<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000 Commission File Number 1-3761
TEXAS INSTRUMENTS INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 75-0289970
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(State of Incorporation) (I.R.S. Employer Identification No.)
12500 TI Boulevard P.O. Box 660199, Dallas, Texas 75266-0199
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 972-995-3773
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
1,640,486,689
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Number of shares of Registrant's common stock outstanding as of
June 30, 2000
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
-----------------------------
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
<TABLE>
<CAPTION>
For Three Months Ended For Six Months Ended
---------------------- ---------------------
June 30 June 30 June 30 June 30
Income 2000 1999 2000 1999
------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues............................................... $ 2,843 $ 2,395 $ 5,497 $ 4,477
Operating costs and expenses:
Cost of revenues......................................... 1,448 1,222 2,818 2,355
Research and development................................. 372 365 745 676
Marketing, general and administrative.................... 400 345 789 676
------- ------- ------- -------
Total.................................................. 2,220 1,932 4,352 3,707
------- ------- ------- -------
Profit from operations..................................... 623 463 1,145 770
Other income (expense) net................................. 1,341 67 1,466 156
Interest on loans.......................................... 17 19 37 37
------- ------- ------- -------
Income before provision for income taxes................... 1,947 511 2,574 889
Provision for income taxes................................. 669 181 869 303
------- ------- ------- -------
Net income................................................. $ 1,278 $ 330 $ 1,705 $ 586
======= ======= ======= =======
Diluted earnings per common share.......................... $ .75 $ .20 $ 1.00 $ .35
Basic earnings per common share............................ $ .78 $ .21 $ 1.04 $ .37
Cash dividends declared per share of common stock.......... $ .021 $ .021 $ .043 $ .043
Cash Flows
----------
Net cash provided by operating activities.............................................. $ 1,042 $ 560
Cash flows from investing activities:
Additions to property, plant and equipment........................................... (1,194) (517)
Purchases of short-term investments.................................................. (2,640) (1,063)
Sales and maturities of short-term investments....................................... 1,867 1,260
Purchases of noncurrent investments.................................................. (46) (16)
Sales of noncurrent investments ..................................................... 1,613 176
Acquisition of businesses, net of cash acquired...................................... -- (382)
------- -------
Net cash used in investing activities.................................................. (400) (542)
Cash flows from financing activities:
Payments on long-term debt........................................................... (49) (51)
Dividends paid on common stock....................................................... (69) (67)
Sales and other common stock transactions............................................ 274 170
Common stock repurchase program...................................................... (99) (321)
------- -------
Net cash provided by (used in) financing activities.................................... 57 (269)
Effect of exchange rate changes on cash................................................ (31) (38)
------- -------
Net increase (decrease) in cash and cash equivalents................................... 668 (289)
Cash and cash equivalents, January 1................................................... 662 632
------- -------
Cash and cash equivalents, June 30..................................................... $ 1,330 $ 343
======= =======
</TABLE>
2
<PAGE>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
<TABLE>
<CAPTION>
June 30 Dec. 31
Balance Sheet 2000 1999
------------- ------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................................... $ 1,330 $ 662
Short-term investments............................................. 2,768 2,000
Accounts receivable, less allowance for losses of
$57 million in 2000 and $67 million in 1999...................... 2,098 1,843
Inventories:
Raw materials.................................................... 171 161
Work in process.................................................. 565 463
Finished goods................................................... 283 221
------- -------
Inventories.................................................... 1,019 845
------- -------
Prepaid expenses................................................... 116 100
Deferred income taxes.............................................. 556 605
------- -------
Total current assets............................................. 7,887 6,055
------- -------
Property, plant and equipment........................................ 7,973 7,120
Less accumulated depreciation...................................... (3,485) (3,285)
------- -------
Property, plant and equipment (net).............................. 4,488 3,835
------- -------
Investments.......................................................... 6,281 4,204
Goodwill and other acquisition-related intangibles................... 466 503
Deferred income taxes................................................ 49 41
Other assets......................................................... 387 390
------- -------
Total assets......................................................... $19,558 $15,028
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 385 $ 313
Accounts payable................................................... 757 668
Accrued and other current liabilities.............................. 1,961 1,647
------- -------
Total current liabilities........................................ 3,103 2,628
------- -------
Long-term debt....................................................... 966 1,097
Accrued retirement costs............................................. 743 797
Deferred income taxes................................................ 1,762 994
Deferred credits and other liabilities............................... 314 257
Stockholders' equity:
Preferred stock, $25 par value. Authorized - 10,000,000 shares.
