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.)
8505 Forest Lane P.O. Box 660199, Dallas, Texas 75266-0199
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 972-995-3773
---------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
391,978,086
- -----------------------------------------------------------------------------
Number of shares of Registrant's common stock outstanding as of
March 31, 1999
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
Mar.31 Mar.31
Income 1999 1998
- ------ -------- --------
<S> <C> <C>
Net revenues ............................................................... $ 2,039 $ 2,187
Operating costs and expenses:
Cost of revenues.......................................................... 1,127 1,517
Research and development.................................................. 306 328
Marketing, general and administrative..................................... 323 364
-------- --------
Total................................................................... 1,756 2,209
-------- --------
Profit (loss) from operations............................................... 283 (22)
Other income (expense) net.................................................. 78 57
Interest on loans........................................................... 18 18
-------- --------
Income before provision for income taxes.................................... 343 17
Provision for income taxes.................................................. 110 6
-------- --------
Net income.................................................................. $ 233 $ 11
======== ========
Diluted earnings per common share........................................... $ 0.58 $ 0.03
======== ========
Basic earnings per common share............................................. $ 0.59 $ 0.03
======== ========
Cash dividends declared per share of common stock........................... $ .085 --
Cash Flows
- ----------
Net cash provided by (used in) operating activities......................... $ 217 $ (45)
Cash flows from investing activities:
Additions to property, plant and equipment................................ (202) (384)
Purchases of short-term investments....................................... (377) (287)
Sales and maturities of short-term investments............................ 766 749
Sales of noncurrent investments........................................... 172 --
Acquisition of businesses, net of cash acquired........................... (50) (152)
------- -------
Net cash provided by (used in) investing activities......................... 309 (74)
Cash flows from financing activities:
Payments on long-term debt................................................ (34) (35)
Dividends paid on common stock............................................ (33) (33)
Sales and other common stock transactions................................. 77 18
Common stock repurchase program........................................... (175) (9)
Other..................................................................... -- (3)
------- -------
Net cash used in financing activities....................................... (165) (62)
Effect of exchange rate changes on cash..................................... (8) (4)
------- -------
Net increase (decrease) in cash and cash equivalents........................ 353 (185)
Cash and cash equivalents, January 1........................................ 540 1,015
------- -------
Cash and cash equivalents, March 31......................................... $ 893 $ 830
======= =======
</TABLE>
2
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
Mar. 31 Dec. 31
Balance Sheet 1999 1998
- ------------- ------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................................... $ 893 $ 540
Short-term investments............................................. 1,316 1,709
Accounts receivable, less allowance for losses of
$56 million in 1999 and $70 million in 1998...................... 1,471 1,343
Inventories:
Raw materials.................................................... 80 77
Work in process.................................................. 365 354
Finished goods................................................... 196 165
------- -------
Inventories.................................................... 641 596
------- -------
Prepaid expenses................................................... 73 75
Deferred income taxes.............................................. 574 583
------- -------
Total current assets............................................. 4,968 4,846
------- -------
Property, plant and equipment at cost................................ 6,455 6,379
Less accumulated depreciation...................................... (3,129) (3,006)
------- -------
Property, plant and equipment (net).............................. 3,326 3,373
------- -------
Investments.......................................................... 2,301 2,564
Deferred income taxes................................................ 21 23
Other assets......................................................... 499 444
------- -------
Total assets......................................................... $11,115 $11,250
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 260 $ 267
Accounts payable................................................... 535 510
Accrued and other current liabilities.............................. 1,248 1,419
------- -------
Total current liabilities........................................ 2,043 2,196
------- -------
Long-term debt....................................................... 989 1,027
Accrued retirement costs............................................. 811 895
Deferred income taxes................................................ 354 381
Deferred credits and other liabilities............................... 239 224
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: 1999 - 393,104,624; 1998 - 392,395,997............ 393 392
Paid-in capital.................................................... 1,088 1,178
Retained earnings.................................................. 4,995 4,795
Less treasury common stock at cost.
Shares: 1999 - 1,126,538; 1998 - 1,716,038....................... (103) (134)
Accumulated other comprehensive income............................. 306 296
------- -------
Total stockholders' equity....................................... 6,679 6,527
------- -------
Total liabilities and stockholders' equity........................... $11,115 $11,250
======= =======
</TABLE>
3
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 (404.3 and 400.0 million shares for the
first quarters of 1999 and 1998).
