<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 September 30, 2000 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.)
12500 TI Boulevard, 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
---- ----
1,729,947,374
----------------------------------------------------------------------------
Number of shares of Registrant's common stock outstanding as of
September 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 Nine Months Ended
---------------------- ---------------------
Sept 30 Sept 30 Sept 30 Sept 30
INCOME 2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues............................................... $ 3,160 $ 2,515 $ 8,851 $ 7,121
Operating costs and expenses:
Cost of revenues......................................... 1,644 1,307 4,548 3,726
Research and development................................. 533 350 1,306 1,046
Marketing, general and administrative.................... 453 398 1,268 1,096
------- ------- ------- -------
Total.................................................. 2,630 2,055 7,122 5,868
------- ------- ------- -------
Profit from operations..................................... 530 460 1,729 1,253
Other income (expense) net................................. 565 156 2,040 313
Interest on loans.......................................... 17 18 58 55
------- ------- ------- -------
Income before provision for income taxes................... 1,078 598 3,711 1,511
Provision for income taxes................................. 399 196 1,286 505
------- ------- ------- -------
Net income................................................. $ 679 $ 402 $ 2,425 $ 1,006
======= ======= ======= =======
Diluted earnings per common share.......................... $ .38 $ .23 $ 1.36 $ .58
Basic earnings per common share............................ $ .39 $ .24 $ 1.42 $ .60
Cash dividends declared per share of common stock.......... $ .021 $ .021 $ .064 $ .064
CASH FLOWS
Net cash provided by operating activities.............................................. $ 1,530 $ 1,304
Cash flows from investing activities:
Additions to property, plant and equipment........................................... (1,789) (887)
Purchases of short-term investments.................................................. (4,304) (1,818)
Sales and maturities of short-term investments....................................... 2,730 1,688
Purchases of noncurrent investments.................................................. (83) (74)
Sales of noncurrent investments...................................................... 2,160 209
Acquisitions of businesses, net of cash acquired..................................... (3) (469)
------- -------
Net cash used in investing activities.................................................. (1,289) (1,351)
Cash flows from financing activities:
Additions to loans payable........................................................... 24 11
Payments on loans payable............................................................ (19) (13)
Additions to long-term dept.......................................................... 249 400
Payments on long-term debt........................................................... (250) (254)
Dividends paid on common stock....................................................... (104) (100)
Sales and other common stock transactions............................................ 191 182
Common stock repurchase program...................................................... (133) (417)
------- -------
Net cash used in financing activities.................................................. (42) (191)
Effect of exchange rate changes on cash................................................ (42) (56)
------- -------
Net increase (decrease) in cash and cash equivalents................................... 157 (294)
Cash and cash equivalents, January 1................................................... 781 705
------- -------
Cash and cash equivalents, September 30................................................ $ 938 $ 411
======= =======
</TABLE>
2
<PAGE>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Consolidated Financial Statements
(In millions of dollars, except per-share amounts.)
<TABLE>
<CAPTION>
Sept 30 Dec. 31
Balance Sheet 2000 1999
------------- ------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................................... $ 938 $ 781
Short-term investments............................................. 3,617 2,045
Accounts receivable, less allowance for losses of
$59 million in 2000 and $67 million in 1999...................... 2,362 1,909
Inventories:
Raw materials.................................................... 221 167
Work in process.................................................. 647 501
Finished goods................................................... 254 226
------- -------
Inventories.................................................... 1,122 894
------- -------
Prepaid expenses................................................... 100 109
Deferred income taxes.............................................. 569 615
------- -------
Total current assets............................................. 8,708 6,353
------- -------
Property, plant and equipment........................................ 8,478 7,338
Less accumulated depreciation...................................... (3,623) (3,405)
------- -------
Property, plant and equipment (net).............................. 4,855 3,933
------- -------
Investments.......................................................... 3,297 4,205
Goodwill and other acquisition-related intangibles................... 1,017 502
Deferred income taxes................................................ 53 41
Other assets......................................................... 409 393
------- -------
Total assets......................................................... $18,339 $15,427
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-term debt................... $ 204 $ 331
Accounts payable................................................... 828 687
Accrued and other current liabilities.............................. 1,837 1,679
------- -------
Total current liabilities........................................ 2,869 2,697
------- -------
Long-term debt....................................................... 1,213 1,099
Accrued retirement costs............................................. 687 797
Deferred income taxes................................................ 822 998
Deferred credits and other liabilities............................... 307 258
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 - 1,731,364,999; 1999 - 851,448,197.......... 1,731 851
Paid-in capital.................................................... 1,102 877
Retained earnings.................................................. 8,727 6,406
Less treasury common stock at cost.
Shares: 2000 - 1,417,625; 1999 - 1,034,757....................... (123) (109)
Accumulated other comprehensive income............................. 1,151 1,553
Deferred compensation ............................................. (147) --
------- -------
Total stockholders' equity....................................... 12,441 9,578
------- -------
Total liabilities and stockholders' equity........................... $18,339 $15,427
======= =======
</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 (1,791.9 and 1,750.7 million
shares for the third quarters of 2000 and 1999, and 1,788.3 and 1,739.3
million shares for the nine months ended September 30, 2000 and 1999). All
financial information has been restated to reflect the May, 2000 two-for-one
stock split and the acquisition of Burr-Brown Corporation in August, 2000,
which was accounted for as a pooling of interests.
2. Consistent with new accounting guidelines from the Emerging Issues Task
Force, net cash provided by operating activities for year-to-date 2000 and
1999 includes $228 million and $100 million of income tax benefit realized
from the exercise of nonqualified stock options. Previously the benefit was
included in cash flows from financing activities.
3. In the third quarter of 2000, TI closed three major acquisitions, all
stock-for-stock transactions:
- Burr-Brown Corporation, acquired in a pooling of interests transaction
for approximately 88 million shares of TI common stock, including
stock options and convertible notes. Related acquisition costs of
$41 million were recognized in the quarter.
- Dot Wireless, Inc., acquired in a purchase transaction for
approximately 6.8 million shares of TI common stock. See Note 14
following.
- Alantro Communications, Inc., acquired in a purchase transaction for
approximately 4.2 million shares or TI common stock. See Note 14
following.