Participating cumulative preferred. None issued.................. -- --
Common stock, $1 par value. Authorized - 2,400,000,000 shares.
Shares issued: 2000 - 1,641,386,479; 1999 - 813,926,025.......... 1,641 814
Paid-in capital.................................................... 219 822
Retained earnings.................................................. 7,813 6,175
Less treasury common stock at cost.
Shares: 2000 - 899,790; 1999 - 1,034,757......................... (96) (109)
Accumulated other comprehensive income............................. 3,093 1,553
------- -------
Total stockholders' equity....................................... 12,670 9,255
------- -------
Total liabilities and stockholders' equity........................... $19,558 $15,028
======= =======
</TABLE>
3
<PAGE>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
1. Diluted earnings per common share are based on average common and dilutive
potential common shares outstanding (1,708.3 and 1,658.7 million shares for the
second quarters of 2000 and 1999, and 1,705.8 and 1,654.6 million shares for the
six months ended June 30, 2000 and 1999). Share amounts have been retroactively
adjusted for the 2000 two-for-one stock split which was effective May 22, 2000.
2. On June 21, 2000, TI entered into an agreement to purchase Burr-Brown
Corporation for approximately 88 million shares of TI common stock in a
stock-for-stock transaction, including options and convertible notes.
On June 23, 2000, TI entered into an agreement to purchase Alantro
Communications, Inc., in a stock-for-stock transaction with an aggregate value
as of that date, including stock options and warrants, of approximately $300
million.
On June 29, 2000, TI entered into an agreement to purchase Dot Wireless, Inc.,
in a stock-for-stock transaction with an aggregate value as of that date,
including stock options, of approximately $475 million.
3. In the second quarter of 2000, the company realized a pretax investment gain
of $1211 million, included in other income, from the sale of 20 million shares
of Micron Technology, Inc. common stock which were part of the consideration
received in the company's 1998 divestiture of its memory business to Micron.
4. In the first quarter of 2000, the company recorded pretax charges of $29
million, associated with actions including the closing of the Materials and
Controls manufacturing facility in Versailles, Kentucky, and TI's acquisition
of Toccata Technology ApS. Of the $29 million charge, $12 million was for
severance for the elimination of 480 jobs in Kentucky. As of June 30, 2000,
none of the severance costs had been paid. Of the $29 million charge, $20
million is included in cost of revenues, $6 million in marketing, general and
administrative expense, and $3 million in research and development expense.
5. In the first quarter of 1999, the company announced a consolidation of
semiconductor manufacturing operations in Japan to improve manufacturing
efficiencies and reduce costs. The action resulted in a pretax charge of $14
million in the first quarter, of which $13 million was for severance for the
elimination of 153 jobs in Hatagoya, Japan and $1 million for other related
costs. At year-end 1999, this program was complete. Of the $14 million charge,
$11 million was included in cost of revenues and $3 million in marketing,
general and administrative expense.
6. Total comprehensive income, i.e., net income plus investment and pension
liability adjustments to stockholders' equity, for the second quarters of 2000
and 1999 was $1,394 million and $154 million. For the six months ended June 30,
2000 and 1999, it was $3,245 million and $421 million.
7. There has been no significant change in the status of the audit and
investigation concerning grants from the Italian government.
8. In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101 on revenue recognition. TI is currently
evaluating the impact of SAB No. 101, which is effective in the fourth quarter
of 2000, and expects any effect to be immaterial.
4
<PAGE>
9. The statements of income, statements of cash flows and balance sheet at
June 30, 2000, 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.