In the first quarter of 1999 the company announced a consolidation of
semiconductor manufacturing operations in Japan. This action resulted in a
pretax charge of $31 million in the first quarter, of which $17 million was
for asset write-downs to expected sale value, $13 million for severance for
the elimination of 153 jobs, and $1 million for other related costs. Of the
$31 million charge, $28 million was included in cost of revenues and $3
million in marketing, general and administrative expense. Also in this
quarter, the company acquired Butterfly VLSI, Ltd., a developer of
short-distance wireless products, for $50 million in cash. As a result,
research and development expense included a charge of $10 million for the
value of acquired in-process research and development.
In the first quarter of 1999, sale of the Micron subordinated note and other
securities generated $172 million in cash.
In the first quarter of 1998, the company's U.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.
Total comprehensive income, i.e., net income plus investment and pension
liability adjustments to stockholders' equity, for the first quarters of 1999
and 1998 was $243 million and $4 million.
There has been no significant change in the status of the audit and
investigation concerning grants from the Italian government.
Certain amounts in the prior period's financial statements have been
reclassified to conform to the 1999 presentation.
The statements of income, statements of cash flows and balance sheet at March
31, 1999, 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
<TABLE>
Business segment data is as follows:
For Three Months Ended
----------------------
Business Segment Net Revenues Mar. 31 Mar. 31
(millions of dollars) 1999 1998
- ----------------------------- ------- -------
<S> <C> <C>
Semiconductor
Trade.................................... $ 1,664 $ 1,593
Intersegment............................. 9 5
------- -------
1,673 1,598
------- -------
Materials & Controls
Trade.................................... 245 242
Intersegment............................. -- --
------- -------
245 242
------- -------
Educational & Productivity Solutions
Trade.................................... 81 76
Corporate activities....................... 22 48
Divested activities........................ 18 223
------- -------
Total...................................... $ 2,039 $ 2,187
======= =======
Business Segment Profit (Loss)
(millions of dollars)
- ------------------------------
Semiconductor.............................. $ 341 $ 358
Materials & Controls....................... 40 36
Educational & Productivity Solutions....... 10 1
Corporate activities....................... (75) (44)
Special charges............................ (41) (244)
Interest on loans/other income (expense)... 60 39
Divested activities........................ 8 (129)
------- -------
Income before provision for income taxes... $ 343 $ 17
======= =======
</TABLE>
5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Registrant (the "company" or "TI") announced first-quarter 1999 diluted
earnings per share (EPS) of $0.65, an increase of 48 percent from $0.44 in the
year-ago quarter, excluding special charges. Compared to the fourth quarter
of 1998, EPS was up $0.06, despite profit-sharing expenses for the quarter
that increased $0.08 per share. This higher profit-sharing expense reflects
management expectations of significantly increased operating margins in 1999
compared to 1998, which included the losses of the divested memory business.
TI's gross profit margin increased to 46.1 percent, compared with 40.6 percent
in the year-ago quarter, and 45.5 percent in the fourth quarter of 1998,
excluding special charges.
Semiconductor orders were strong, increasing
19 percent from a year ago, primarily reflecting increased demand for TI's
analog and digital signal processing products. Semiconductor orders increased
13 percent from the fourth quarter of 1998, primarily due to demand in analog
products. Orders have increased sequentially for the past three quarters.
Including special charges, gross profit margin for the first quarter was
44.7 percent, compared with 30.6 percent a year ago, and EPS was $0.58, compared
with $0.03.
Digital signal processor (DSP) revenues increased 16 percent from the year-ago
quarter, driven primarily by strength in wireless communications and to a
lesser extent the mass market, more than offsetting a decline in modems.
During the quarter, TI made good progress in expanding the use of DSPs into
new applications and markets. TI announced the industry's first use of DSP
technology to enhance the performance of desktop color laser printers.
Called xStream DSP(tm) Technology, the solution prints documents with complex
color images and graphics in half the time of current printer technologies.
