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(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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TEXAS INSTRUMENTS INCORPORATED
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[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 19, 2001
Dear Stockholders:
You are cordially invited to attend the 2001 ANNUAL MEETING OF STOCKHOLDERS ON
THURSDAY, APRIL 19, 2001 at the cafeteria on our property at 12500 TI Boulevard,
Dallas, Texas, at 10:00 a.m. (Dallas time). At the meeting we will:
- Elect directors for the next year.
- Consider and act upon such other matters as may properly come before the
meeting.
Stockholders of record at the close of business on February 20, 2001 are
entitled to vote at the annual meeting.
WE URGE YOU TO VOTE YOUR SHARES AS PROMPTLY AS POSSIBLE BY: (1) CALLING THE
TOLL-FREE NUMBER, (2) ACCESSING THE INTERNET WEB SITE, OR (3) SIGNING, DATING
AND MAILING THE ENCLOSED PROXY.
Sincerely,
/s/ JOSEPH F. HUBACH
Joseph F. Hubach
SENIOR VICE PRESIDENT,
SECRETARY AND
GENERAL COUNSEL
Dallas, Texas
February 27, 2001
TABLE OF CONTENTS
PAGE
--------
Voting Procedures........................................... 1
Election of Directors....................................... 1
Nominees for Directorship................................. 1
Directors' Ages, Service and Share Ownership.............. 4
Board Organization.......................................... 5
Board and Committee Meetings.............................. 5
Committees of the Board................................... 5
Directors Compensation...................................... 7
Cash Compensation......................................... 7
Deferral Election......................................... 7
Restricted Stock Units.................................... 7
Stock Options............................................. 7
Director Award Program.................................... 7
Executive Compensation...................................... 8
Summary Compensation Table................................ 8
Table of Option Grants in 2000............................ 9
Table of Option Exercises in 2000 and Year-End Option
Values.................................................. 10
U.S. Pension Plan Table................................... 10
Compensation Committee Report............................... 12
Comparison of Total Shareholder Return...................... 14
Financial Information....................................... 15
Financial Statements...................................... 15
Independent Auditors...................................... 15
Audit Committee Report...................................... 16
Additional Information...................................... 17
Voting Securities......................................... 17
Share Ownership of Certain Persons........................ 17
Certain Business Relationships............................ 18
Cost of Solicitation...................................... 18
Proposals of Stockholders................................. 18
Quorum Requirement........................................ 18
Vote Required............................................. 18
Telephone and Internet Voting............................. 19
Exhibit A--Audit Committee Charter (Statement of
Responsibilities)......................................... A-1
Exhibit B--Financial Statements............................. B-1
[LOGO]
EXECUTIVE OFFICES: 12500 TI BOULEVARD, DALLAS, TEXAS
MAILING ADDRESS: POST OFFICE BOX 660199, DALLAS, TEXAS 75266-0199
PROXY STATEMENT
FEBRUARY 27, 2001
VOTING PROCEDURES
TI's board of directors requests your proxy for the annual meeting of
stockholders on April 19, 2001. If you sign and return the enclosed proxy, or
vote by telephone or on the Internet, you authorize the persons named in the
proxy to represent you and vote your shares for the purposes we mentioned in the
notice of annual meeting. This proxy statement and related proxy are being
distributed on or about March 2, 2001.
If you come to the meeting, you can of course vote in person. But, if you don't
come to the meeting, your shares can be voted only if you have returned a
properly executed proxy or followed the telephone or Internet voting
instructions. If you execute and return your proxy but do not give voting
instructions, the shares represented by that proxy will be voted as recommended
by the board of directors. You can revoke your authorization at any time before
the shares are voted at the meeting.
ELECTION OF DIRECTORS
Directors are elected at the annual meeting to hold office until the next annual
meeting and until their successors are elected and qualified. The board of
directors has designated the following persons as nominees. Unless you withhold
authority to vote for directors in your proxy, your shares will be voted for:
JAMES R. ADAMS, DAVID L. BOREN, JAMES B. BUSEY IV, DANIEL A. CARP, THOMAS J.
ENGIBOUS, GERALD W. FRONTERHOUSE, DAVID R. GOODE, WAYNE R. SANDERS and RUTH J.
SIMMONS. Clayton K. Yeutter, a highly-valued director since 1992, has attained
the age of 70 since his last election and is therefore ineligible under the
company's by-laws to stand for reelection in 2001. Mr. Yeutter currently serves
as the chair of the Stockholder Relations and Public Policy Committee and is a
member of the Compensation Committee.
NOMINEES FOR DIRECTORSHIP
All of the nominees for directorship are now directors of the company. If any
nominee becomes unable to serve before the meeting, the people named as proxies
may vote for a substitute or the number of directors will be reduced
accordingly.
[photo]
JAMES R. ADAMS DIRECTOR
Chair, Board Organization and Nominating Committee; member,
Audit Committee.
Chairman of the board of the company from 1996 to April 1998.
Group president, SBC Communications Inc. from 1992 until
retirement in 1995; president and chief executive officer of
Southwestern Bell Telephone Company, 1988-92. Director, Inet
Technologies, Inc. and Storage Technology Corp.
[photo]
DAVID L. BOREN DIRECTOR
Member, Audit and Stockholder Relations and Public Policy
Committees.
President of the University of Oklahoma since 1994. U.S.
Senator, 1979-94;
Governor of Oklahoma, 1975-79. Director, AMR Corporation,
Phillips Petroleum Company, Torchmark Corporation and
Waddell & Reed, Inc.; chairman, Oklahoma Foundation for
Excellence.
[photo]
JAMES B. BUSEY IV DIRECTOR
Chair, Audit Committee; member, Board Organization and
Nominating Committee.
Retired from U.S. Navy as Admiral in 1989. President and chief
executive officer, Armed Forces Communications and Electronics
Association, 1992-96; Deputy Secretary, Department of
Transportation, 1991-92; Administrator, Federal Aviation
Administration, 1989-91. Director, Curtiss-Wright Corporation;
trustee and vice-chairman, MITRE Corporation.
[photo]
DANIEL A. CARP DIRECTOR
Member, Audit and Board Organization and Nominating
Committees.
Chairman of the board of Eastman Kodak Company since
December 2000;
also, chief executive officer since January 2000 and president
and director since 1997. Executive vice president and
assistant chief operating officer of Eastman Kodak, 1995-97.
Member, The Business Council.
2
[photo]
THOMAS J. ENGIBOUS CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Chairman of the board since April 1998; president and chief
executive officer of the company since 1996. Joined the
company in 1976; elected executive
vice president in 1993. Director, Catalyst and J.C. Penney
Company, Inc.; member, The Business Council and The Business
Roundtable; trustee, Southern Methodist University.
[photo]
GERALD W. FRONTERHOUSE DIRECTOR
Member, Board Organization and Nominating and Compensation
Committees.
Investments. Former chief executive officer (1985-88) of First
RepublicBank
Corporation. Chairman of the board and director, Hoblitzelle
Foundation.
[photo]
DAVID R. GOODE DIRECTOR
Chair, Compensation Committee; member, Board Organization and
Nominating Committee.
Chairman of the board and chief executive officer of Norfolk
Southern Corporation since 1992; also, president since 1991.
Director, Caterpillar, Inc., Delta Air Lines, Inc. and
Georgia-Pacific Corporation; member, The Business Council and
The Business Roundtable; trustee, Hollins University.
[photo]
WAYNE R. SANDERS DIRECTOR
Member, Compensation and Stockholder Relations and Public
Policy Committees.
Chairman of the board of Kimberly-Clark Corporation since
1992; also, chief executive officer since 1991. Director,
Adolph Coors Company, Coors Brewing Company and Chase Bank of
Texas, N.A.; vice-chairman, board of trustees, Marquette
University.
3
[photo]
RUTH J. SIMMONS DIRECTOR
Member, Audit and Stockholder Relations and Public Policy
Committees.
President of Smith College since 1995. (President of Brown
University, effective July 1, 2001.) Vice provost of
Princeton University, 1992-95; provost of Spelman College,
1990-91. Director, Metropolitan Life Insurance Company,
Pfizer, Inc. and The Goldman Sachs Group, Inc.; fellow,
American Academy of Arts and Sciences; member, Council on
Foreign Relations; trustee, Carnegie Corporation of New
York.