4. In the third quarter of 2000, the company recorded net pretax charges of
$10 million for several Semiconductor and Materials & Controls restructuring
and other actions in the U.S., Japan and Europe. Of the $10 million, asset
abandonment charges were $17 million, gains from asset sales were $9 million,
escrow pricing refunds from a prior memory manufacturing joint venture were
$17 million and severance charges were $19 million. The severance action
affected 432 jobs. As of September 30, 2000, none of the severance costs had
been paid. Of the $10 million net charge, $12 million is included in cost of
revenue, $9 million in other income and $7 million in marketing, general and
administrative expense.
5. In the second and third quarters of 2000, the company realized pretax
investment gains of $1211 million and $425 million, included in other income,
from the sale of 20 million and 5.6 million shares of Micron Technology, Inc.
("Micron") common stock which were part of the consideration received in the
company's 1998 divestiture of its memory business to Micron.
6. In the first quarter of 2000, the company recorded pretax charges of $29
million, associated with actions including the closing of the Materials &
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 September 30,
2000, none of severance the 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.
7. In the third quarter of 1999, severance actions were taken by TI's
semiconductor operations in the U.S. These actions, taken in response to the
continuing downturn in the hard disk drive market, affected 206 jobs. As a
result, TI took a pretax charge of $12 million in the third quarter, of which
$10 million was included in cost of revenues and $2 million in marketing,
4
<PAGE>
general and administrative expense. Of the $12 million charge, $9 million was
for severance, $2 million for fixed asset write-downs for assets held for
disposal, and $1 million for vendor obligations. These fixed assets were to be
sold for scrap value and were therefore written down to zero, their sales
value. At September 30, 2000, this program was complete.
In the third quarter of 1999, additional severance actions were taken for the
Japan manufacturing efficiency program announced during the first quarter of
1999 (program is more fully discussed below in Note 8). This resulted in a
pretax charge of $7 million in the third quarter for the elimination of an
additional 105 jobs in Hatogaya, Japan. At year-end 1999, this program was
complete.
Also included is $15 million of acquisition costs from the company's pooling
of interests with Telogy Networks, Inc. and a $4 million pretax operating
charge by Unitrode Corporation for a severance action.
8. 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.
9. Total comprehensive income (loss), i.e., net income plus investment and
pension liability adjustments to stockholders' equity, for the third quarters
of 2000 and 1999 was $(1,263) million and $1,231 million. For the nine months
ended September 30, 2000 and 1999, it was $2,023 million and $1,669 million.
10. There has been no significant change in the status of the audit and
investigation concerning grants from the Italian government.
In July 2000, TI increased its guarantee to $210 million, from $110 million at
year-end 1999, of the payment obligation of a supplier under a lease financing
facility, maturing 2003. Obligations under this facility were $143 million at
September 30, 2000 and $2 million at year-end 1999. In October 2000, TI was
released from its guarantee of borrowings by TECH Semiconductor Singapore
under its $450 million principal amount credit facility.
11. Accounting standards SFAS No. 133 was issued in 1998 and is effective in
2001. It requires that all derivatives be marked-to-market on an ongoing
basis. Along with the derivatives, any underlying hedged items are also to be
marked-to-market on an ongoing basis. The market value adjustments are to be
included in the income statement or stockholders' equity, depending on the
nature of the transaction. The company is currently evaluating the standard's
impact and expects to adopt the standard in the first quarter of 2001 on a
cumulative basis.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101 on revenue recognition. The company 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.
12. The statements of income, statements of cash flows and balance sheet at
September 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.
5
<PAGE>
13. Business segment information is as follows:
<TABLE>
<CAPTION>
For Three Months Ended For Nine Months Ended
---------------------- ---------------------
Sept 30 Sept 30 Sept 30 Sept 30
Business Segment Net Revenues 2000 1999 2000 1999
(millions of dollars) ------- ------- ------- -------
-----------------------------
<S> <C> <C> <C> <C>
Semiconductor
Trade.................................... $ 2,714 $ 2,097 $ 7,583 $ 5,936
Intersegment............................. 4 4 13 11
------- ------- ------- -------
2,718 2,101 7,596 5,947
------- ------- ------- -------
Materials & Controls
Trade.................................... 269 252 855 753
Intersegment............................. -- -- -- 1
------- ------- ------- -------
269 252 855 754
------- ------- ------- -------
Educational & Productivity Solutions
Trade.................................... 160 160 382 394
Corporate activities....................... 10 (5) 8 (12)
Divested activities........................ 3 7 10 38
------- ------- ------- -------
Total...................................... $ 3,160 $ 2,515 $ 8,851 $ 7,121
======= ======= ======= =======
</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
($41 million for the third quarter and $92 million year-to-date). Business
segment profit amounts for 1999 include this amortization ($24 million for the
third quarter and $43 million year-to-date).
<TABLE>
<CAPTION>
Business Segment Profit (Loss)
(millions of dollars)
------------------------------
<S> <C> <C> <C> <C>
Semiconductor.............................. $ 693 $ 481 $ 1,931 $ 1,317
Materials & Controls....................... 47 41 161 123
Educational & Productivity Solutions....... 55 47 106 100
Corporate activities....................... (52) (80) (180) (208)
Special charges/gains and
acquisition-related amortization,
net of applicable profit sharing......... 221 (40) 1,353 (110)
Interest on loans/other income (expense)
net, excluding second and third quarter
2000 gains of $1,211 million and $436
million included above in special
charges/gains and acquisition-related
amortization............................. 112 138 334 259
Divested activities........................ 2 11 6 30
------- ------- ------- -------
Income before provision for income taxes... $ 1,078 $ 598 $ 3,711 $ 1,511
======= ======= ======= =======
</TABLE>
14. Year-to-date acquisition-related purchased in-process R&D charges were
$112 million in 2000 and $79 million in 1999. These charges are for 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.
6
<PAGE>
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.
7
<PAGE>
<TABLE>
<CAPTION>
Millions of Dollars
-----------------------------------------------------------------------------------------------
Purchased
Entity Acquisition Consid- Other Deferred in-process Appraisal
acquired date eration Goodwill intan- compen- R&D charge method
gibles sation
--------- ----------- ------- -------- ------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Butterfly First $ 52 $ 33 $ 5 -- $ 10 Exclusion
VLSI, quarter approach
Ltd. 1999
Libit Signal Second $365 $207 $106 -- $ 52 Exclusion
Processing quarter approach
Ltd. 1999
Integrated Third $ 67 $ 32 $ 11 -- $ 16 Exclusion
Sensor quarter approach
Solutions, 1999
Inc.