The acquisition of Butterfly VLSI, Ltd., adds expertise to address the
emerging short-distance wireless market. And TI and Liquid Audio, Inc.
announced the development of hardware and software solutions that will
enable digital music to be downloaded from the Internet for portable
audio products.
Note: Throughout this report, TI total financial results for the first
quarter of 1998 are reported with the memory business, which was divested in
the third quarter of 1998. All semiconductor results are reported without
memory.
FINANCIAL RESULTS
TI revenues for the first quarter of 1999 were $2039 million, compared to
$2187 million in the first quarter of 1998. The decrease was due to the
absence of revenue from the divested memory business. Revenues were up
slightly from the fourth quarter of 1998. TI orders in the first quarter were
$2230 million, up 4 percent from the year-ago quarter, and up 13 percent from
the fourth quarter of 1998, due to strength across all businesses.
Results from the quarter include special charges of $41 million, primarily for
a consolidation of semiconductor manufacturing operations in Japan. In the
first quarter of 1998, there was a special charge of $244 million, primarily
for discontinuing a DRAM manufacturing joint venture with Hitachi, Ltd.
Results for the fourth quarter of 1998 included special charges of
$72 million, substantially all of which was related to the closing of an
assembly/test joint venture with Samsung Electronica, Lda. in Portugal and the
sale of the Aversa, Italy, plant.
6
Excluding special charges, operating margins for the quarter were 15.9
percent, up almost 6 percentage points from the year-ago quarter, due to the
absence of the memory business. Operating margins were even with the fourth
quarter of 1998, notwithstanding increased profit-sharing expenses. Income
for the quarter was $261 million, up 49 percent from the year-ago quarter, due
to elimination of memory business losses. Income was up 10 percent
sequentially, primarily due to increased non-operating income, and to a lesser
extent, improved operating profits.
Including special charges, operating margins for the first quarter of 1999
were 13.9 percent, compared with a negative 1.0 percent in the year-ago quarter,
and income was $233 million, compared with $11 million.
OUTLOOK
TI expects increased growth in semiconductor in the second quarter, with
revenues continuing to build through the year, based on continued strength in
wireless, continued improvement in mass market, and recovery in hard disk
drives (HDD). Higher second-quarter revenues also are expected from the
calculator business, as it begins shipments for the back-to-school season.
With the continuing improvement in the large end-equipment markets and the
additional focus on emerging end-equipment businesses, TI is raising its 1999
spending projections for R&D to $1.2 billion from $1.1 billion, and for
capital to $1.3 billion from $1.0 billion.
Wireless communications continues to be a significant market for TI's DSP and
analog products, driven by strong demand for digital cellular handsets. In
1998, TI shipped 100 million DSPs into this market. TI expects the number of
digital handsets to grow about 50 percent in 1999, from 153 million in 1998 to
230 million this year. TI expects continued strength for DSP and analog
products in the mass market, as recent design-in successes move into
production and DSPs continue to penetrate new application areas. TI expects
strength to build this year in its HDD business. TI is the leading
semiconductor supplier to the HDD industry, providing a range of analog,
mixed-signal, DSP, and application-specific integrated circuit (ASIC)
products. The HDD market has a growing need for DSPs to handle higher-density
requirements, driven by the rise in Internet downloads.
According to market analyst Forward Concepts, DSP sales are expected to
increase 25 percent in 1999, to $4.4 billion, and reach $10.2 billion in 2002.
Market analyst Dataquest estimates analog growth of 16 percent for the year.
SEMICONDUCTORS
Semiconductor revenues were up 5 percent from the first quarter of 1998,
primarily due to gains in DSP. Semiconductor revenues were up 3 percent from
the fourth quarter of 1998.
DSP revenues increased 16 percent from the year-ago quarter. As has been
typical in the first quarter, DSP revenues declined slightly from the fourth
quarter, primarily due to seasonality in HDD, which offset record sequential
growth in the DSP mass market of 27 percent. Analog revenues were up
4 percent from the year-ago quarter, driven by higher demand in wireless.
Analog revenues were flat sequentially, limited by seasonal conditions in HDD
and temporary manufacturing issues that have been resolved.
7
TI's remaining semiconductor revenues come from a broad range of products,
including standard logic, ASICs, microcontrollers, and reduced instruction-set
computing (RISC) microprocessors. Revenues for these combined areas declined
from the year-ago quarter and increased from the fourth quarter.