DIRECTORS' AGES, SERVICE AND SHARE OWNERSHIP
The table below shows the ages and holdings of common stock of the directors
and the year they became a director.
COMMON STOCK
DIRECTOR OWNERSHIP AT
DIRECTOR AGE SINCE DECEMBER 31, 2000*
---------------------- -------- -------- --------------------
James R. Adams 61 1989 615,235
David L. Boren 59 1995 31,380
James B. Busey IV 68 1992 47,097
Daniel A. Carp 52 1997 21,164
Thomas J. Engibous 48 1996 2,814,327
Gerald W. Fronterhouse 64 1986 56,589
David R. Goode 60 1996 26,132
Wayne R. Sanders 53 1997 27,700
Ruth J. Simmons 55 1999 10,500
Clayton K. Yeutter 70 1992 49,780
------------------------
* Includes (a) shares that can be acquired within 60 days through the exercise
of options by Mr. Adams, 528,500 shares, Mr. Boren, 8,500 shares,
Mr. Busey, 12,500 shares, Mr. Carp, 12,500 shares, Mr. Engibous, 2,555,000
shares, Mr. Fronterhouse, 12,500 shares, Mr. Goode, 12,500 shares,
Mr. Sanders, 12,500 shares, Ms. Simmons, 2,500 shares and Mr. Yeutter,
12,500 shares; (b) shares credited to profit sharing stock accounts for
Mr. Adams, 3,341 shares and Mr. Engibous, 17,479 shares; and (c) shares
subject to restricted stock unit awards for Mr. Adams, 18,512 shares,
Mr. Boren, 22,880 shares, Mr. Busey, 22,880 shares, Mr. Carp, 8,664 shares,
Mr. Engibous, 160,000 shares, Mr. Fronterhouse, 22,880 shares, Mr. Goode,
13,632 shares, Mr. Sanders, 9,600 shares, Ms. Simmons, 8,000 shares and
Mr. Yeutter, 22,880 shares. Excludes shares held by a family member if a
director has disclaimed beneficial ownership. Each director owns less than
1% of the company's common stock.
4
BOARD ORGANIZATION
BOARD AND COMMITTEE MEETINGS
During 2000, the board held 10 meetings. The board has four standing committees
described below. Overall attendance at board and committee meetings was
approximately 97%.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE. A copy of the Audit Committee's charter (Statement of
Responsibilities) is included as Exhibit A to this proxy statement. The Audit
Committee is generally responsible for:
- Evaluating and recommending to the board the appointment and, where
appropriate, replacement of the independent auditors of the company.
- Reviewing relationships between the independent auditors and the company
(in accordance with Independence Standards Board Standard No. 1),
discussing with the auditors such relationships and their impact on the
auditors independence, and recommending that the board take appropriate
action to satisfy itself of the auditors independence.
- Reviewing and recommending action by the board regarding the company's
annual reports to the Securities and Exchange Commission, including the
audited financial statements to be included in such reports.
- Discussing the company's audited financial statements with management and
the independent auditors, including a discussion with the independent
auditors regarding the matters required to be discussed by Statement of
Auditing Standards No. 61.
- Reviewing the company's quarterly reports to the Securities and Exchange
Commission, including a discussion of the interim financial statements
with management and the independent auditors.
- Monitoring the company's news releases regarding annual and interim
financial results by reviewing them before issuance, with the Committee
acting as a whole or through its chair.
The Audit Committee met 6 times in 2000.
BOARD ORGANIZATION AND NOMINATING COMMITTEE. The Board Organization and
Nominating Committee is generally responsible for:
- Making recommendations to the board regarding:
- Nominees for election as directors.
- Structure, size and composition of the board.
- Compensation of board members.
- Organization and responsibilities of board committees.
- Reviewing:
- General responsibilities and functions of the board.
- A desirable balance of expertise among board members.
- Overall company organizational health, particularly succession plans
for top management positions within TI.
Any stockholder who wishes to recommend a prospective board nominee for the
committee to consider can write to Joseph F. Hubach, Secretary, Board
Organization and Nominating Committee, Texas Instruments Incorporated, Post
Office Box 660199, MS 8658, Dallas, Texas 75266-0199.
5
The Board Organization and Nominating Committee met 5 times in 2000.
COMPENSATION COMMITTEE. The Compensation Committee is generally responsible
for:
- Making recommendations to the board regarding:
- Institution and termination of, revisions in, and actions under
employee benefit plans that (i) increase benefits only for officers of
the company or disproportionately increase benefits for officers of the
company more than other employees of the company or (ii) require or
permit the issuance of the company's stock.
- Revisions in and actions under employee benefit plans that the board
must approve.
- Reservation of company stock for use as awards or grants under plans or
as contributions or sales to any trustee of an employee benefit plan.
- Purchase of company stock in connection with employee benefit plans.
- Taking action as appropriate regarding:
- Institution and termination of, revisions in, and actions under
employee benefit plans that are not required to be approved by the
board; administration of employee benefit plans and the approval and
execution of employee benefit plan documents, contracts with employee
benefit plan providers and other third parties.
- Changes in compensation of executive officers of the company.
The Compensation Committee met 7 times in 2000.
STOCKHOLDER RELATIONS AND PUBLIC POLICY COMMITTEE. The Stockholder Relations
and Public Policy Committee is generally responsible for:
- Making recommendations to the board regarding:
- Topics affecting the relationship between management and stockholders
and public issues.
- Responses to proposals submitted by stockholders.
- Declaration of dividends and stock splits.
- Reviewing:
- Contribution policies of the company and of the TI Foundation.
- Revisions to TI's code of ethics.
The Stockholder Relations and Public Policy Committee met 5 times in 2000.
6
DIRECTORS COMPENSATION
CASH COMPENSATION
Directors who are not employees are paid each year:
- A retainer of $55,000 ($40,000 for board service, $15,000 for all
committee service).
- $2,500 for attendance at the company's strategic planning conference.
- $2,500 for attendance at the company's annual planning conference.
Compensation for other activities, like visits to TI facilities and attendance
at certain company events, is $1,000 per day. In 2000, the company made payments
(an aggregate of $6,430) relating to premiums for life, medical, dental, travel
and accident insurance policies covering directors.
DEFERRAL ELECTION
Subject to some limitations, directors can choose to have all or part of their
compensation deferred until they leave the board (or certain other specified
times). The deferred amounts are credited to either a cash account or stock unit
account. Cash accounts earn interest from the company at a rate (currently based
on published interest rates on certain corporate bonds) determined by the Board
Organization and Nominating Committee. Stock unit accounts fluctuate in value
with the underlying shares of company common stock, which will be issued after
the deferral period.
RESTRICTED STOCK UNITS
Under the company's restricted stock unit plan for directors, new non-employee
directors are given 2,000 restricted stock units (each representing one share of
company common stock). The restricted stock units provide for issuance of
company common stock at the time of retirement from the board, or upon earlier
termination of service from the board after completing eight years of service or
because of death or disability.
STOCK OPTIONS
Under the company's stock option plan for non-employee directors, non-employee
directors are annually granted a 10-year option to purchase 10,000 shares of the
company's common stock. The purchase price of the shares is 100% of the fair
market value on the date of grant. These nonqualified options become exercisable
in four equal annual installments beginning on the first anniversary date of the
grant and also may become fully exercisable in the event of a change in control
(as defined in the plan) of the company.
DIRECTOR AWARD PROGRAM
Each director who has been on the board for five years, and whose board
membership ceases because of the mandatory retirement age or, in the case of
non-employee directors, because of death or disability, can participate in a
director award program. The program was established to promote the company's
interest in supporting charitable institutions. The company may contribute a
total of $500,000 per eligible director to up to three charitable institutions
recommended by the director and approved by the company. The contributions will
be made in five annual installments of $100,000 each following the director's
death. Directors receive no financial benefit from the program, and all
charitable deductions belong to the company.
7
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the compensation of the company's chief executive
officer and each of the four other most highly compensated executive officers
for services in all capacities to the company in 1998, 1999 and 2000.