Alantro Third $277 $148 $ 58 $ 32 $ 52 Exclusion
Commun- quarter approach
ications, 2000
Inc.
Dot Third $467 $302 $ 46 $119 $ 60 Exclusion
Wireless, quarter approach
Inc. 2000
<CAPTION>
Cost/time to Year
complete R&D projects cash flows
Entity R&D Discount ---------------------- projected
acquired focus rate At At to begin
acquisition Sept 2000
---------- ----- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Butterfly Short 25% $5/264 Project 2000
VLSI, distance engineer completed
Ltd. wireless months
technology
for voice-
plus-data
transmission
products
Libit Signal Silicon 22% $5/492 Project 2000
Processing Solutions engineer completed
Ltd. and Internet months
telephony
software
for cable
modems, etc.
for Internet
access
Integrated Intelligent 25% $4/233 Project 2000
Sensor sensors engineer completed
Solutions, for auto/ months
Inc. ind. markets
Alantro Wireless 24% $2.9/ $2.3/138 2002
Commun- networking 172
ications, technology engineer engineer
Inc. for home months months
and office
Dot Architec- 20% $4.1/ $3.5/219 2003
Wireless, ture for 256 engineer
Inc. third engineer months
generation months
(3G) wireless
devices for
delivering
voice and
high speed
data to
mobile users
</TABLE>
8
<PAGE>
15. The following is a reconciliation of individual restructuring accruals (in
millions of dollars).
<TABLE>
<CAPTION>
Year of Charge
---------------------------------------
Balance, prior 1998
actions -- ---------------------------------------
primarily SC SC operation SC
severance and and closing & Unitrode
business Corp. M&C sale of semiconductor
Description* Total divestiture related actions operation action
------------ ----- ------------------- ------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999... $ 76 $ 44 $ 17 $ 6 $ 1
CHARGES:
Severance ................... 12
Various charges ............. 1
DISPOSITIONS:
Severance payments .......... (6) (1) (3) -
---- ---- ---- ---- ----
BALANCE, MARCH 31, 2000 83 43 14 6 1
DISPOSITIONS:
Severance payments .......... (6) (3) (1) (1)
Various payments ............ (1) (1)
Adjustments - net
reversal to income ........ (8) (7)
---- ---- ---- ---- ----
BALANCE, JUNE 30, 2000 68 32 13 6 -
---- ---- ---- ---- ----
CHARGES:
Severance ................... 19
DISPOSITIONS:
Severance payments .......... (2) (2)
Various payments ............ (1) (1)
Adjustments - net
reversal to income ........ (5)
---- ---- ---- ---- ----
BALANCE, SEPTEMBER 30, 2000 $ 79 $ 32 $ 11 $ 5 $ -
==== ==== ==== ==== ====
<CAPTION>
Year of Charge
---------------------------------------------
1999 2000
--------------------- ----------------------
SC cost
operation reduction M&C SC and M&C
closing in action site restructuring
Description* Japan in U.S. closing actions
---------- --------- ------- -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999... $ 2 $ 6
CHARGES:
Severance ................... $ 12
Various charges ............. 1
---- ---- ----
DISPOSITIONS:
Severance payments .......... (2)
---- ---- ----
BALANCE, MARCH 31, 2000 2 4 13
DISPOSITIONS:
Severance payments .......... (1)
Various payments ............
Adjustments - net
reversal to income ........ (1)
---- ---- ----
BALANCE, JUNE 30, 2000 2 3 12
---- ---- ----
CHARGES:
Severance ................... $ 19
DISPOSITIONS:
Severance payments ..........
Various payments ............
Adjustments - net
reversal to income ........ (2) (3)
---- ---- ---- ----
$ - $ - $ 12 $ 19
BALANCE, SEPTEMBER 30, 2000 ==== ==== ==== ====
</TABLE>
*Abbreviations
SC = Semiconductor Business
M&C = Materials & Controls Business
Corp. = Corporate Division
9
<PAGE>
16. In connection with its third quarter, 2000 pooling of interests acquisition
of Burr-Brown Corporation (now known as TI Tucson), Texas Instruments
Incorporated (TI), the parent, has fully and unconditionally guaranteed payment
of the principal, premium, if any, and interest under TI Tucson's $250 million
principal amount of 4 1/4% Convertible Subordinated Notes issued February 24,
2000, and due 2007. Such guarantee is subordinated to TI's existing and future
senior indebtedness.
In lieu of providing separate audited financial statements of TI Tucson, TI has
included the accompanying unaudited consolidating condensed financial statements
in accordance with Rule 3-10(c) of the SEC's Regulation S-X.