Semiconductor revenues included one-time royalty revenues.
Semiconductor operating margins of 20.4 percent were down 2.0 percentage
points from the year-ago quarter, primarily due to the accrual of increased
profit-sharing expenses.
During the quarter, TI strengthened its product offerings with a number of new
complementary analog and DSP catalog chips. Announcements included
high-performance digital-to-analog converters designed to work with the 'C6000
DSP family for a wide range of video and graphics applications, and two new
floating-point DSPs that bring low-cost precision to applications such as
speech recognition, games and robotics. Additionally, TI announced it was
shipping samples of a single-chip digital baseband product for wireless
cellular phones, the industry's first such device with transistor feature
sizes of 0.18-micron drawn (0.15 L-effective). This highly integrated 'C5000
DSP-based device offers customers improved power, cost and space savings.
Further strengthening TI's DSP systems-level integration capabilities were
licensing agreements that will expand TI's embedded microprocessor portfolio.
Licenses with MIPS Technologies, Inc. and NEC Corporation will provide TI
access to RISC cores, which combine with TI DSPs for applications such as
communications and digital consumer devices.
Highlighting TI's continuing leadership in DSP and analog were recent reports
from market analysts. Forward Concepts stated that TI extended its lead in
DSP to 47 percent market share, the only DSP vendor to gain share the last
five years in a row. Dataquest named TI as the number one supplier in analog
for the second straight year, the only major supplier to gain share in each of
the last three years.
MATERIALS & CONTROLS (M&C)
Revenues for the M&C business were $245 million, about even with the first
quarter of 1998. Revenues were up 7 percent sequentially, primarily due to
strength in the industrial market, including seasonal build in the heating,
ventilation and air-conditioning (HVAC) area, and to a lesser extent,
increased demand in Asia. Operating margins were 16.4 percent, up 1.6
percentage points from the year-ago quarter, primarily due to actions taken in
support of M&C's best-cost producer strategy.
In the TIRIS[TM] business, the Tag-it[TM] line pilot program was launched with
British Airways in partnership with suppliers of luggage-handling equipment.
EDUCATIONAL & PRODUCTIVITY SOLUTIONS (E&PS)
Revenues for the E&PS business were up 7 percent from the first quarter of
1998 to $81 million, and about even with the fourth quarter. Revenues reflect
the seasonal patterns of this business, with second and third quarters being
the peak period for back-to-school shipments. Operating margins were 12.0
percent, up more than 10 percentage points from the year-ago quarter, and up
almost 5 percentage points from the fourth quarter of 1998, due to significant
improvements in operating costs.
8
E&PS continues to grow its portfolio of educational products and services,
which comprise its core focus. During the quarter, the business announced the
TI-83 Plus, an upgradable graphing calculator enhanced with Flash ROM
technology, new applications and more user-available memory, as well as the
TI-30X IIS, TI's first scientific calculator with a two-line display.
DIGITAL IMAGING
Revenues in digital imaging declined from the year-ago quarter, primarily due
to timing of new ultraportable product introductions and manufacturing issues
associated with the transition to XGA resolution ultraportable products. The
operating loss remained at about the level of the year-ago quarter.
Three new ultraportable projectors were introduced by TI customers, including
a third XGA resolution ultraportable and an SVGA ultraportable below $3,000
from InFocus[R]. The ultraportable projector market continues to grow rapidly
and TI's Digital Light Processing[TM] (DLP[TM]) is well positioned.
ADDITIONAL FINANCIAL INFORMATION
During the first quarter of 1999, cash and cash equivalents plus short-term
investments decreased by $40 million to $2209 million. The sale of the Micron
subordinated note and other securities generated $172 million of cash. The
acquisition of Butterfly VLSI, Ltd., required approximately $50 million of
cash in the first quarter.
First-quarter 1999 cash flow from operating activities net of additions to
property, plant, and equipment was $15 million. First-quarter capital
expenditures totaled $202 million, compared to $384 million in the first
quarter of 1998, which included the divested memory business.
During the first quarter of 1999, TI continued to purchase shares of common
stock as part of its program to reduce the potential dilutive effect of shares
to be issued under employee stock options. TI spent $98 million of cash for
share purchases net of proceeds from sales and other common stock
transactions.