10. Business segment information is as follows:
<TABLE>
<CAPTION>
For Three Months Ended For Six Months Ended
---------------------- --------------------
June 30 June 30 June 30 June 30
Business Segment Net Revenues 2000 1999 2000 1999
(millions of dollars) ------- ------- ------- -------
-----------------------------
<S> <C> <C> <C> <C>
Semiconductor
Trade.................................... $ 2,410 $ 1,972 $ 4,675 $ 3,710
Intersegment............................. 4 3 9 7
------- ------- ------- -------
2,414 1,975 4,684 3,717
------- ------- ------- -------
Materials & Controls
Trade.................................... 296 256 586 502
Intersegment............................. -- -- -- --
------- ------- ------- -------
296 256 586 502
------- ------- ------- -------
Educational & Productivity Solutions
Trade.................................... 134 153 222 234
Corporate activities....................... (4) (3) (2) (7)
Divested activities........................ 3 14 7 31
------- ------- ------- -------
Total...................................... $ 2,843 $ 2,395 $ 5,497 $ 4,477
======= ======= ======= =======
</TABLE>
Beginning in 2000, management decided to assess profit performance of its
business segments excluding the effect of acquisition-related amortization.
Accordingly, 2000 business segment profit amounts exclude this amortization ($25
million for the second quarter and $50 million year-to-date). Business segment
profit amounts for 1999 include the amortization ($9 million for the second
quarter and $19 million year-to-date).
<TABLE>
<CAPTION>
Business Segment Profit (Loss)
(millions of dollars)
------------------------------
<S> <C> <C> <C> <C>
Semiconductor.............................. $ 606 $ 481 $ 1,183 $ 812
Materials & Controls....................... 58 43 114 83
Educational & Productivity Solutions....... 38 43 51 53
Corporate activities....................... (56) (63) (128) (120)
Special charges/gains and
acquisition-related amortization,
net of applicable profit sharing......... 1,186 (52) 1,132 (77)
Interest on loans/other income
(expense) net, excluding a second quarter
2000 gain of $1,211 million included
above in Special charges/gains and
acquisition-related amortization......... 113 48 218 119
Divested activities........................ 2 11 4 19
------- ------- ------- -------
Income before provision for income taxes... $ 1,947 $ 511 $ 2,574 $ 889
======= ======= ======= =======
</TABLE>
5
<PAGE>
11. Acquisition-related purchased in-process R&D charges were $79 million in
1999. These charges are for the value of acquired in-process research and
development from business purchase acquisitions. Values for acquired in-process
R&D (purchased R&D) were determined at the acquisition date based upon the
appraised value of the related developmental projects. Purchased R&D projects
were assessed, analyzed and valued within the context and framework articulated
by the Securities and Exchange Commission herein described as the Exclusion
Approach.
Significant assumptions, detailed in the following table, used in determining
the value of purchased R&D included the discount rate, the estimated beginning
date of projected operating cash flows, and the remaining cost and time, in
engineer-months, to complete the R&D projects. The term "engineer-month" refers
to the average amount of research work expected to be performed by an engineer
in a month.
The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and uncertain
assumptions utilized in the valuation analysis of the in-process R&D. Such
uncertainties could give rise to unforeseen budget overruns and/or revenue
shortfalls in the event that TI is unable to successfully complete and
commercialize the projects. TI management is primarily responsible for
estimating the value of the purchased R&D in all acquisitions accounted for
under the purchase method. TI expects to essentially meet its original return
expectations for the projects.
6
<PAGE>
<TABLE>
<CAPTION>
Millions of Dollars
---------------------------------------------------------------------------------------------------------------------------------
Cost/time to
complete R&D projects Year
Purchased --------------------- cash flows
Entity Acquisition Consid- Other in-process Appraisal R&D Discount At At projected
acquired date eration Goodwill intangibles R&D charge method focus rate acquisition June 2000 to begin
---------- ----------- -------- -------- ----------- ---------- --------- ----- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Butterfly First $ 52 $ 33 $ 5 $ 10 Exclusion Short 25% $5/264 $.7M/50 2000
VLSI, quarter approach distance engineer engineer
Ltd. 1999 wireless months months
technology
for voice-
plus-data
transmission
products
Libit Signal Second $365 $207 $106 $ 52 Exclusion Silicon 22% $5/492 Project 2000
Processing quarter approach Solutions engineer completed
Ltd. 1999 and months
Internet
telephony
software
for cable
modems, etc.