10
<PAGE>
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Unaudited Consolidating Condensed Statement of Income
For Three Months Ended September 30, 2000
(In millions of dollars)
TI Tucson
------------------------------ Non-
TI guarantor
Texas Tucson subsidiaries
Instruments Operating Special consol- and
Incorporated results items idated eliminations Consolidated
------------ --------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................... $2,862 $ 112 $ 15 $ 127 $ 171 $3,160
Operating costs and expenses:
Cost of revenues......................... 1,490 46 19 65 89 1,644
Research and development................. 361 15 -- 15 157 533
Marketing, general and administrative.... 261 18 18 36 156 453
------ ------ ------ ------ ------ ------
Total.................................. 2,112 79 37 116 402 2,630
------ ------ ------ ------ ------ ------
Profit (loss) from operations.............. 750 33 (22) 11 (231) 530
Other income (expense) net................. 737 6 2 8 (180) 565
Interest on loans.......................... 19 3 -- 3 (5) 17
------ ------ ------ ------ ------ ------
Income (loss) before provision for
income taxes............................. 1,468 36 (20) 16 (406) 1,078
Provision (credit) for income taxes........ 317 13 (7) 6 76 399
------ ------ ------ ------ ------ ------
Income before equity in earnings of
subsidiaries............................. 1,151 23 (13) 10 (482) 679
Equity in earnings of subsidiaries......... (472) -- -- -- 472 --
------ ------ ------ ------ ------ ------
Net income................................. $ 679 $ 23 $ (13) $ 10 $ (10) $ 679
====== ====== ====== ====== ===== ======
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Unaudited Consolidating Condensed Statement of Income
For Three Months Ended September 30, 1999
(In millions of dollars)
TI Tucson
------------------------------ Non-
TI guarantor
Texas Tucson subsidiaries
Instruments Operating Special consol- and
Incorporated results items idated eliminations Consolidated
------------ --------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................... $2,089 $ 78 $ -- $ 78 $ 348 $2,515
Operating costs and expenses:
Cost of revenues........................ 988 37 -- 37 282 1,307
Research and development................. 339 12 -- 12 (1) 350
Marketing, general and administrative.... 248 12 -- 12 138 398
------ ------ ------ ------ ------ ------
Total.................................. 1,575 61 -- 61 419 2,055
------ ------ ------ ------ ------ ------
Profit (loss) from operations.............. 514 17 -- 17 (71) 460
Other income (expense) net................. 150 1 -- 1 5 156
Interest on loans.......................... 16 -- -- -- 2 18
------ ------ ------ ------ ------ ------
Income (loss) before provision for
income taxes............................. 648 18 -- 18 (68) 598
Provision for income taxes................. 145 5 -- 5 46 196
------ ------ ------ ------ ------ ------
Income before equity in earnings of
subsidiaries............................. 503 13 -- 13 (114) 402
Equity in earnings of subsidiaries......... (101) -- -- -- 101 --
------ ------ ------ ------ ------ ------
Net income................................. $ 402 $ 13 $ -- $ 13 $ (13) $ 402
====== ====== ====== ====== ====== ======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Unaudited Consolidating Condensed Statement of Income
For Nine Months Ended September 30, 2000
(In millions of dollars)
TI Tucson
---------------------------- Non-
TI guarantor
Texas Tucson subsidiaries
Instruments Operating Special consol- and
Incorporated results items idated eliminations Consolidated
------------ --------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................... $7,757 $ 306 $ 15 $ 321 $ 773 $8,851
Operating costs and expenses:
Cost of revenues........................ 4,269 131 19 150 129 4,548
Research and development................. 922 43 -- 43 341 1,306
Marketing, general and administrative.... 760 45 18 63 445 1,268
------ ------ ------ ------ ------ ------
Total.................................. 5,951 219 37 256 915 7,122
------ ------ ------ ------ ------ ------
Profit (loss) from operations.............. 1,806 87 (22) 65 (142) 1,729
Other income (expense) net................. 2,057 14 2 16 (33) 2,040
Interest on loans.......................... 64 6 -- 6 (12) 58
------ ------ ------ ------ ------ ------
Income (loss) before provision for
income taxes............................. 3,799 95 (20) 75 (163) 3,711
Provision (credit) for income taxes........ 1,089 30 (7) 23 174 1,286
------ ------ ------ ------ ------ ------
Income before equity in earnings of
subsidiaries............................. 2,710 65 (13) 52 (337) 2,425
Equity in earnings of subsidiaries......... (285) -- -- -- 285 --
------ ------ ------ ------ ------ ------
Net income................................. $2,425 $ 65 $ (13) $ 52 $ (52) $2,425
====== ====== ====== ====== ====== ======
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Unaudited Consolidating Condensed Statement of Income
For Nine Months Ended September 30, 1999
(In millions of dollars)
TI Tucson
---------------------------- Non-
TI guarantor
Texas Tucson subsidiaries
Instruments Operating Special consol- and
Incorporated results items idated eliminations Consolidated
------------ --------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................... $5,913 $ 207 $ -- $ 207 $1,001 $7,121
Operating costs and expenses:
Cost of revenues........................ 3,221 99 -- 99 406 3,726
Research and development................. 862 33 -- 33 151 1,046
Marketing, general and administrative.... 670 35 -- 35 391 1,096
------ ------ ------ ------ ------ ------
Total.................................. 4,753 167 -- 167 948 5,868
------ ------ ------ ------ ------ ------
Profit (loss) from operations.............. 1,160 40 -- 40 53 1,253
Other income (expense) net................. 359 2 -- 2 (48) 313
Interest on loans.......................... 47 -- -- -- 8 55
------ ------ ------ ------ ------ ------
Income (loss) before provision for
income taxes............................. 1,472 42 -- 42 (3) 1,511
Provision for income taxes................. 336 11 -- 11 158 505
------ ------ ------ ------ ------ ------
Income before equity in earnings of
subsidiaries............................. 1,136 31 -- 31 (161) 1,006
Equity in earnings of subsidiaries......... (130) -- -- -- 130 --
------ ------ ------ ------ ------ ------
Net income................................. $1,006 $ 31 $ -- $ 31 $ (31) $1,006
====== ====== ====== ====== ====== ======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Unaudited Consolidating Condensed Balance Sheet
September 30, 2000
(In millions of dollars)
Non-
TI guarantor
Texas Tucson subsidiaries
Instruments consol- and
Incorporated idated eliminations Consolidated
------------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................ $ 422 $ 10 $ 506 $ 938
Short-term investments................... 3,473 158 (14) 3,617
Accounts receivable...................... 1,543 76 743 2,362
Inventories.............................. 585 59 478 1,122
Prepaid expenses......................... 59 5 36 100
Deferred income taxes.................... 1 17 551 569
------- ------ ------ --------
Total current assets................... 6,083 325 2,300 8,708
------- ------ ------ --------
Property, plant and equipment (net)........ 3,357 97 1,401 4,855
Investments................................ 2,616 16 665 3,297
Goodwill and other acquisition-related
intangibles.............................. -- -- 1,017 1,017
Deferred income taxes...................... -- -- 53 53
Other assets............................... 383 17 9 409