Depreciation for the first quarter of 1999 was $224 million, compared to $275
million in the same quarter a year ago. Depreciation for 1999 is projected at
$1.0 billion.
The income tax rate for the first quarter of 1999 was 32 percent, which is the
estimated rate for the full year.
At the end of the first quarter, the debt-to-total capital ratio was .16
versus .17 at the end of 1998.
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.
9
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).
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 contingency plans).
At March 31, 1999, the Ownership, Inventory, and Assessment steps were
essentially complete for priority items in Information Technology, Physical
Plant and Products. TI's assessment activities for Extended Enterprise will
continue through the second quarter of 1999. TI considers priority items to
be those that could significantly disrupt TI's business operations. The
target completion date for priority items for the remaining step (Corrective
Action Deployment) is June 30, 1999 for all program areas.
As of March 31, 1999, the status for each program area is as follows:
o Information Technology: Corrective actions have been deployed for
substantially all of TI's legacy business strategic information systems
(manufacturing, marketing, financial and human resources). In the
ordinary course of business, TI continues to install new business
systems as appropriate. Verification of Y2K readiness is incorporated
into the process of implementing these new systems. Assessment of
infrastructure hardware and software that support TI's enterprise-wide
networks and servers is essentially complete, and deployment of
corrective actions is under way. TI has also deployed an assessment
tool and corrective action process for desktop computers. The Y2K
readiness of TI's EDI interfaces has been assessed, and testing
continues with major customers. Testing of EDI interfaces with
suppliers is complete, and TI believes that those interfaces are Y2K
ready.
o Physical Plant: Assessment of manufacturing equipment and facilities is
substantially complete and corrective actions are under way.
o Products: TI is essentially complete with the Y2K readiness assessment
of its products and is providing product status information on its
company web site. Divested product lines are not part of the assessment.
This effort includes semiconductor devices sold within the past five
years. TI's assessment indicates that the majority of semiconductor
products either have no date logic or are programmable devices that
require customer assessment of any software and firmware or other
elements added by or at the request of TI's customers. TI has
10
identified date-related issues with certain of TI's semiconductor
application software development tools and is providing corrective
software patches. The company believes these development tool issues
are unlikely to cause significant problems for TI customers. Assessment
of products of the materials & controls, educational & productivity
solutions and digital light processing businesses indicates they are
either Y2K ready or have no date logic.
o Extended Enterprise: TI's Y2K supplier program attempts to assess the
readiness of TI suppliers, focusing on those that could significantly
disrupt TI's business operations. TI began contacting its suppliers in
1997 to assess their readiness. This effort, which is ongoing and
expected to be complete by June 30, 1999, has included sending Y2K
surveys and conducting onsite Y2K reviews with selected suppliers. TI
intends to develop contingency plans by June 30, 1999, on the basis of
information gathered through the assessment process. TI continues to
discuss 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. Through March 31, 1999, TI has spent approximately $57 million.
Risks of Y2K Issues and Contingency Plans: TI continues to review Y2K issues
relating to its information technology, physical plant, products, suppliers
and customers. As noted above, TI expects to develop a set of contingency
plans by June 30, 1999, on the basis of information available as of that time.
It will refine those plans as needed in response to further information
gathered through the end of the year.
TI's contingency planning process is intended to mitigate worst-case business
disruptions. TI believes that its most reasonably likely worst-case Y2K
scenario would relate to disruption of supply from third parties as a result
of Y2K problems experienced by those parties or their suppliers. TI's
manufacturing, sales and service operations are dependent on an ongoing supply
of infrastructure services (such as electricity, water and telecommunications
services), materials and equipment spare parts from third parties as well as
third-party transportation services. In many cases, TI depends on a limited
number of suppliers for those services and materials. A disruption in supply
could interrupt manufacturing operations and result in damage to work in
process as well as delays in product deliveries to customers. These results
could affect TI revenues and lead to claims by customers against the company.
As part of contingency planning to address these risks, TI is considering
alternatives such as the creation of buffer inventories of critical supplies
and identification of alternative suppliers.