for Internet
access
Integrated Third $ 67 $ 32 $ 11 $ 16 Exclusion Intel- 25% $4/233 Project 2000
Sensor quarter approach ligent engineer completed
Solutions, 1999 sensors months
Inc. for
auto/ind.
markets
</TABLE>
7
<PAGE>
12. The following is a reconciliation of individual restructuring accruals (in
millions of dollars).
<TABLE>
<CAPTION>
Year of Charge
-------------------------------------------------------------------------------------------------
1997 1998 1999 2000
--------------------------------- ---------------------------------- ------------------ ------
Divest. M&C Reserves SC SC operation SC SC cost
of MCB/ cost against and closing & Unitrode operation reduction M&C
term. reduction gains on Corp. M&C sale of semiconductor closing action site
Description* Total of DIPD action business sales actions operation action in Japan in U.S. closing
------------ ----- ------- --------- -------------- ------- ------------ ------------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 $ 76 $ 14 $ 8 $ 22 $ 17 $ 6 $ 1 $ 2 $ 6
CHARGES:
Severance ................. 12 $ 12
Various charges ........... 1 1
DISPOSITIONS:
Severance payments ........ (6) (1) (3) (2)
---- ---- ---- ---- ---- ---- ---- ---- ---- -----
BALANCE, MARCH 31, 2000 83 14 7 22 14 6 1 2 4 13
DISPOSITIONS:
Severance payments ........ (6) (3) (1) (1) (1)
Various payments .......... (1) (1)
Adjustments - net
reversal to income ...... (8) (6) (1) (1)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
BALANCE, JUNE 30, 2000..... $ 68 $ 8 $ 4 $ 20 $ 13 $ 6 $ - $ 2 $ 3 $ 12
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
*Abbreviations
SC = Semiconductor Business
MCB = Mobile Computing Business
DIPD = Digital Imaging Printing Development Program
M&C = Materials and Controls Business
Corp. = Corporate Division
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Registrant (the "company" or "TI") announced second-quarter 2000 financial
results that show strength across a wide breadth of its products and markets. TI
expects accelerating growth in its semiconductor business in the third quarter
and is raising its capital expenditures to support strong customer demand.
Note: The earnings per share (EPS) amounts in this report reflect the May 22,
2000, two-for-one stock split.
In the second quarter, TI's revenue increased 7 percent sequentially and 19
percent over the year-ago period. Semiconductor revenue increased 22 percent
compared with a year ago and 6 percent sequentially, despite the absence of an
$85 million catch-up royalty from Hyundai Electronics Industries, Co. included
in the year-ago quarter. Excluding the one-time royalties, TI revenue grew 23
percent and semiconductor revenue grew 28 percent compared with a year ago.
During the quarter, TI also began to realize gains from the 1998 divestiture of
its memory business to Micron Technology, Inc. As part of that transaction, TI
received approximately 58 million shares of Micron common stock and
interest-bearing notes that are convertible into an additional 25 million
shares. During the quarter, TI sold 20 million shares of the common stock,
realizing pre-tax gains of $1211 million or $0.45 EPS.
SUMMARY OF FINANCIAL RESULTS
For the second quarter of 2000, TI reported the following:
Total revenue was $2843 million, up 19 percent from $2395 million in the
year-ago quarter and up 7 percent sequentially, primarily due to increased
strength in semiconductor.
Semiconductor revenue was $2414 million, up 22 percent from $1975 million
in the same quarter of 1999 and up 6 percent sequentially.
Cost of revenues in the second quarter was $1448 million compared to $1222
million in the year-ago quarter. Cost of revenues increased about the same
as the increase in revenues, on a percentage basis, reflecting
manufacturing efficiencies associated with higher product shipments which
offset the effect of the absence of the one-time Hyundai royalty.