Investment in subsidiaries................. 3,159 -- (3,159) --
Intercompany accounts (net)................ (75) 266 (191) --
------- ------ ------ --------
Total assets........................... $15,523 $ 721 $2,095 $ 18,339
======= ====== ====== ========
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion
long-term debt......................... $ 154 $ 3 $ 47 $ 204
Accounts payable......................... 470 26 332 828
Accrued and other current liabilities.... 646 28 1,163 1,837
------- ------ ------ --------
Total current liabilities.............. 1,270 57 1,542 2,869
------- ------ ------ --------
Long-term debt............................. 888 251 74 1,213
Accrued retirement costs................... 519 -- 168 687
Deferred income taxes...................... 546 7 269 822
Deferred credits and other liabilities..... 297 1 9 307
Stockholders' equity....................... 12,003 405 33 12,441
------- ------ ------ --------
Total liabilities and stockholders' equity. $15,523 $ 721 $2,095 $18,339
======= ====== ====== =======
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Unaudited Consolidating Condensed Balance Sheet
December 31, 1999
(In millions of dollars)
Non-
TI guarantor
Texas Tucson subsidiaries
Instruments consol- and
Incorporated idated eliminations Consolidated
------------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................ $ 194 $ 118 $ 469 $ 781
Short-term investments................... 1,979 45 21 2,045
Accounts receivable...................... 1,189 66 654 1,909
Inventories.............................. 391 50 453 894
Prepaid expenses......................... 60 9 40 109
Deferred income taxes.................... -- 10 605 615
------- ------ ------- -------
Total current assets................... 3,813 298 2,242 6,353
------- ------ ------- -------
Property, plant and equipment (net)........ 2,751 98 1,084 3,933
Investments................................ 3,602 1 602 4,205
Goodwill and other acquisition-related
intangibles.............................. -- -- 502 502
Deferred income taxes...................... (19) -- 60 41
Other assets............................... 721 3 (331) 393
Investment in subsidiaries................. 1,829 -- (1,829) --
Intercompany accounts (net)................ (77) -- 77 --
------- ------ ------- -------
Total assets........................... $12,620 $ 400 $ 2,407 $15,427
======= ====== ======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion
long-term debt........................ $ 280 $ 18 $ 33 $ 331
Accounts payable....................... 383 19 285 687
Accrued and other current liabilities.. 758 32 889 1,679
------- ------ ------- -------
Total current liabilities............ 1,421 69 1,207 2,697
------- ------ ------- -------
Long-term debt............................. 993 2 104 1,099
Accrued retirement costs................... 522 -- 275 797
Deferred income taxes...................... 770 6 222 998
Deferred credits and other liabilities..... 244 -- 14 258
Stockholders' equity....................... 8,670 323 585 9,578
------- ------ ------- -------
Total liabilities and stockholders' equity. $12,620 $ 400 $ 2,407 $15,427
======= ====== ======= =======
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Unaudited Consolidating Condensed Statement of Cash Flows
For Nine Months Ended September 30, 2000
(In millions of dollars)
Non-
TI guarantor
Texas Tucson subsidiaries
Instruments consol- and
Incorporated idated eliminations Consolidated
------------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities..................... $ 1,023 $ (210) $ 717 $ 1,530
Cash flows from investing activities:
Additions to property, plant and
equipment.............................. (1,185) (15) (589) (1,789)
Purchases of short-term investments...... (4,119) (163) (22) (4,304)
Sales and maturities of short-term
investments............................ 2,623 57 50 2,730
Purchases of noncurrent investments...... (61) (22) -- (83)
Sales of noncurrent investments.......... 2,154 6 -- 2,160
Acquisitions of businesses, net of
cash acquired.......................... (3) -- -- (3)
------- ------ ------ ------
Net cash used in investing activities...... (591) (137) (561) (1,289)
Cash flows from financing activities:
Additions to loan payables............... -- 3 21 24
Payments on loan payables................ -- (19) -- (19)
Additions to long-term debt.............. -- 243 6 249
Payments on long-term debt............... (230) -- (20) (250)
Dividends paid on common stock........... (104) -- -- (104)
Sales and other common stock
transactions........................... 301 12 (122) 191
Common stock repurchase program.......... (133) -- -- (133)
Change in intercompany accounts.......... (1) -- 1 --
------- ------ ------ ------
Net cash provided by (used in)
financing activities..................... (167) 239 (114) (42)
Effect of exchange rate changes on cash.... (37) -- (5) (42)
------- ------ ------ ------
Net increase (decrease) in cash and
cash equivalents......................... 228 (108) 37 157
Cash and cash equivalents, January 1....... 194 118 469 781
------- ------ ------ ------
Cash and cash equivalents, September 30.... $ 422 $ 10 $ 506 $ 938
======= ====== ====== ======
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
Unaudited Consolidating Condensed Statement of Cash Flows
For Nine Months Ended September 30, 1999
(In millions of dollars)
Non-
TI guarantor
Texas Tucson subsidiaries
Instruments consol- and
Incorporated idated eliminations Consolidated
------------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities..................... $ 1,509 $ 42 $ (247) $ 1,304
Cash flows from investing activities:
Additions to property, plant and
equipment.............................. (647) (15) (225) (887)
Purchases of short-term investments...... (1,690) -- (128) (1,818)
Sales and maturities of short-term
investments............................ 1,670 -- 18 1,688
Purchases of noncurrent investments...... (65) (9) -- (74)
Sales of noncurrent investments.......... 189 16 4 209
Acquisitions of businesses, net of cash
acquired............................... (469) -- -- (469)
------- ------ ------ ------
Net cash used in investing activities...... (1,012) (8) (331) (1,351)
Cash flows from financing activities:
Additions to loan payables............... -- 11 -- 11
Payments on loan payables................ -- (13) -- (13)
Additions to long-term debt.............. 400 -- -- 400
Payments on long-term debt............... (200) (1) (53) (254)
Dividends paid on common stock........... (100) -- -- (100)
Sales and other common stock
transactions........................... 179 5 (2) 182
Common stock repurchase program.......... (411) (5) (1) (417)
Change in intercompany accounts.......... (347) -- 347 --
------- ------ ------ ------
Net cash provided by (used in)
financing activities..................... (479) (3) 291 (191)
Effect of exchange rate changes on cash.... (43) (1) (12) (56)
------- ------ ------ ------
Net increase (decrease) in cash and
cash equivalents......................... (25) 30 (299) (294)
Cash and cash equivalents, January 1....... 79 72 554 705
------- ------ ------ ------
Cash and cash equivalents, September 30.... $ 54 $ 102 $ 255 $ 411
======= ====== ====== ======
</TABLE>
18
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Registrant (the "company" or "TI") announced third-quarter 2000 financial
results that show revenue growth for TI's semiconductor business accelerated
in the third quarter to 8 percent sequentially and 29 percent over the same
quarter last year. Growth was driven by demand for TI's DSP and Analog
semiconductors, as well as demand across a breadth of TI's other semiconductor
products.