TI customers may experience Y2K disruptions that affect the quantity or timing
of their orders to TI or their ability to make timely payment. If these
disruptions occur, TI revenues and cash flow may be affected. TI cannot
predict the likelihood of these disruptions or the extent of their impact on
TI. It is unknown whether customers will change their spending patterns in
preparation for the Year 2000 (for example, by accelerating or delaying
orders).
Certain discontinued products and divested product lines present Y2K issues.
In the event of product failure, these issues could expose TI to product
liability or other types of claims. It is difficult to predict the extent of
11
potential liability. However, for several reasons, TI does not expect these
issues to result in claims that will have a material effect on its results of
operations. The reasons include the age of the products (resulting in many
being retired from service or upgraded in the ordinary course of business
before the Year 2000), expiration of applicable warranty periods, widespread
customer awareness of Y2K risks, and the efforts of TI and the acquirers of
its divested product lines to alert customers to Y2K issues affecting the
products. TI continues to review legal risks that may be associated with
discontinued products and divested product lines.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Information concerning market risk is contained on pages 38 and 39 of the
Registrant's 1998 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, TI filed lawsuits in United States District Courts in
Texas and in courts 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 TI's patents relating to the manufacture and sale of
semiconductor devices, including DRAMs. Hyundai responded by filing lawsuits
in United States District Courts in Texas and Delaware, seeking injunctive
relief against TI for alleged infringement of Hyundai's patents relating to
the manufacture and sale of semiconductor devices, including DRAMs.
In the first of the cases to go to trial, a federal jury in the Eastern
District of Texas found on March 25, 1999, that Hyundai had willfully
infringed two TI patents relating to manufacturing processes and awarded TI
$25.2 million for damages since the expiration of the TI-Hyundai cross license
in October 1997. On April 19, 1999, the court ruled in favor of TI on the
trial of Hyundai's defense of patent misuse. Still pending before the court
are TI's motions for enhanced damages, attorneys fees and a permanent
injunction.
Approximately $300 million of grants from the Italian government to TI's
former memory operations in Italy are being reviewed in the ordinary course by
government auditors. TI understands that these auditors are questioning
whether some of the grants were applied to purposes outside the scope of the
grants. TI's deferred gain on the sale of its memory business may be reduced
to the extent that any grants are determined to have been misapplied. Also,
TI understands that an Italian prosecutor is conducting a criminal
investigation concerning a portion of the grants relating to specified
research and development activities. The company believes that the grants
were obtained and used in compliance with applicable law and contractual
obligations.
12
<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>
11 Computation of Basic and
Diluted Earnings Per Common
and Dilutive Potential
Common Share
12 Computation of Ratio of
Earnings to Fixed Charges
27 Financial Data Schedule as of
March 31, 1999 and for the
3 months then ended
</TABLE>
(b) Reports on Form 8-K.
None.
13
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995:
This Form 10-Q includes "forward-looking statements" intended to qualify for
the safe harbor from liability established by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements generally can
be identified by phrases such as TI or its management "believes," "expects,"
"anticipates," "foresees," "forecasts," "estimates" or other words or phrases
of similar import. Similarly, such statements herein that describe the
company's business strategy, outlook, objectives, plans, intentions or goals
also are forward-looking statements. All such forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those in forward-looking statements.
We urge you to carefully consider the following important factors that could
cause actual results to differ materially from the expectations of the company
or its management:
o Market demand for semiconductors, particularly for digital signal
processors and analog chips in key markets, such as telecommunications and
computers;
o TI's ability to develop, manufacture and market innovative products in a
rapidly changing technological environment;
o TI's ability to compete in products and prices in an intensely competitive
industry;
o TI's ability to maintain and enforce a strong intellectual property
portfolio and obtain needed licenses from third parties;
o Timely completion by customers and suppliers of their Year 2000 programs,
accurate assessment of TI's Year 2000 readiness and of risks associated
with its current and past products, and effective implementation of
contingency plans and corrective actions;
o Global economic, social and political conditions in the countries in which
TI and its customers and suppliers operate, including fluctuations in
foreign currency exchange rates;
o Losses or curtailments of purchases from key customers;
o TI's ability to recruit and retain skilled personnel;
o Availability of raw materials and critical manufacturing equipment;
o Realization of savings from announced worldwide corporate restructuring
efforts and consolidation of manufacturing operations.