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -----------------------------------------
---------------------------------------------- PAYOUTS
AWARDS ----------
OTHER ---------------------------- LONG-TERM
NAME AND ANNUAL RESTRICTED STOCK INCENTIVE ALL OTHER
PRINCIPAL COMPEN- STOCK OPTIONS PLAN COMPEN-
POSITION YEAR SALARY BONUS SATION (1) AWARDS (2) (IN SHARES)(3) PAYOUTS SATION (4)
-------- ---- ------ ----- ---------- ---------- -------------- ------- ----------
T.J. Engibous 2000 $796,200 $1,300,000 -- 0 700,000 0 $818,556
Chairman, 1999 $744,170 $2,200,000 -- 0 1,000,000 0 $588,731
President & CEO 1998 $677,540 $1,800,000 -- 0 800,000 0 $174,732
R.K. Templeton 2000 $497,200 $ 900,000 -- 0 400,000 0 $639,096
Executive Vice 1999 $457,670 $1,500,000 -- 0 600,000 0 $430,643
President & Chief 1998 $407,540 $1,200,000 -- 0 360,000 0 $135,948
Operating Officer
W.A. Aylesworth 2000 $365,400 $ 300,000 -- 0 100,000 0 $232,424
Senior Vice 1999 $365,400 $ 500,000 -- 0 200,000 0 $199,150
President, 1998 $365,400 $ 500,000 -- 0 160,000 0 $ 73,783
Treasurer & Chief
Financial Officer
M.J. Hames(5) 2000 $268,000 $ 425,000 -- 0 100,000 0 $235,395
Senior Vice
President
K.S. Lu 2000 $346,000 $ 450,000 -- 0 140,000 0 $255,090
Senior Vice 1999 $321,500 $ 650,000 -- 0 200,000 0 $174,108
President 1998 $292,000 $ 500,000 -- 0 160,000 0 $ 53,007
------------------------
(1) The dollar value of perquisites and other personal benefits for each of the
named executive officers was less than the established reporting thresholds.
(2) As of December 31, 2000, the value of restricted stock units awarded to
Messrs. Engibous, Templeton and Lu was $7,580,800, $5,685,600 and
$7,201,760, respectively. The restricted stock units for Messrs. Templeton
and Lu were awarded prior to their becoming executive officers. The
restricted stock units awarded to Mr. Engibous are performance-based and
will only be earned if the performance goals are achieved.
(3) The number of shares granted has been adjusted to give effect to the 2000
two-for-one stock split.
(4) During 2000, the company made payments in connection with split-dollar life
insurance policies in the following amounts: Mr. Engibous, $58,416;
Mr. Templeton, $14,771; and Mr. Aylesworth, $10,311. Also, the company made
payments in connection with travel and accident insurance policies in the
amount of $200 for each of the executive officers named in the summary
compensation table.
During 2000, the company made matching contributions to 401(k) accounts in
the amount of $3,400 for Messrs. Engibous, Aylesworth, Hames and Lu and
$6,800 for Mr. Templeton.
8
For 2000, cash profit sharing payments were as follows: Mr. Engibous,
$756,540; Mr. Templeton, $504,293; Mr. Aylesworth, $218,513; Mr. Hames,
$231,795; and Mr. Lu, $251,490.
The company made a contribution (plus an ERISA reduction for which the
company will provide an offsetting supplemental benefit) in the amount of
$113,032 under the deferred contribution retirement plan for Mr. Templeton.
(5) Mr. Hames became an executive officer of the company in 2000.
TABLE OF OPTION GRANTS IN 2000
The following table shows stock options granted to the named executive officers
in 2000. Additionally, in accordance with the rules of the Securities and
Exchange Commission, the table shows the hypothetical gains or option spreads
that would exist for the respective options. These gains are based on assumed
rates of annual compound stock appreciation of 5% and 10% from the date the
options were granted over the full option term.
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM (10 YEARS)
---------------------------------------------------
5% 10%
% OF TOTAL ------------------------ ------------------------
OPTIONS OPTIONS EXERCISE STOCK STOCK
GRANTED GRANTED TO PRICE EXPIR- PRICE PRICE
(IN EMPLOYEES (PER ATION (PER (PER
NAME SHARES) (1) IN 2000 SHARE) DATE SHARE) (2) GAIN SHARE) (2) GAIN
---------------- ----------- ----------- --------- -------- ---------- ----------- ---------- -----------
T.J. Engibous 700,000 2.46% $55.22 1/19/10 $89.95 $24,307,925 $143.22 $61,602,342
R.K. Templeton 400,000 1.41% $55.22 1/19/10 $89.95 $13,890,243 $143.22 $35,201,338
W.A. Aylesworth 100,000 0.35% $55.22 1/19/10 $89.95 $ 3,472,561 $143.22 $ 8,800,335
M.J. Hames 100,000 0.35% $55.22 1/19/10 $89.95 $ 3,472,561 $143.22 $ 8,800,335
K.S. Lu 140,000 0.49% $55.22 1/19/10 $89.95 $ 4,861,585 $143.22 $12,320,468
------------------------
(1) These nonqualified options become exercisable in four equal annual
installments beginning on January 19, 2001, and also may become fully
exercisable in the event of a change in control (as defined in the options)
of the company. The number of shares granted and the exercise price per
share have been adjusted to give effect to the 2000 two-for-one stock split.
In some cases, the exercise price may be paid by delivery of already-owned
shares and tax withholding obligations related to exercise may be paid in
shares.
(2) The price of TI common stock at the end of the 10-year term of the stock
options granted at a 5% annual appreciation would be $89.95, and at a 10%
annual appreciation would be $143.22.
9
TABLE OF OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES
The following table lists the number of shares acquired and the value realized
as the result of option exercises in 2000 by the named executive officers. It
also includes the number and value of the exercisable and unexercisable options
as of December 31, 2000. The table contains values for "in-the-money" options,
meaning a positive spread between the year-end share price of $47.38 and the
exercise price.
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 2000 DECEMBER 31, 2000
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(1) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- ------------ ----------- ------------ -------------- ------------ --------------
T.J. Engibous 536,000 $35,314,454 1,670,000 2,110,000 $60,356,200 $41,304,600
R.K. Templeton 180,000 $13,449,348 1,610,000 1,170,000 $62,512,600 $22,011,000
W.A. Aylesworth 152,000 $ 8,865,998 500,000 400,000 $18,823,100 $ 8,961,300
M.J. Hames 200,000 $11,287,950 410,000 290,000 $15,820,800 $ 5,728,800
K.S. Lu 110,000 $ 6,322,400 840,000 430,000 $33,382,600 $ 8,572,200
------------------------
(1) The number of shares acquired upon exercise has been adjusted to give effect
to the 2000 two-for-one stock split.
U.S. PENSION PLAN TABLE
The following table shows the approximate annual benefits relating to the
company's U.S. pension plan that would be payable as of December 31, 2000 to
employees in higher salary classifications for the average credited earnings and
years of credited service indicated. It assumes retirement at age 65. Benefits
are based on eligible earnings. Eligible earnings include salary and bonus as
shown in the summary compensation table. Other elements of compensation shown in
the summary compensation table or referred to in the footnotes to that table are
not included in eligible earnings.
In 1997, the company's U.S. employees were given the option of continuing to
participate in the pension plan or to participate in a new defined contribution
retirement plan. Mr. Templeton chose to participate in the new plan.
Accordingly, his benefits under the pension plan (discussed in
footnote 1) were frozen as of December 31, 1997. Contributions to the new plan
for Mr. Templeton's benefit are included in the summary compensation table.
ESTIMATED ANNUAL BENEFITS UNDER PENSION PLAN FOR
SPECIFIED YEARS OF CREDITED SERVICE(2)(3)
AVERAGE CREDITED --------------------------------------------------------------------------------------
EARNINGS(1) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS 45 YEARS
--------------------- --------- --------- ---------- ---------- ---------- ---------- ----------
500,000 108,551 144,735 180,919 217,103 253,286 290,786 328,286
1,000,000 221,051 294,735 368,419 442,103 515,786 590,786 665,786
1,500,000 333,551 444,735 555,919 667,103 778,286 890,786 1,003,286
2,000,000 446,051 594,735 743,419 892,103 1,040,786 1,190,786 1,340,786
2,500,000 558,551 744,735 930,919 1,117,103 1,303,286 1,490,786 1,678,286
3,000,000 671,051 894,735 1,118,419 1,342,103 1,565,786 1,790,786 2,015,786
------------------------
(1) The average credited earnings is the average of the five consecutive years
of highest earnings.