Research and development (R&D) totaled $372 million, compared with $365
million in the second quarter of 1999, which included $52 million of
in-process R&D costs from the Libit Signal Processing Ltd. acquisition. The
increase was primarily due to semiconductor, including increased strategic
investment for DSP and analog.
Marketing, general and administrative expense in the quarter was $400
million, compared with $345 million in the year-ago quarter, primarily due
to higher semiconductor expenditures, including marketing-related
activities. The increase was less than the increase in revenues, on a
percentage basis.
Other income (expense) net increased from $67 million in the second quarter
of 1999 to $1341 million in the second quarter of 2000, primarily due to
the sale of 20 million shares of Micron common stock.
9
<PAGE>
The income tax rate for the quarter was 34 percent.
TI orders in the second quarter were $3217 million, up 26 percent from
$2559 million in the year-ago quarter and up 12 percent from the first
quarter due to semiconductor. Semiconductor orders increased 32 percent
compared with the year-ago quarter and 13 percent sequentially.
In addition to the $1211 million gain associated with the sale of Micron
common stock, results for this quarter include $25 million of amortization
of goodwill and other acquisition-related intangibles.
For the second quarter of 1999, results include special charges of $52
million for in-process R&D associated with the acquisition of Libit Signal
Processing Ltd. Also included is amortization of goodwill and other
acquisition-related intangibles of $9 million.
For the first quarter of 2000, results include special charges of $29
million for actions including the closing of a Materials and Controls (M&C)
manufacturing facility in Versailles, Kentucky, and TI's acquisition of
Toccata Technology ApS. Also included is amortization of goodwill and other
acquisition-related intangibles of $25 million.
Additional information relating to these items appears below under the
heading "Special Charges and Gains."
OUTLOOK
Despite seasonal pressure, the company expects sequential revenue growth in its
semiconductor business to accelerate in the third quarter, based on broad
customer demand and strength in key markets such as wireless, catalog and
broadband communications. Revenue growth in wireless is expected to continue,
reflecting strong demand for the company's products. The mass market for TI's
catalog DSP and analog products is expected to continue to grow rapidly as a
result of new applications, new product introductions and increased demand for
existing catalog products. TI's broadband communications revenue should reflect
developing demand for TI's digital subscriber line (DSL) and cable modem
products. After four quarters of decline, TI's hard-disk drive revenue is
expected to resume sequential growth in the third quarter.
In its Educational and Productivity Solutions (E&PS) business, TI expects a
strong third quarter as the revenue pattern in this business becomes
increasingly aligned with back-to-school retail sales in this quarter.
In its M&C business, TI expects revenue to decline in the third quarter
reflecting seasonality in its control and automotive markets.
TI continues to expect its operating margin to reach 25 percent in the fourth
quarter of this year, before the effect of special charges and amortization of
acquisition-related intangibles.
In response to ongoing strength in demand for its products and increased
visibility into year 2001, TI is raising its capital expenditure forecast to
$2.8 billion for 2000, up from the previous forecast of $2.5 billion. This
increase supports additional capacity in TI's conversion of its analog
manufacturing to more efficient 200-millimeter wafers.
Depreciation for the year is expected to be $1.3 billion. R&D for 2000 is
expected to be $1.5 billion, primarily for DSP and analog, excluding
acquisition-related in-process R&D costs and amortization.
SEMICONDUCTOR
Semiconductor revenue in the second quarter was $2414 million, up 22 percent
from the same period in 1999, primarily due to strength in DSP and analog.
Semiconductor revenue increased 6 percent sequentially, primarily due to
strength in analog combined with growth across a breadth of TI's
semiconductor products.
Semiconductor operating profit for the second quarter was $606 million, or
25.1 percent of revenue, up from the same quarter a year ago as profit from
higher product shipments more than offset the absence of the Hyundai one-time
royalty. Sequentially, operating margin was about the same as last quarter's
25.4 percent.
DSP revenue in the second quarter was up 40 percent from the same quarter a
year ago and up 3 percent sequentially. Analog revenue was up 23 percent
compared with the year-ago period and up 8 percent sequentially.