For a more detailed discussion of these factors, see the text under the
heading "Cautionary Statements Regarding Future Operations" in Item 1 of the
company's Form 10-K for 1998. 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.
TRADEMARKS:
xStream DSP, TIRIS, Tag-it, Digital Light Processing and DLP are trademarks of
Texas Instruments.
InFocus is a registered trademark of In Focus Systems, Inc.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXAS INSTRUMENTS INCORPORATED
BY: /s/ WILLIAM A. AYLESWORTH
-------------------------
William A. Aylesworth
Senior Vice President, Treasurer
and Chief Financial Officer
Date: April 23, 1999
15
<TABLE>
<CAPTION>
Exhibit Index
Designation of Paper (P)
Exhibits in or
this Report Description of Exhibit Electronic (E)
- ---------------- ----------------------- --------------
<S> <C> <C> <C>
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
27 Financial Data Schedule E
as of March 31, 1999 and for
the 3 months then ended
</TABLE>
[TYPE] EX-11
[DESCRIPTION] EXHIBIT 11
<TABLE>
EXHIBIT 11
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
EARNINGS PER COMMON AND DILUTIVE POTENTIAL COMMON SHARE
For Three Months Ended
------------------------
Mar 31 Mar 31
1999 1998
-------- --------
<S> <C> <C>
Net income (in millions)....................................... $ 233 $ 11
======== ========
Diluted earnings per common and dilutive potential common share:
Weighted average common shares outstanding (in thousands)...... 391,798 390,019
Weighted average dilutive potential common shares:
Stock option and compensation plans........................ 12,454 9,961
-------- --------
Weighted average common and dilutive potential common shares... 404,252 399,980
======== ========
Diluted earnings per common share.............................. $ .58 $ .03
======== ========
Basic Earnings per Common Share:
Weighted average common shares outstanding (in thousands)...... 391,798 390,019
======== ========
Basic earnings per common share................................ $ .59 $ .03
======== ========
</TABLE>
[TYPE] EX-12
[DESCRIPTION] EXHIBIT 12
<TABLE>
EXHIBIT 12
----------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
For Three Months
Ended March 31
---------------
1994 1995 1996 1997 1998 1998 1999
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations before
income taxes and fixed charges:
Income before extraordinary item and
interest expense on loans,
capitalized interest amortized,
and provision for income taxes..... $ 943 $1,530 $ 65 $ 825 $ 710 $ 39 $ 365
Add interest attributable to
rental and lease expense........... 40 41 44 44 41 10 9
----- ----- ----- ----- ----- ----- -----
$ 983 $1,571 $ 109 $ 869 $ 751 $ 49 $ 374
===== ===== ===== ===== ===== ===== =====
Fixed charges:
Total interest on loans (expensed
and capitalized)..................... $ 58 $ 69 $ 108 $ 114 $ 85 $ 22 $ 20
Interest attributable to rental
and lease expense.................... 40 41 44 44 41 10 9
----- ----- ----- ----- ----- ----- -----
Fixed charges............................ $ 98 $ 110 $ 152 $ 158 $ 126 $ 32 $ 29
===== ===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges....... 10.0 14.3 * 5.5 6.0 1.5 12.9
===== ===== ===== ===== ===== ===== =====
* 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 MARCH 31, 1999, AND FOR THE THREE MONTHS THEN ENDED,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 893
<SECURITIES> 1,316
<RECEIVABLES> 1,471
<ALLOWANCES> 56
<INVENTORY> 641
<CURRENT-ASSETS> 4,968
<PP&E> 6,455
<DEPRECIATION> 3,129
<TOTAL-ASSETS> 11,115
<CURRENT-LIABILITIES> 2,043
<BONDS> 989
0
0
<COMMON> 393
<OTHER-SE> 6,286
<TOTAL-LIABILITY-AND-EQUITY> 11,115
<SALES> 2,039
<TOTAL-REVENUES> 2,039
<CGS> 1,127
<TOTAL-COSTS> 1,127
<OTHER-EXPENSES> 306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 343
<INCOME-TAX> 110
<INCOME-CONTINUING> 233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233
<EPS-PRIMARY> .59
<EPS-DILUTED> .58
</TABLE>