At December 31, 2000, the named executive officers were credited with the
following years of credited service and had the following average credited
earnings: Mr. Engibous, 23 years, $1,978,805; Mr. Aylesworth, 33 years,
$795,493; Mr. Hames, 19 years, $642,364; and Mr. Lu, 26 years, $757,088.
Mr. Templeton had 16 years of credited service and $536,761 in average
credited earnings as of December 31, 1997.
10
(2) If the amount otherwise payable under the pension plan should be restricted
by the applicable provisions of ERISA, the amount in excess of ERISA's
restrictions will be paid by the company.
(3) The benefits under the plan are computed as a single life annuity beginning
at age 65.
The amounts shown in the table reflect the offset provided in the pension
plan under the pension formula adopted July 1, 1989 to comply with the
social security integration requirements. The integration offset is $3,949
for 15 years of credited service, $5,265 for 20 years of credited service,
$6,581 for 25 years of credited service, $7,898 for 30 years of credited
service, $9,214 for 35 years of credited service, $9,214 for 40 years of
credited service and $9,214 for 45 years of credited service.
11
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the board of directors has furnished the following
report on executive compensation paid or awarded to executive officers for 2000:
The company's executive compensation program is administered by the Compensation
Committee of the board of directors (the Committee), which is composed of the
individuals listed below, all of whom are independent directors of the company.
The program consists of base salaries, annual performance awards and long-term
compensation. At higher management levels, the mix of compensation is
significantly weighted more to the performance-based components--annual
performance awards and long-term compensation.
In determining the compensation of the executive officers, the Committee
considered compensation practices of competitor companies (based on the best
available data from as many competitor companies as practicable) and the
relative performance of TI and competitor companies. The competitor companies
are major high-technology competitors of the company. While many of these
companies are included in the S&P Technology Sector Index appearing in the graph
regarding total shareholder return on page 14, these companies are not the same
as the companies comprising that index. The Committee also considered the
contribution of each executive officer toward achieving the company's prior year
and long-term strategic objectives; in this connection, the Chairman and CEO
made recommendations regarding the components of each executive officer's
compensation package except his own.
In its considerations, the Committee did not assign quantitative relative
weights to different factors or follow mathematical formulae. Rather, the
Committee exercised its discretion and made a judgment after considering the
factors it deemed relevant. The Committee's decisions regarding 2000 executive
compensation were designed to: (1) align the interests of executive officers
with the interests of the stockholders by providing performance-based awards;
and (2) allow the company to compete for and retain executive officers critical
to the company's success by providing an opportunity for compensation that is
comparable to the levels offered by competitor companies.
Section 162(m) of the Internal Revenue Code generally denies a deduction to any
publicly held corporation for compensation paid in a taxable year to the
company's CEO and four other highest compensated officers to the extent that the
officer's compensation (other than qualified performance-based compensation)
exceeds $1 million. The company believes the Executive Officer Performance Plan
approved in April 1997 allows performance-based compensation for the company's
executive officers that complies with the requirements for full deductibility
under Section 162(m).
COMPENSATION COMPONENTS AND DETERMINATION
Compensation decisions for 2000 were made such that TI executive officers will
receive a level of total annual compensation that, when compared to the total
annual compensation of competitor companies, reflects the company's performance
relative to those competitor companies. In order to weight more of total
compensation to performance-based components, the Committee's base salary
decisions are intended to provide salaries somewhat lower than the median level
of salaries for similarly situated executive officers of competitor companies,
or of divisions within competitor companies, of similar size (in terms of total
revenues). Annual performance awards for 2000 were primarily driven by each
individual's contribution to the company's primary strategic focus on the
digital signal processing and analog markets, and its performance on three
measures: profit from operations as a percent of revenues for the year, change
in net revenues from the prior year, and total shareholder return for the year.
12
Guidelines for awards granted under TI's long-term incentive program were set
with the intention of providing TI executive officers an opportunity for
financial gain equivalent in value to the opportunity provided by similarly
performing competitor companies through all their long-term compensation
programs. The Committee, in its discretion, adjusts the awards considering each
executive officer's individual contribution to the implementation of the
strategic plan of the company.
BASE SALARY
The Committee reviewed base salaries for executive officers of competitor
companies and set base salaries for its executive officers somewhat lower than
competitive levels. Mr. Engibous' annual salary during 2000 was below the median
annual salary of CEOs of competitor companies.
ANNUAL PERFORMANCE AWARD
The annual performance award varies significantly based on the company's
profitability, revenue growth, and total shareholder return; the achievement of
the strategic objectives of the company; and each individual's contribution
toward that performance. The Committee considered rankings of estimates of
competitor companies' 2000 performance compared to the company's performance,
and granted annual performance awards to executive officers intended to
approximate total annual compensation of executive officers in similarly
performing competitor companies. As a result, Mr. Engibous received an annual
performance award of $1,300,000.
LONG-TERM COMPENSATION
The Committee made long-term compensation determinations in January 2000. Stock
options constitute TI's primary long-term incentive vehicle. Stock options
granted in 2000 were granted at 100% of fair market value on the date of grant,
have a 10-year term, do not become exercisable until one year after grant, and
then become exercisable in four equal annual installments. Any value actually
realized by an executive officer from an option grant depends completely upon
increases in the price of TI common stock.
The Committee reviewed each officer's continuing contribution to achieving the
strategic objectives of the company, and followed the guidelines for stock
options by granting each officer options at a price per share of $55.22 (the
market value of TI's common stock on January 19, 2000 (the date of grant),
giving effect to the subsequent two-for-one stock split). The Committee intended
for the stock option grants to recognize progress toward accomplishment of the
strategic objectives and, since these stock options will result in increased
compensation to an executive officer only if TI's stock price increases, focus
the executive officers on building value for stockholders. Considering
Mr. Engibous' continuing contribution to execution of the strategic plan for the
company, the Committee granted Mr. Engibous an option to purchase 700,000
shares, resulting in a total long-term compensation opportunity comparable to
those of CEOs of similarly performing competitor companies.
The ranking of total compensation (annual plus long-term) for Mr. Engibous as
compared to the total compensation of CEOs of competitor companies was intended
to approximate the estimated ranking of TI performance compared to the
performance of competitor companies.
David R. Goode, Chair Wayne R. Sanders
Gerald W. Fronterhouse Clayton K. Yeutter
13
COMPARISON OF TOTAL SHAREHOLDER RETURN
This graph compares TI's total shareholder return with the S&P 500 Index and the
S&P Technology Sector Index over a five-year period, beginning December 31,
1995, and ending December 31, 2000. The total shareholder return assumes $100
invested at the beginning of the period in TI common stock, the S&P 500 and the
S&P Technology Sector Index. It also assumes reinvestment of all dividends.
CUMULATIVE 5-YEAR TOTAL RETURN*
Among Texas Instruments, S&P 500 Index
and S&P Technology Sector Index**
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DEC-95 DEC-96 DEC-97 DEC-98 DEC-99 DEC-00
Texas Instruments $100 $125 $178 $341 $771 $757
S&P 500(R) $100 $123 $164 $211 $255 $232
S&P(R) Technology Sector Index $100 $140 $177 $306 $536 $322
*Assumes that the value of the investment in TI common stock and each index was
$100 on December 31, 1995, and that all dividends were reinvested.
**Year ending December 31.
14
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The consolidated financial statements and auditor's report, the management
discussion and analysis of financial condition and results of operations,
information concerning the quarterly financial data for the fiscal year ended
December 31, 2000 and other information are attached as Exhibit B to this proxy
statement.
INDEPENDENT AUDITORS
The board has, in accordance with the recommendation of its Audit Committee,
chosen the firm of Ernst & Young LLP as independent auditors for the company.