10
<PAGE>
Growth in TI's end-equipment operations was as follows:
- Wireless revenue increased 42 percent versus a year ago and 3 percent
sequentially;
- Mass market revenue from TI's catalog products grew 53 percent versus
a year ago and 15 percent sequentially;
- Hard-disk drive revenue declined 40 percent versus a year ago and 16
percent sequentially, significantly constraining growth in both DSP and
analog; and
- Growth in broadband communications continued to accelerate, with revenue
growing 67 percent sequentially.
In the mass market, DSP catalog products grew 70 percent compared with a year
ago and 12 percent sequentially. Analog catalog products increased 36
percent versus a year ago and 17 percent sequentially. TI remains on track
to introduce more than 280 new catalog analog products and win at least 50
percent more catalog DSP customer designs in 2000.
Revenue for TI's remaining semiconductor products increased from the year-ago
quarter and from the first quarter of 2000. Royalties declined from the
year-ago period when TI received an $85 million catch-up royalty from
Hyundai, and increased sequentially.
Semiconductor orders increased 32 percent from the year-ago quarter,
primarily due to strength in DSP and analog and 13 percent sequentially,
driven primarily by analog products along with a breadth of other
semiconductor products.
During the quarter, TI announced the acquisitions of three companies as part
of its strategy to continue extending its world leadership in DSP and analog:
Burr-Brown Corporation; Dot Wireless, Inc.; and Alantro Communications, Inc.
Burr-Brown is a leading supplier of high-performance catalog analog products,
principally data converters and amplifiers. The acquisition extends TI's
position into new high-performance analog products and increases TI's ability
to offer its DSP customers essentially all of the analog components that
attach to a DSP.
Dot Wireless is a technology leader in CDMA, with products and technology for
the emerging IS-2000 third-generation (3G) cellular standard, including
1XRTT, which complements TI's own developments for the W-CDMA version of the
3G standard. With this acquisition, TI will have strong product positions
across the full spectrum of 3G standards.
Alantro Communications specializes in wireless local area networking
technology using the IEEE 802.11 standard. TI believes that wireless
networking will be the leading method of distributing broadband information,
including video, data and voice in the home or office, and will grow quickly
as broadband access deploys throughout the world.
MATERIALS AND CONTROLS (M&C)
M&C revenue in the second quarter was $296 million, up 15 percent from $256
million in the same quarter a year ago, primarily due to growth in automotive
sensor products. Sequentially, second-quarter revenue was up 2 percent from
the first quarter.
Operating profit in the second quarter was $58 million, or 19.6 percent of
revenue, up 3.0 percentage points from the second quarter of 1999, primarily
due to increased revenue. Operating profit was about even with the first
quarter of 2000.
During the quarter, M&C announced it would close its Dresden, Germany
facility, included in the Integrated Sensor Solutions acquisition last year,
to improve manufacturing efficiencies.
EDUCATIONAL AND PRODUCTIVITY SOLUTIONS (E&PS)
Revenue for E&PS in the second quarter of 2000 was $134 million, down 12
percent from the year-ago quarter as revenue increasingly shifts with the
third quarter back-to-school season when compared with historical patterns.
Sequentially, revenue increased 54 percent, due to seasonality as retailers
and educational distributors began to stock for the third-quarter
back-to-school season. Operating margin for the quarter was 28.6 percent,
up 0.5 percentage points from the year-ago period.
11
<PAGE>
ADDITIONAL FINANCIAL INFORMATION
For the first six months of 2000, TI revenue was $5497 million, up from the
$4477 million in the first six months of 1999, due to semiconductor. The
increase in semiconductor revenue for the first six months of 2000 was primarily
due to strength in DSP and analog. The increase in M&C was due primarily to
growth in automotive sensor products, and the decrease in E&PS was due primarily
to the increasing shift of revenue to the third quarter back-to-school season
compared with historical patterns.
Cost of revenues for the first six months of 2000 was $2818 million compared
with $2355 million in the year-ago period. Cost of revenues increased less than
the increase in revenues, on a percentage basis, reflecting manufacturing
efficiencies associated with higher product shipments.