Wireless revenue grew 37 percent over the same quarter last year. Catalog
revenue grew 56 percent over a year ago. Revenue from broadband communications
grew 70 percent sequentially.
SUMMARY OF FINANCIAL RESULTS
Note: TI's financial results reflect the completed pooling of interests
acquisition of Burr-Brown Corporation and the inclusion of its results in the
Semiconductor segment. Historical results for this, as well as the May, 2000
two-for-one stock split, have been restated accordingly.
For the third quarter of 2000, TI reported the following:
Total revenue was $3160 million, up 26 percent from $2515 million in the
year-ago quarter and up 7 percent sequentially due to increased growth in
semiconductor revenue. Semiconductor revenue was $2718 million, up 29 percent
from $2101 million in the same quarter of 1999 and up 8 percent sequentially.
Cost of revenues in the third quarter was $1644 million compared to $1307
million in the year-ago quarter. Cost of revenues increased about the same as
the increase in revenues, on a percentage basis.
Research and development (R&D) totaled $533 million, including $112 million of
purchased in-process R&D costs from the Dot Wireless, Inc. and Alantro
Communications, Inc. acquisitions, compared with $350 million in the third
quarter of 1999, which included $16 million of purchased in-process R&D costs
from the Integrated Sensor Solutions, Inc. acquisition. The increase was
primarily due to acquisition related in-process R&D costs.
Marketing, general and administrative expense in the quarter was $453 million,
compared with $398 million in the year-ago quarter, primarily due to higher
semiconductor expenditures, including marketing-related activities. The
increase was less than the total increase in TI revenues, on a percentage
basis.
Other income (expense) net increased from $156 million in the third quarter of
1999 to $565 million in the third quarter of 2000, primarily due to the sale
of 5.6 million shares of Micron common stock.
The income tax rate for the quarter was 37 percent.
Orders in the third quarter were $3250 million, up 29 percent from $2511
million in the year-ago quarter due to semiconductor. Sequentially, TI orders
were down 3 percent primarily due to seasonality in Educational & Productivity
Solutions and Materials & Controls.
In addition to the $425 million gain associated with the sale of Micron common
stock, results for this quarter include special charges of $112 million of
purchased in-process R&D costs, $41 million in pooling of
19
<PAGE>
interests acquisition costs, $41 million of amortization of goodwill and other
acquisition-related intangibles, and $10 million of net charges for
restructuring and other actions.
For the second quarter of 2000, results included an investment gain of $1211
million, included in other income, from the sale of 20 million shares of
Micron common stock. Also included is amortization of goodwill and other
acquisition-related intangibles of $25 million.
For the first quarter of 2000, results included 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.
For the third quarter of 1999, results included special charges of $54
million, primarily for in-process R&D costs associated with TI's acquisition
of Integrated Sensor Solutions, Inc. and costs associated with the pooling
acquisition of Telogy Networks, Inc. Also included is amortization of goodwill
and other acquisition-related intangibles of $24 million.
For the second quarter of 1999, results included 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 1999, results included special charges of $25
million, primarily for a consolidation of semiconductor manufacturing
operations in Japan. Also included is amortization of goodwill and other
acquisition-related intangibles of $10 million.
Additional information relating to these items appears below under the heading
"Special Charges and Gains."
OUTLOOK
TI expects its semiconductor revenue to grow sequentially by a few percentage
points in the fourth quarter. Revenue is expected to decline sequentially in
Educational & Productivity Solutions and in Materials & Controls. TI expects
the net result to be total revenue in the fourth quarter that is about even
with total revenue in the third quarter.
Specifically, TI expects the following:
Revenue from wireless will decline sequentially as certain major handset
customers absorb semiconductor inventory in the fourth quarter, more than
offsetting the continuing revenue growth in chipset and base-station products.
Revenue from catalog DSP and Analog products is expected to grow as a result
of new applications, new product introductions and increased demand for
existing products.
Revenue growth for broadband communications should reflect the continuing
strong demand that is developing for TI's digital subscriber line (DSL) and
cable modem products.
Revenue for the Materials & Controls business should be down from the third
quarter reflecting the sale of the materials portion of this business. The
sale is expected to close by October 31, 2000. The
20
<PAGE>
materials operation contributed about $95 million in trade revenue in 1999.
Revenue for Educational & Productivity Solutions in the fourth quarter is
expected to be less than half of what it was in the third quarter, primarily
due to the normal seasonal pattern in this business.
R&D is expected to be $1.6 billion, excluding acquisition-related in-process
R&D costs, up from the previously expected $1.5 billion, reflecting the
acquisition of Burr-Brown.
SEMICONDUCTOR
Semiconductor revenue was $2718 million in the third quarter, up 29 percent
from the same period in 1999 and up 8 percent sequentially due primarily to
strength in DSP and Analog, as well as growth across a breadth of TI's other
semiconductor products. Semiconductor growth was constrained in the third
quarter as demand for TI's advanced Analog products outpaced capacity. TI
continues to aggressively convert several of its Analog fabrication facilities
to more efficient 200-millimeter wafers, with early qualification of products
well under way. Additionally, equipment is being installed in TI's first
300-millimeter wafer fabrication facility, located in Dallas, and is on
schedule for production in the second half of 2001.
Semiconductor operating profit for the third quarter was $693 million, or 25.5
percent of revenue, up 2.6 points from the same quarter a year ago and up
slightly from last quarter's 25.3 percent.
DSP revenue in the third quarter was up 36 percent from the same quarter a
year ago and up 4 percent sequentially. Analog revenue was up 30 percent
compared with the year-ago period and up 9 percent sequentially. DSP and
Analog comprised about 65 percent of TI's semiconductor revenue. Revenue for
TI's remaining semiconductor products increased from the year-ago quarter and
from the second quarter of 2000.
TI's semiconductor revenue growth in key markets was as follows:
- Wireless revenue increased 37 percent versus a year ago and 2 percent
sequentially.
- Revenue from TI's catalog products grew 56 percent versus a year ago and 13
percent sequentially.
- Growth in broadband communications continued to accelerate, with revenue
growing 70 percent sequentially.
- Revenue from hard-disk drive semiconductors grew at 4 percent sequentially.
Revenue was down 31 percent versus a year ago. In the quarter, TI announced
it has discontinued its development activity in read channel products for
hard-disk drives and has redeployed more than 100 analog design engineers to
higher-growth telecommunications and data networking markets.