Representatives of Ernst & Young are expected to be present, and to be available
to respond to appropriate questions, at the annual meeting. They have the
opportunity to make a statement if they desire to do so; they have indicated
that, as of this date, they do not.
AUDIT FEES. Ernst & Young's fees for our 2000 annual audit and review of
interim financial statements were $4,202,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. Ernst & Young did
not render any professional services to us in 2000 with respect to financial
information systems design and implementation.
ALL OTHER FEES. Ernst & Young's fees for all other professional services
rendered to us during 2000 were $5,951,000, including audit related services of
$1,139,000 and non-audit services of $4,812,000. Audit related services included
fees for employee benefit plans audits, due diligence on acquisitions, royalty
audits, SEC registration statement review and accounting consultations.
Non-audit services included fees for tax consultation, expatriate administration
and tax preparation, and other consultations.
15
AUDIT COMMITTEE REPORT
The Audit Committee of the board of directors has furnished the following
report:
The company's board of directors has adopted a written charter (Statement of
Responsibilities) for the Audit Committee, which is included as Exhibit A to
this proxy statement.
The board has determined that each member of the Committee is "independent," as
defined in the listing standards of the New York Stock Exchange, with the
exception of Mr. Adams. Mr. Adams, at the board's request, served as chairman of
the board and an employee during a transition period (June 1996-April 1998)
following the death of Jerry R. Junkins, the company's chairman of the board,
president and chief executive officer. The board has determined, in accordance
with the listing standards, that Mr. Adams' service on the Audit Committee is
required by the best interests of the company and its stockholders because, in
the board's opinion, he will exercise independent judgment and materially assist
the function of the Committee.
As noted in the Committee's charter, the company's management is responsible for
preparing the company's financial statements. The company's independent auditors
are responsible for auditing the financial statements. The activities of the
Committee are in no way designed to supersede or alter those traditional
responsibilities. The Committee's role does not provide any special assurances
with regard to the company's financial statements, nor does it involve a
professional evaluation of the quality of the audits performed by the
independent auditors.
The Committee has reviewed and discussed the audited financial statements with
management.
The Committee has discussed with the independent auditors, Ernst & Young, the
matters required to be discussed by Statement of Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES.
The Committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, has considered the compatibility
of nonaudit services with the auditors' independence, and has discussed with the
auditors the auditors' independence.
Based on the review and discussions referred to above, the Committee recommended
to the Board of Directors that the audited financial statements be included in
the company's Annual Report on Form 10-K for 2000 for filing with the Securities
and Exchange Commission.
James B. Busey IV, Chair Daniel A. Carp
James R. Adams Ruth J. Simmons
David L. Boren
16
ADDITIONAL INFORMATION
VOTING SECURITIES
As of February 20, 2001, 1,734,917,044 shares of the company's common stock were
outstanding. This is the only class of capital stock entitled to vote at the
meeting. Each holder of common stock has one vote for each share held. As stated
in the notice of meeting, holders of record of the common stock at the close of
business on February 20, 2001 may vote at the meeting or any adjournment of the
meeting.
SHARE OWNERSHIP OF CERTAIN PERSONS
The following table shows (a) the only person that has reported beneficial
ownership of more than 5% of the common stock of the company, and (b) the
ownership of the company's common stock by the named executive officers, and all
executive officers and directors as a group. Persons generally "beneficially
own" shares if they have either the right to vote those shares or dispose of
them. More than one person may be considered to beneficially own the same
shares.
SHARES OWNED AT PERCENT OF
NAME AND ADDRESS DECEMBER 31, 2000 CLASS
------------------------------------------------------------ ----------------- ----------
FMR Corp. 112,499,983(1) 6.5%
82 Devonshire Street
Boston, MA 02109
Thomas J. Engibous 2,814,327(2) *
Richard K. Templeton 2,238,800(2) *
William A. Aylesworth 900,948(2) *
Michael J. Hames 602,945(2) *
Keh-Shew Lu 1,997,337(2) *
All executive officers and directors as a group 11,127,874(2)(3) *
------------------------
* Less than 1%.
(1) The company understands that, as of December 31, 2000, (a) FMR Corp. and its
chairman, Edward C. Johnson 3d, had sole dispositive power with respect to
all of the above shares and FMR Corp. had sole voting power with respect to
6,218,811 of the above shares, and (b) the above shares include 105,302,872
shares beneficially owned by Fidelity Management & Research Company, a
wholly owned subsidiary of FMR Corp., as a result of acting as investment
advisor to several investment companies.
(2) Includes (a) shares subject to acquisition within 60 days by
Messrs. Engibous, Templeton, Aylesworth, Hames and Lu for 2,555,000,
2,090,000, 685,000, 535,000 and 1,025,000 shares, respectively, (b) shares
credited to profit sharing stock accounts for Messrs. Engibous, Templeton,
Aylesworth, Hames and Lu, in the amounts of 17,479, 10,688, 23,224, 6,713,
and 16,684 shares, respectively, and (c) shares subject to restricted stock
unit awards for Messrs. Engibous, Templeton and Lu, in the amounts of
160,000, 120,000 and 152,000 shares, respectively. Excludes shares held by a
family member if a director or officer has disclaimed beneficial ownership.
(3) Includes (a) 9,525,800 shares subject to acquisition within 60 days,
(b) 176,815 shares credited to profit sharing stock accounts, and
(c) 661,928 shares subject to restricted stock unit awards.
17
CERTAIN BUSINESS RELATIONSHIPS
Joseph F. Hubach, senior vice president, secretary and general counsel of the
company, is the brother of Francis P. Hubach, Jr., partner in charge of the
Dallas office of the law firm of Jones, Day, Reavis & Pogue. The company engaged
the services of Jones, Day, Reavis & Pogue during 2000.
COST OF SOLICITATION
The solicitation is made on behalf of the board of directors of the company. The
company will pay the cost of soliciting these proxies. We will reimburse
brokerage houses and other custodians, nominees and fiduciaries for reasonable
expenses they incur in sending these proxy materials to you if you are a
beneficial holder of our shares.
Without receiving additional compensation, officials and regular employees of
the company may solicit proxies personally, by telephone, fax or E-mail from
some stockholders if proxies are not promptly received. We have also hired
Georgeson Shareholder Communications, Inc. to assist in the solicitation of
proxies at a cost of $12,000 plus out-of-pocket expenses.
PROPOSALS OF STOCKHOLDERS
If you wish to submit a proposal for possible inclusion in the company's 2002
proxy material, we must receive your notice, in accordance with rules of the
Securities and Exchange Commission, on or before November 2, 2001.
If you wish to submit a proposal at the 2002 annual meeting (but not seek
inclusion of the proposal in the company's proxy material), we must receive your
notice, in accordance with the company's by-laws, on or before January 19, 2002.
Suggestions from stockholders concerning the company's business are welcome and
all will be carefully considered by the company's management. So that your
suggestions receive appropriate review, the Stockholder Relations and Public
Policy Committee from time to time reviews correspondence from stockholders and
management's responses. This way, stockholders are given access at the board
level without having to resort to formal stockholder proposals. Generally, the
board prefers you present your views in this manner rather than through the
process of formal stockholder proposals.
QUORUM REQUIREMENT
A quorum of stockholders is necessary to hold a valid meeting. If at least a
majority of the shares of TI stock issued and outstanding and eligible to vote
are present in person or by proxy, a quorum will exist.
VOTE REQUIRED
The nine nominees receiving the greatest number of votes cast by those entitled
to vote will be elected.
We do not expect any matters to be presented for a vote at the annual meeting
other than the election of directors. If you grant a proxy, the persons named in
the proxy will have the discretion to vote your shares on any additional matters
properly presented for a vote at the meeting. If any other matters are submitted
at the meeting, an affirmative vote of the majority of the shares present in
person or by proxy is necessary for approval.
Under Delaware law and the company's Restated Certificate of Incorporation and
By-Laws, the aggregate number of votes entitled to be cast by all stockholders
present in person or represented by proxy at the meeting, whether those
stockholders vote FOR, AGAINST or abstain from voting,
18
will be counted for purposes of determining the minimum number of affirmative
votes required for approval of such matters. The total number of votes cast FOR
each of these matters will be counted for purposes of determining whether
sufficient affirmative votes have been cast. An abstention from voting on a
matter by a stockholder present in person or represented by proxy at the meeting
has the same legal effect as a vote AGAINST the matter even though the
stockholder or interested parties analyzing the results of the voting may
interpret such a vote differently.