R&D in the first six months of 2000 totaled $745 million, compared to $676
million in the first six months of 1999, including in-process R&D costs from
acquisitions. The increase was primarily due to semiconductor, including
increased strategic investment for DSP and analog.
Marketing, general and administrative expense in the first six months of 2000
was $789 million, compared with $676 million in the year-ago period, primarily
due to higher semiconductor expenditures, including marketing-related
activities. The increase was less than the increase in revenues, on a percentage
basis.
Other income (expense) net increased from $156 million in the first six months
of 1999 to $1466 million in the first six months of 2000, primarily due to the
sale of 20 million shares of Micron common stock.
The income tax rate for the first six months of 2000 was 34 percent.
For the first six months of 2000, TI orders were $6094 million, compared with
$4841 million from the same period a year ago, primarily due to increased
customer demand for semiconductor products. Semiconductor orders for the first
six months were up, primarily due to strength in DSP and analog. M&C orders were
up, primarily due to strength in its automotive and control markets. E&PS orders
were down, primarily due to the increasing shift of revenue to the third quarter
back-to-school season compared with historical patterns.
In the first six months of 2000, cash and cash equivalents plus short-term
investments increased by $1436 million to $4098 million, primarily due to the
sale of Micron common stock.
Cash flow from operating activities was $1042 million in the first half of 2000.
Capital expenditures totaled $1194 million in the first six months of 2000,
compared with $517 million in the first half of 1999. Capital expenditures
totaled $553 million in the second quarter of 2000 versus $311 million in the
year-ago quarter.
Depreciation for the first half of 2000 was $540 million, compared with $469
million in the same period a year ago. Depreciation for the second quarter of
2000 was $283 million, versus $240 million in the year-ago quarter.
At the end of the second quarter, the debt-to-total-capital ratio was .10 versus
.13 at the end of 1999.
12
<PAGE>
SPECIAL CHARGES AND GAINS
Second Quarter of 2000
In the second quarter of 2000, a special investment gain of $1211 million was
realized from the sale of 20 million shares of Micron common stock, which were
part of the consideration received in TI's 1998 divestiture of the memory
business to Micron. This $1211 million gain was included in other income.
First Quarter of 2000
In the first quarter of 2000, pretax charges of $29 million were taken,
associated with actions including the closing of the M&C manufacturing facility
in Versailles, Kentucky, and TI's acquisition of Toccata Technology ApS. Of the
$29 million charge, $12 million was for severance for the elimination of 480
jobs in Kentucky by the first quarter of 2001. At June 30, 2000, the pay-out of
the severance cost obligation had not yet begun. Of the $29 million, $20 million
is included in cost of revenues, $6 million in marketing, general and
administrative expense and $3 million in research and development expense. The
primary benefit from the Kentucky action is reduced personnel costs, which are
estimated to reach $10 million annually. The benefit is expected to begin in the
third quarter of 2000.
First Quarter of 1999
In the first quarter of 1999, the company announced a consolidation of
semiconductor manufacturing operations in Japan to improve manufacturing
efficiencies and reduce costs. This action resulted in a pretax charge of $14
million in the first quarter, of which $13 million was for severance for the
elimination of 153 jobs in Hatogaya, Japan. At year-end 1999, this program was
complete. Of the $14 million charge, $11 million was included in cost of
revenues and $3 million in marketing, general and administrative expense. The
primary benefit from this consolidation action was reduced personnel costs,
which were estimated to reach $11 million annually. The benefit began in the
fourth quarter of 1999.
13
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Information concerning market risk is contained on pages B-35 and B-36 of the
Registrant's proxy statement for the 2000 annual meeting of stockholders and is
incorporated by reference to such proxy statement.
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders held on April 20, 2000, in addition to the
election of directors, the stockholders voted upon the two board proposals
contained in the Registrant's Proxy Statement dated March 2, 2000.