Semiconductor orders increased 34 percent from the year-ago quarter, primarily
due to strength in DSP and Analog, and were about even with the second quarter
of 2000.
21
<PAGE>
MATERIALS & CONTROLS (M&C)
M&C revenue in the third quarter was $269 million, up 7 percent from $252
million in the same quarter a year ago, primarily due to growth in automotive
sensor products. Sequentially, third-quarter revenue was down 9 percent due to
seasonal patterns in the heating and air conditioning market.
Operating profit in the third quarter was $47 million, or 17.5 percent of
revenue, up 1.3 percentage points from the third quarter of 1999, primarily
due to increased revenue. Operating profit was down 2.1 points from the second
quarter of 2000 due to lower revenue.
During the quarter, TI announced an agreement to sell its specialty-clad
metals and electrical contacts (or "materials") operation to an independent
company financed by Blue Point Capital Partners. The sale is expected to close
by October 31, 2000, and result in a gain.
EDUCATIONAL & PRODUCTIVITY SOLUTIONS (E&PS)
Revenue for E&PS in the third quarter of 2000 was $160 million, even with the
same quarter last year. Sequentially, revenue increased 19 percent in what is
the seasonally strongest quarter for this business. However, revenue in the
third quarter was not as strong as expected due to weaker inventory
replenishment following back-to-school sales.
Operating margin for the quarter was 34.3 percent, up 4.9 percentage points
from the year-ago period and up 5.7 points from the second quarter due to cost
reductions.
ADDITIONAL FINANCIAL INFORMATION
For the first nine months of 2000, TI revenue was $8851 million, up from $7121
million for the same period in 1999, due to semiconductor. Semiconductor
revenue was $7596 million, up from $5947 million for the same period in 1999,
primarily due to strength in DSP and Analog. M&C revenue was $855 million, up
from $754 million for the same period in 1999, primarily due to growth in
automotive sensor products. E&PS revenue was $382 million, down from $394
million for the same period in 1999, primarily due to the weaker inventory
replenishment following back-to-school sales.
Cost of revenues for the first nine months of 2000 was $4548 million compared
with $3726 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 nine months of 2000 totaled $1306 million, compared to $1046
million in the first nine 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 nine months of 2000
was $1268 million, compared with $1096 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.
22
<PAGE>
Other income (expense) net increased from $313 million in the first nine
months of 1999 to $2040 million in the first nine months of 2000, primarily
due to the sale of 25.6 million shares of Micron common stock.
The income tax rate for the first nine months of 2000 was 35 percent.
For the first nine months of 2000, TI orders were $9601 million, compared with
$7496 million from the same period a year ago, primarily due to increased
customer demand for semiconductor products. Semiconductor orders were $8396
million, up from $6336 million for the same period in 1999, primarily due to
strength in DSP and Analog. M&C orders were $859 million, up from $762 million
for the same period in 1999, primarily due to growth in automotive sensor
products. E&PS orders were $382 million, down from $396 million for the same
period in 1999, primarily due to the weaker inventory replenishment following
back-to-school sales.
In the first nine months of 2000, cash and cash equivalents plus short-term
investments increased by $1729 million to $4555 million, primarily due to the
sale of Micron common stock.
Cash flow from operating activities was $1530 million in the first three
quarters of 2000. Consistent with new accounting guidelines from the Emerging
Issues Task Force (EITF), net cash provided by operating activities for 2000
includes $228 million of income tax benefit realized from the exercise of
nonqualified employee stock options ($100 million benefit in 1999).
Previously, the benefit was included in cash flows from financing activities.
Capital expenditures totaled $1789 million in the three quarters of 2000,
compared with $887 million in the first three quarters of 1999. Capital
expenditures totaled $585 million in the third quarter of 2000 versus $360
million in the year-ago quarter.
Depreciation for the first three quarters of 2000 was $869 million, compared
with $735 million in the same period a year ago. Depreciation for the third
quarter of 2000 was $319 million, versus $257 million in the year-ago quarter.
At the end of the third quarter, the debt-to-total-capital ratio was .10
versus .13 at the end of 1999.
In response to Micron's notice of intent to redeem its $740 million 6.5%
convertible notes, TI presented the notes for conversion into 24.7 million
Micron common shares on October 9, 2000. As a result, Micron will no longer
have debt outstanding to TI from its 1998 purchase of TI's memory business.
Accordingly, in the fourth quarter of 2000, TI plans to recognize a gain on
that divestiture which was previously deferred pending repayment of the
TI-provided financing.
SPECIAL CHARGES AND GAINS
Third Quarter of 2000
In the third quarter of 2000, TI recorded investment gains of $425 million
from the sale of 5.6 million shares of Micron Technology, Inc. (Micron) common
stock, offset by special charges of $163 million, of which $112 million is for
purchased in-process R&D costs from the Dot Wireless, Inc. and Alantro
Communications, Inc. acquisitions, $41 million for acquisition costs from the
pooling of interests with Burr-Brown Corporation, and $10 million, net, for
several Semiconductor and Materials & Controls restructuring and other actions
in the U.S., Japan
23
<PAGE>
and Europe. Of the $163 million, $112 million is an increase in research and
development expense, $46 million in marketing, general and administrative
expense, $31 million in cost of revenues, $15 million in net revenues and $11
million in other income. The primary benefit from the above actions is reduced
personnel costs, which are estimated to reach $31 million annually. The
benefit is expected to begin in the fourth quarter of 2000.
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 September
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 fourth quarter of 2000.
Third Quarter of 1999
In the third quarter of 1999, severance actions were taken by TI's
semiconductor operations in the U.S. These actions, taken in response to the
continuing downturn in the hard disk drive market, affected 206 jobs. As a
result, the TI took a pretax charge of $12 million in the third quarter, of
which $10 million was included in cost of revenues and $2 million in
marketing, general and administrative expense. Of the $12 million charge, $9
million was for severance, $2 million was for fixed asset write-downs for
assets held for disposal, and $1 million was for vendor obligations. These
fixed assets were sold for scrap value after being written down to zero, their
sales value. All of the employees have left. At September 30, 2000, the
pay-out of the severance is complete. The primary benefit from this action is
reduced people costs, which are estimated to reach $22 million annually. The
benefit began in the fourth quarter of 1999.