TELEPHONE AND INTERNET VOTING
SHARES DIRECTLY REGISTERED IN THE NAME OF THE STOCKHOLDER. Stockholders with
shares registered directly with Computershare may vote telephonically by calling
Computershare at (888) 776-5653 or may vote via the Internet at the following
address on the World Wide Web:
www.computershare.com/us/proxy
SHARES REGISTERED IN THE NAME OF A BROKERAGE FIRM OR BANK. A number of
brokerage firms and banks offer telephone and Internet voting options. These
programs differ from the program provided by Computershare for shares registered
in the name of the stockholder. Check the information forwarded by your bank,
broker or other holder of record to see which options are available to you.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. The company has been advised by counsel that the telephone and
Internet voting procedures that have been made available through Computershare
are consistent with the requirements of applicable law. Stockholders voting via
the Internet through Computershare should understand that there may be costs
associated with electronic access, such as usage charges from telephone
companies and Internet access providers, that must be borne by the stockholder.
By Order of the Board of Directors,
/s/ JOSEPH F. HUBACH
Joseph F. Hubach
Senior Vice President,
Secretary and
General Counsel
Dallas, Texas
February 27, 2001
19
EXHIBIT A
STATEMENT OF RESPONSIBILITIES
AUDIT COMMITTEE
PURPOSE
The primary function of the Audit Committee (the "Committee") is to assist the
Board of Directors (the "Board") in fulfilling its oversight responsibilities by
reviewing: the financial reports and other financial information provided by the
Company to any governmental or regulatory body or the public; the Company's
systems of internal controls that management and the Board have established; and
the Company's auditing, accounting and financial reporting processes generally.
NOTE: The Company's management is responsible for preparing the Company's
financial statements. The Company's independent auditors are responsible for
auditing the financial statements. The activities of the Committee are in no
way designed to supersede or alter those traditional responsibilities.
Except to the extent required by the New York Stock Exchange, membership on
the Committee does not call for the professional training or technical
skills generally associated with career professionals in the fields of
accounting and auditing. In addition, the Company's independent auditors and
the internal audit staff have more available time and information than does
the Committee. Accordingly, the Committee's role does not provide any
special assurances with regard to the Company's financial statements, nor
does it involve a professional evaluation of the quality of the audits
performed by the independent auditors.
In discharging its oversight role, the Committee is empowered to study or
investigate any matter of interest or concern that the Committee deems
appropriate, and to use the services of the independent or internal auditors and
to retain outside counsel or other experts for this purpose.
MEMBERSHIP
The Committee will be composed of not less than three (3) members of the Board,
all of whom, as noted below, meet the requirements of the New York Stock
Exchange. The members and the chair and, if any, the vice chair shall be
appointed by a majority of the whole Board.
A majority of the Committee will constitute a quorum for the transaction of
business.
NYSE AUDIT COMMITTEE POLICY
The Committee will meet the requirements of the Audit Committee Policy of the
New York Stock Exchange ("NYSE Policy"). In particular:
- The membership of the Committee will meet the requirements of the NYSE
Policy.
- The independent auditors are ultimately accountable to the Board of
Directors and the Committee.
- The Committee will evaluate and recommend to the Board the appointment
and, where appropriate, replacement of the independent auditors for the
Company and for the TI employee benefit trusts. The Board has the ultimate
authority and responsibility to appoint and, where appropriate, replace
the independent auditors.
A-1
- Annually, the Committee will:
-- Review a formal written statement from the independent auditors of
the Company delineating all relationships between the auditors and
the Company (in accordance with Independence Standards Board Standard
No. 1).
-- Discuss with the independent auditors any disclosed relationships and
their impact on the auditor's independence.
-- Recommend that the Board of Directors take appropriate action in
response to the auditor's report to satisfy itself of the auditor's
independence.
- The Committee will review this Statement of Responsibilities annually in
accordance with the requirements of the NYSE Policy.
OTHER FUNCTIONS AND RESPONSIBILITIES OF THE COMMITTEE
A. The Committee will review the following and recommend action by the Board:
1. The Company's annual reports to the Securities and Exchange Commission,
including audited financial statements to be included in such reports.
2. Audited financial statements to be included in the Company's proxy
statements and summary annual reports to stockholders.
3. Revisions in the Board's Statement of Policy on Conflict of Interest.
B. The Committee will do the following and periodically advise the Board:
1. Discuss the Company's audited financial statements with management and
the independent auditors, including a discussion with the independent
auditors regarding the matters required to be discussed by Statement of
Auditing Standards No. 61.
2. Review the Company's quarterly reports to the Securities and Exchange
Commission, including a discussion of the interim financial statements
with management and the independent auditors.
3. Monitor the Company's news releases regarding annual and interim
financial results by reviewing them before issuance, with the Committee
acting as a whole or through its chair.
4. Engage in any activities that the Committee deems to be necessary or
appropriate in furtherance of its purpose, functions and
responsibilities.
A-2
EXHIBIT B
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
(MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS)
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
INCOME 2000 1999 1998
------ -------- -------- --------
Net revenues................................................ $11,875 $9,759 $8,875
------- ------ ------
Operating costs and expenses:
Cost of revenues.......................................... 6,120 5,069 5,605
Research and development.................................. 1,747 1,379 1,265
Selling, general and administrative....................... 1,669 1,556 1,549
------- ------ ------
Total................................................. 9,536 8,004 8,419
------- ------ ------
Profit from operations...................................... 2,339 1,755 456
Other income (expense) net.................................. 2,314 403 301
Interest on loans........................................... 75 76 76
------- ------ ------
Income before provision for income taxes and cumulative
effect of an accounting change............................ 4,578 2,082 681
Provision for income taxes.................................. 1,491 631 229
------- ------ ------
Income before cumulative effect of an accounting change..... 3,087 1,451 452
Cumulative effect of an accounting change................... (29) -- --
------- ------ ------
Net income.................................................. $ 3,058 $1,451 $ 452
======= ====== ======
Diluted earnings per common share:
Income before cumulative effect of an accounting change... $ 1.73 $ .83 $ .26
Cumulative effect of an accounting change................. (.02) -- --
------- ------ ------
Net income................................................ $ 1.71 $ .83 $ .26
======= ====== ======
Basic earnings per common share:
Income before cumulative effect of an accounting change... $ 1.80 $ .86 $ .27
Cumulative effect of an accounting change................. (.02) -- --
------- ------ ------
Net income................................................ $ 1.78 $ .86 $ .27
======= ====== ======
See accompanying notes.
B-1
CONSOLIDATED FINANCIAL STATEMENTS
(MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS)
DECEMBER 31,
-------------------
BALANCE SHEET 2000 1999
------------- -------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 745 $ 781
Short-term investments.................................... 3,258 2,045
Accounts receivable, less allowance for losses of $54
million in 2000 and $56 million in 1999................. 2,204 1,909
Inventories............................................... 1,233 894
Prepaid expenses.......................................... 80 109
Deferred income taxes..................................... 595 615
------- -------
Total current assets.................................... 8,115 6,353
------- -------
Property, plant and equipment at cost....................... 9,099 7,338
Less accumulated depreciation............................. (3,652) (3,405)
------- -------
Property, plant and equipment (net)..................... 5,447 3,933
------- -------
Investments................................................. 2,400 4,205
Goodwill and other acquisition-related intangibles.......... 961 502
Deferred income taxes....................................... 106 41
Other assets................................................ 691 393
------- -------
Total assets................................................ $17,720 $15,427
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable and current portion long-term debt.......... $ 148 $ 331
Accounts payable and accrued expenses..................... 1,921 1,722
Income taxes payable...................................... 323 270
Accrued retirement and profit sharing contributions....... 421 374
------- -------
Total current liabilities............................... 2,813 2,697
------- -------
Long-term debt.............................................. 1,216 1,099
Accrued retirement costs.................................... 378 797
Deferred income taxes....................................... 469 998
Deferred credits and other liabilities...................... 256 258
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--1,733,237,248; 1999--851,448,197... 1,733 851
Paid-in capital........................................... 1,185 877
Retained earnings......................................... 9,323 6,406
Less treasury common stock at cost.