The Board nominees were elected as directors with the following vote:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- ----------
<S> <C> <C>
James R. Adams 668,076,127 5,052,974
David L. Boren 667,821,216 5,307,885
James B. Busey 667,708,852 5,420,249
Daniel A. Carp 668,028,977 5,100,124
Thomas J. Engibous 667,878,026 5,251,075
Gerald W. Fronterhouse 667,317,035 5,812,066
David R. Goode 668,045,260 5,083,841
Wayne R. Sanders 668,033,765 5,095,336
Ruth J. Simmons 667,843,518 5,285,583
Clayton K. Yeutter 662,941,357 10,187,744
</TABLE>
The two board proposals were approved with the following vote:
<TABLE>
<CAPTION>
Abstentions
(Other Than
Broker Broker
Proposal For Against Non-Votes) Non-Votes
-------- --- ------- ------------ ---------
<S> <C> <C> <C> <C>
Board proposal with respect to 618,109,303 52,701,596 2,318,200 2
amendment to the Company's
Restated Certificate of
Incorporation
Board proposal with respect to 455,890,606 120,891,645 3,828,792 92,518,058
adoption of the Texas Instruments
2000 Long-Term Incentive Plan
</TABLE>
14
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Designation of
Exhibits in
This Report Description of Exhibit
-------------- -------------------------------------
<S> <C>
3 Certificate of Amendment to Restated
Certificate of Incorporation
(incorporated by reference to Exhibit
3(n) to the Registrant's Registration
Statement on Form S-4 No. 333-41030
filed on July 7, 2000).
10 Texas Instruments 2000 Long-Term
Incentive Plan (incorporated by
reference to Exhibit 10(e) to the
Registrant's Registration Statement on
Form S-4 No. 333-41030 filed on
July 7, 2000).
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 June 30, 2000 and for the
6 months then ended.
27.1 Restated Financial Data Schedule as of
June 30, 1999 and for the 6 months then
ended.
</TABLE>
(b) Reports on Form 8-K.
None.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: This Form 10-Q includes "forward-looking statements" intended to qualify
for the safe harbor from liability established by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements generally can be
identified by phrases such as TI or its management "believes," "expects,"
"anticipates," "foresees," "forecasts," "estimates" or other words or phrases of
similar import. Similarly, such statements herein that describe the company's
business strategy, outlook, objectives, plans, intentions or goals also are
forward-looking statements. All such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those in forward-looking statements.
15
<PAGE>
We urge you to carefully consider the following important factors that could
cause actual results to differ materially from the expectations of the company
or its management:
- Market demand for semiconductors, particularly for digital signal
processors and analog chips in key markets, such as telecommunications
and computers;
- TI's ability to develop, manufacture and market innovative products in
a rapidly changing technological environment;
- TI's ability to compete in products and prices in an intensely
competitive industry;
- TI's ability to maintain and enforce a strong intellectual property
portfolio and obtain needed licenses from third parties;
- Timely completion and successful integration of announced acquisitions;
- Global economic, social and political conditions in the countries in
which TI and its customers and suppliers operate, including
fluctuations in foreign currency exchange rates;
- Losses or curtailments of purchases from key customers;
- TI's ability to recruit and retain skilled personnel; and
- Availability of raw materials and critical manufacturing equipment.
For a more detailed discussion of these factors, see the text under the heading
"Cautionary Statements Regarding Future Operations" in Item 1 of the company's
most recent Form 10-K. The forward-looking statements included in this Form 10-Q
are made only as of the date of this Form 10-Q and the company undertakes no
obligation to 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: July 26, 2000
16
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Designation of Paper (P)
Exhibits in or
this Report Description of Exhibit Electronic (E)
---------------- ---------------------- --------------
<S> <C> <C>
3 Certificate of Amendment to E
Restated Certificate of
Incorporation (incorporated
by reference to Exhibit
3(n) to the Registrant's
Registration Statement on
Form S-4 No. 333-41030
filed on July 7, 2000).
10 Texas Instruments 2000 E
Long-Term Incentive Plan
(incorporated by reference
to Exhibit 10(e) to the
Registrant's Registration
Statement on Form S-4
No. 333-41030 filed on
July 7, 2000).
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 June 30, 2000 and for
the 6 months then ended.
27.1 Restated Financial Data Schedule E
as of June 30, 1999 and for the
6 months then ended.
</TABLE>