In the third quarter of 1999, additional severance actions were taken for the
Japan manufacturing efficiency program announced during the first quarter of
1999 (program is more fully discussed below under First Quarter of 1999). This
resulted in a pretax charge of $7 million in the third quarter for the
elimination of an additional 105 jobs in Hatogaya, Japan. At September 30,
2000, the pay-out of the severance obligation was complete. The $7 million
charge was included in cost of revenues.
Also included is $15 million of acquisition transaction costs from the pooling
acquisition of Telogy Networks, Inc. and a $4 million pretax operating charge
by Unitrode Corporation for a severance action.
24
<PAGE>
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.
Year-to-date acquisition-related purchased in-process R&D charges were $112
million in 2000 and $79 million in 1999. These charges are for 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.
25
<PAGE>
<TABLE>
<CAPTION>
Millions of Dollars
------------------------------------------------------------------------------------------------
Purchased
Entity Acquisition Consid- Other Deferred in-process Appraisal
acquired date eration Goodwill intan- compen- R&D charge method
gibles sation
---------- ----------- --------- -------- ------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Butterfly First $ 52 $ 33 $ 5 -- $ 10 Exclusion
VLSI, quarter approach
Ltd. 1999
Libit Signal Second $365 $207 $106 -- $ 52 Exclusion
Processing quarter approach
Ltd. 1999
Integrated Third $ 67 $ 32 $ 11 -- $ 16 Exclusion
Sensor quarter approach
Solutions, 1999
Inc.
Alantro Third $277 $148 $ 58 $ 32 $ 52 Exclusion
Commun- quarter approach
ications, 2000
Inc.
Dot Third $467 $302 $ 46 $119 $ 60 Exclusion
Wireless, quarter approach
Inc. 2000
<CAPTION>
------------------------------------------------------------------------------------------------
Cost/time to Year
complete R&D projects cash flows
Entity R&D Discount --------------------- projected
acquired focus rate At At to begin
acquisition Sept 2000
---------- ----- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Butterfly Short 25% $5/264 Project 2000
VLSI, distance engineer completed
Ltd. wireless months
technology
for voice-
plus-data
transmission
products
Libit Signal Silicon 22% $5/492 Project 2000
Processing Solutions engineer completed
Ltd. and Internet months
telephony
software
for cable
modems, etc.
for Internet
access
Integrated Intelligent 25% $4/233 Project 2000
Sensor sensors engineer completed
Solutions, for auto/ months
Inc. ind. markets
Alantro Wireless 24% $2.9/ $2.3/138 2002
Commun- networking 172 engineer
ications, technology engineer months
Inc. for home months
and office
Dot Architec- 20% $4.1/ $3.5/219 2003
Wireless, ture for 256 engineer
Inc. third engineer months
generation months
(3G) wireless
devices for
delivering
voice and
high speed
data to
mobile users
</TABLE>
26
<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 2. Changes in Securities and Use of Proceeds
On August 31, 2000, the Registrant acquired all the outstanding shares of the
capital stock of Dot Wireless, Inc., a California corporation, in exchange
for approximately 6.8 million shares of TI common stock. The offer and sale
of the shares of TI common stock described above were effected without
registration in reliance on the exemption afforded by section 3(a)(10) of the
Securities Act of 1933, as amended. The issuance was approved, after a
hearing upon the fairness of the terms and conditions of the transaction, by
the California Commissioner of Corporations under authority to grant such
approval as expressly authorized by the laws of the State of California.
On September 8, 2000, the Registrant acquired all the outstanding shares of
the capital stock of Alantro Communications, Inc., a California corporation,
in exchange for approximately 4.2 million shares of TI common stock. The
offer and sale of the shares of TI common stock described above were effected
without registration in reliance on the exemption afforded by section
3(a)(10) of the Securities Act of 1933, as amended. The issuance was
approved, after a hearing upon the fairness of the terms and conditions of
the transaction, by the California Commissioner of Corporations under
authority to grant such approval as expressly authorized by the laws of the
State of California.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Designation of
Exhibits in
this Report Description of Exhibit
-------------- -----------------------------
<S> <C>
11 Earnings Per Common and Dilutive Potential
Common Share
12 Computation of Ratio of Earnings to Fixed
Charges
27 Financial Data Schedule
27.1 Restated Financial Data Schedule as of
September 30, 1999 and for the 9 months
then ended.
</TABLE>
(b) Reports 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, 2000: Form 8-K
filed July 6, 2000, which included a news release regarding Registrant's
acquisition of Burr-Brown Corporation; and Form 8-K filed August 31, 2000,
which included a news release regarding the closing of Registrant's
acquisition of Burr-Brown Corporation.
27
<PAGE>
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
This Form 10-Q includes "forward-looking statements" intended to qualify for
the safe harbor from liability established by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements generally can
be identified by phrases such as TI or its management "believes," "expects,"
"anticipates," "foresees," "forecasts," "estimates" or other words or phrases
of similar import. Similarly, such statements herein that describe the
company's business strategy, outlook, objectives, plans, intentions or goals
also are forward-looking statements. All such forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those in forward-looking statements.
We urge you to carefully consider the following important factors that could
cause actual results to differ materially from the expectations of the
company or its management:
- Market demand for semiconductors, particularly for digital signal
processors and analog chips in key markets, such as telecommunications and
computers;
- TI's ability to develop, manufacture and market innovative products in a
rapidly changing technological environment;
- TI's ability to compete in products and prices in an intensely competitive
industry;
- TI's ability to maintain and enforce a strong intellectual property
portfolio and obtain needed licenses from third parties;
- Timely completion and successful integration of announced acquisitions;
- Global economic, social and political conditions in the countries in which
TI and its customers and suppliers operate, including fluctuations in
foreign currency exchange rates;
- Losses or curtailments of purchases from key customers;
- 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 update the forward-looking statements to reflect
subsequent events or circumstances.
28
<PAGE>
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 24, 2000
29
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Designation of Paper (P)
Exhibits in or
this Report Description of Exhibit Electronic (E)
-------------- ----------------------------- --------------
<S> <C> <C>
11 Earnings Per Common and E
Dilutive Potential Common
Share
12 Computation of Ratio of E
Earnings to Fixed Charges
27 Financial Data Schedule E
27.1 Restated Financial Data Schedule E
as of September 30, 1999 and for
the 9 months then ended.
</TABLE>