Shares: 2000--1,184,880; 1999--1,034,757................ (93) (109)
Accumulated other comprehensive income.................... 574 1,553
Deferred compensation..................................... (134) --
------- -------
Total stockholders' equity.............................. 12,588 9,578
------- -------
Total liabilities and stockholders' equity.................. $17,720 $15,427
======= =======
See accompanying notes.
B-2
CONSOLIDATED FINANCIAL STATEMENTS
(MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS)
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
CASH FLOWS 2000 1999 1998
---------- -------- -------- --------
Continuing operations:
Cash flows from operating activities:
Income before cumulative effect of an accounting
change................................................. $ 3,087 $ 1,451 $ 452
Depreciation............................................ 1,216 1,005 1,201
Amortization of acquisition-related costs............... 160 69 47
Purchased in-process research and development........... 112 79 25
Adjustment to conform fiscal year end of pooled
acquisition............................................ -- (9) --
Deferred income taxes................................... 1 (11) (45)
Net currency exchange (gains) losses.................... 11 9 (4)
(Increase) decrease in working capital (excluding cash
and cash equivalents,
short-term investments, deferred income taxes, and
loans payable and
current portion long-term debt):
Accounts receivable................................. (348) (444) 291
Inventories......................................... (372) (207) 60
Prepaid expenses.................................... 27 (20) (15)
Accounts payable and accrued expenses............... 246 96 (440)
Income taxes payable................................ (55) 64 25
Accrued retirement and profit sharing
contributions....................................... 51 244 (33)
Gains on sale of Micron stock............................. (1,636) -- --
Increase (decrease) in noncurrent accrued retirement
costs................................................... (369) 11 42
Other..................................................... 54 20 (220)
------- ------- -------
Net cash provided by operating activities................... 2,185 2,357 1,386
Cash flows from investing activities:
Additions to property, plant and equipment................ (2,762) (1,398) (1,067)
Purchases of short-term investments....................... (5,409) (2,529) (2,262)
Sales and maturities of short-term investments............ 4,178 2,237 2,568
Purchases of noncurrent investments....................... (133) (87) (61)
Sales of noncurrent investments........................... 2,198 272 33
Acquisition of businesses, net of cash acquired........... (3) (469) (152)
Payments made in connection with sale of memory
business................................................ -- -- (680)
Proceeds from sale of businesses.......................... 107 -- 100
------- ------- -------
Net cash used in investing activities....................... (1,824) (1,974) (1,521)
Cash flows from financing activities:
Additions to loans payable................................ 23 11 10
Payments on loans payable................................. (19) (13) (9)
Additions to long-term debt............................... 250 400 --
Payments on long-term debt................................ (307) (262) (68)
Dividends paid on common stock............................ (141) (134) (133)
Sales and other common stock transactions................. 242 225 154
Common stock repurchase program........................... (155) (473) (256)
Increase in noncurrent assets for restricted cash......... (261) -- --
------- ------- -------
Net cash used in financing activities....................... (368) (246) (302)
Effect of exchange rate changes on cash..................... (29) (61) 5
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (36) 76 (432)
Cash and cash equivalents at beginning of year.............. 781 705 1,137
------- ------- -------
Cash and cash equivalents at end of year.................... $ 745 $ 781 $ 705
======= ======= =======
See accompanying notes.
B-3
CONSOLIDATED FINANCIAL STATEMENTS
(MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS)
ACCUMULATED
TREASURY OTHER
COMMON PAID-IN RETAINED COMMON COMPREHENSIVE DEFERRED
STOCKHOLDERS' EQUITY STOCK CAPITAL EARNINGS STOCK INCOME* COMPENSATION
-------------------- ---------- --------- ----------- ----------- ------------------ -----------------
Balance, December 31, 1997.......... $ 416 $1,313 $4,762 $ (94) $ (53)
1998
Net income........................ -- -- 452 -- --
Dividends declared on common stock
($.064 per share)............... -- -- (101) -- --
Common stock issued on exercise of
stock options................... 3 (102) -- 254 --
Stock repurchase program.......... -- -- -- (294) --
Other stock transactions, net..... -- 106 -- -- --
Pension liability adjustment...... -- -- -- -- (117)
Equity, debt and cash investments
adjustment...................... -- -- -- -- 465
------ ------ ------ ----- -------
Balance, December 31, 1998.......... 419 1,317 5,113 (134) 295
1999
Net income........................ -- -- 1,451 -- --
Dividends declared on common stock
($.085 per share)............... -- -- (134) -- --
Two-for-one common stock split.... 420 (420) -- -- --
Common stock issued on exercise of
stock options................... 4 (247) -- 451 --
Stock repurchase program.......... -- -- -- (426) --
Other stock transactions, net..... -- 195 -- -- --
Pension liability adjustment...... -- -- -- -- 132
Equity, debt and cash investments
adjustment...................... -- -- -- -- 1,126
Pooling of interests
acquisitions.................... 8 32 (15) -- --
Adjustment to conform fiscal year
end of pooled acquisition....... -- -- (9) -- --
------ ------ ------ ----- -------
Balance, December 31, 1999.......... 851 877 6,406 (109) 1,553
2000
NET INCOME........................ -- -- 3,058 -- -- --
DIVIDENDS DECLARED ON COMMON STOCK
($.085 PER SHARE)............... -- -- (141) -- -- --
TWO-FOR-ONE COMMON STOCK SPLIT.... 858 (858) -- -- -- --
COMMON STOCK ISSUED ON EXERCISE OF
STOCK OPTIONS................... 13 97 -- 171 -- --
STOCK REPURCHASE PROGRAM.......... -- -- -- (155) -- --
OTHER STOCK TRANSACTIONS, NET..... -- 320 -- -- -- --
PURCHASE ACQUISITIONS............. 11 749 -- -- -- $(151)
PENSION LIABILITY ADJUSTMENT...... -- -- -- -- 42 --
EQUITY AND CASH INVESTMENTS
ADJUSTMENT...................... -- -- -- -- (1,021) --
DEFERRED COMPENSATION
AMORTIZATION.................... -- -- -- -- -- 17
------ ------ ------ ----- ------- -----
BALANCE, DECEMBER 31, 2000.......... $1,733 $1,185 $9,323 $ (93) $ 574 $(134)
====== ====== ====== ===== ======= =====
* Comprehensive income, i.e., net income plus other comprehensive income,
totaled $2079 million in 2000, $2709 million in 1999 and $800 million in
1998.
See accompanying notes.
B-4
NOTES TO FINANCIAL STATEMENTS
ACCOUNTING POLICIES AND PRACTICES
Effective January 1, 2000, in accordance with Staff Accounting Bulletin
No. 101, the company changed its method of accounting for revenue recognition
for certain of its product sales, specifically those for which transfer of title
occurs upon delivery to the customer. Historically, the company generally
recognized revenues for its products when shipped. Typically, there is less than
a three day difference between recognizing revenue at delivery versus when
shipped. Under the new accounting method adopted in the fourth quarter of 2000
retroactive to January 1, 2000, the company now recognizes revenue for product
sales when transfer of title occurs. The first three quarters of 2000 have been
restated for the change. The cumulative effect of the change on prior years
resulted in a charge to net income of $29 million (after income taxes of
$16 million), which is included in results for the year 2000. The effect of the
change on the year 2000 was to decrease income before the cumulative effect of
the accounting change by $13 million ($.007 per share) and net income by
$42 million ($.023 per share). For the first quarter of 2000, the company
recognized $92 million in revenues that are included in the cumulative effect
adjustment as of January 1, 2000. Pro forma amounts (assuming the change is
applied retroactively) for periods prior to 2000 are not materially different
from reported results and are not presented.
Royalty revenues are recognized upon sale by the licensee of royalty-bearing
products, as estimated by the company.
The company adopted FASB Interpretation No. 44 in the third quarter of 2000.
The statement, which was effective for transactions on or after July 1, 2000,
requires that the intrinsic value of unvested employee stock options exchanged
in a business purchase transaction be recorded as deferred compensation, a
contra-stockholders' equity account. Previously, such amounts were recorded as
acquisition cost. The effect of this standard was not material to the company's
year 2000 net income. The company also adopted Emerging Issues Task Force Issue
No. 00-15 in the third quarter of 2000. This standard requires the income tax
benefit realized by the company from the exercise of nonqualified stock options
to be classified in the cash flow statement as an operating cash flow.
Previously, this amount was classified as a financing cash flow. The benefit was
$313 million, $183 million and $54 million for the years 2000, 1999 and 1998.
Cash flow statements prior to 2000 have been reclassified accordingly.
The company adopted SFAS No. 130 in the first quarter of 1998. It required
disclosure of comprehensive income, i.e., net income plus direct adjustments to
stockholders' equity such as equity, debt and cash investment adjustments and
pension liability adjustments. Also in 1998, the company adopted SFAS No. 132,
which mandated changes in disclosures for pension and retiree health care plans.
Disclosures under these standards were provided on a retroactive basis. Neither
affected reported net income.
Accounting standard SFAS No. 133 was issued in 1998 and is effective
January 1, 2001. It requires that all derivatives be marked-to-market on an
ongoing basis. This applies to stand-alone derivative instruments, such as
forward currency exchange contracts and interest rate swaps. It also applies to
embedded derivatives acquired after year end 1998. Along with the derivatives,
the underlying hedged items are also to be marked-to-market on an ongoing basis.
These market value adjustments are to be included either in the income statement
or stockholders' equity, depending on the nature of the transaction. The company
will adopt the standard in the first quarter of 2001 on a cumulative basis and
does not expect a material impact.
The consolidated financial statements include the accounts of all
subsidiaries. The preparation of financial statements requires the use of
estimates from which final results may vary.
B-5
Intercompany balances and transactions have been eliminated. The U.S. dollar is
the functional currency for financial reporting. With regard to accounts
recorded in currencies other than U.S. dollars, current assets (except
inventories), deferred income taxes, other assets, current liabilities and
long-term liabilities are remeasured at exchange rates in effect at year-end.
Inventories, property, plant and equipment and depreciation thereon are
remeasured at historic exchange rates. Revenue and expense accounts other than
depreciation for each month are remeasured at the appropriate daily rate of
exchange. Net currency exchange gains and losses from remeasurement and forward
currency exchange contracts to hedge net balance sheet exposures are charged or
credited on a current basis to other income (expense) net. Gains and losses from
forward currency exchange contracts to hedge specific transactions are deferred
and included in the measurement of the related transactions. Gains and losses
from interest rate swaps are included on the accrual basis in interest expense.
Gains and losses from terminated forward currency exchange contracts and
interest rate swaps are deferred and recognized consistent with the terms of the
underlying transaction.
Inventories are stated at the lower of cost or estimated realizable value.
Cost is generally computed on a currently adjusted standard (which approximates
current average costs) or average basis.
Property, plant and equipment are stated at cost and depreciated on either
the declining-balance method (primarily 150 percent declining method) or the
sum-of-the-years-digits method over the estimated useful lives of the assets.
Fully depreciated assets are written off against accumulated depreciation.
Goodwill and other acquisition-related costs are amortized on a straight-line
basis over the estimated economic lives of the assets. Reviews are regularly
performed to determine whether facts or circumstances exist which indicate that
the carrying values of the company's fixed or intangible assets are impaired.
The company assesses the recoverability of its assets by comparing the projected
undiscounted net cash flows associated with those assets to their respective
carrying amounts. Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets.
Advertising costs are expensed as incurred. Advertising expense was
$118 million in 2000, $149 million in 1999 and $104 million in 1998.
As discussed in the Divestiture note, the financial statements include the
effect of a significant divestiture: the sale of the company's memory business
and related joint venture interests to Micron Technology, Inc. (Micron) in
September 1998.
Amounts in the prior periods' financial statements and related notes have
been restated to reflect the May 2000 two-for-one stock split and the
acquisition of Burr-Brown Corporation (Burr-Brown) in August 2000, which was
accounted for as a pooling of interests. See also the Pooling of Interests
Acquisition note.
Computation of earnings per common share (EPS) amounts for income before
cumulative effect of an accounting change is as follows (millions, except
per-share amounts):
2000 1999 1998
------------------------------ ------------------------------ ------------------------------
INCOME SHARES EPS INCOME SHARES EPS INCOME SHARES EPS
-------- -------- -------- -------- -------- -------- -------- -------- --------
Basic EPS................... $3,087 1,717.5 $1.80 $1,451 1,680.3 $.86 $452 1,665.3 $.27
Dilutives:
Stock options/compensation
plans................... -- 69.3 -- 69.4 -- 45.8
Convertible debentures.... 6 4.8 -- -- -- --
------ ------- ----- ------ ------- ---- ---- ------- ----
Diluted EPS................. $3,093 1,791.6 $1.73 $1,451 1,749.7 $.83 $452 1,711.1 $.26
====== ======= ===== ====== ======= ==== ==== ======= ====
B-6
The EPS computation for 2000 excludes 2.0 million shares for stock options
because their effect would have been antidilutive.
POOLING OF INTERESTS ACQUISITION
On August 24, 2000, the company acquired Burr-Brown for approximately
88 million shares of common stock, including stock options and convertible
notes. In this transaction, TI assumed outstanding Burr-Brown stock options that
were converted to options to purchase approximately 9 million shares of TI
common stock. In addition, Burr-Brown's outstanding 4.25% $250 million
convertible subordinated notes payable are now convertible into 5.6 million TI
common shares. This transaction was accounted for as a pooling of interests in
2000. All prior periods presented have been restated.
No adjustments, other than minor reclassifications, were necessary to
conform accounting policies of the entities, nor were there any intercompany
transactions requiring elimination. As both companies used calendar year
reporting, no adjustments were necessary to conform time periods. Total related
transaction costs of $50 million were expensed in the third and fourth quarters
of 2000.
The following shows the historical results of TI and Burr-Brown for the
periods prior to the consummation of the merger of the two entities (in
millions):
SIX MONTHS YEAR ENDED
ENDED -----------------------------
JUNE 30, 2000 DEC. 31, 1999 DEC. 31, 1998
------------- ------------- -------------
Net revenues:
TI................................................. $5,497 $9,468 $8,617
Burr-Brown......................................... 194 291 258
------ ------ ------
$5,691 $9,759 $8,875
====== ====== ======
Net income:
TI................................................. $1,705 $1,406 $ 416
Burr-Brown......................................... 42 45 36
------ ------ ------
$1,747 $1,451 $ 452
====== ====== ======
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Debt securities with original maturities within three months are considered cash
equivalents. Debt securities with original maturities beyond three months have
remaining maturities within 13 months and are considered short-term investments.
These cash equivalent and short-term investment debt securities are available
for sale and stated at fair value, which approximates their specific amortized
cost. As of December 31, 2000, these debt securities consisted primarily of the
following types: corporate ($2619 million) and asset-backed commercial paper
($953 million). At December 31, 1999, these debt securities consisted primarily
of the following types: corporate ($1749 million), asset-backed commercial paper
($711 million) and municipal securities ($153 million). Gross realized and
unrealized gains, as well as realized losses, for each of these security types
were immaterial in 2000, 1999 and 1998. Gross unrealized losses were immaterial
for each of these security types in 1999 and 1998 and $20 million in 2000 (see
also the Financial Instruments and Risk Concentration note). Proceeds from sales
of these cash equivalent and short-term investment debt securities in 2000, 1999
and 1998 were $2025 million, $1185 million and $647 million.
B-7
INVENTORIES
MILLIONS OF DOLLARS
----------------------
2000 1999
-------- --------
Raw materials and purchased parts....................................... $ 245 $ 167
Work in process......................................................... 681 501
Finished goods.......................................................... 307 226
------ ------
Inventories............................................................. $ 1233 $ 894
====== ======
PROPERTY, PLANT AND EQUIPMENT AT COST
MILLIONS OF DOLLARS
----------------------
DEPRECIABLE LIVES 2000 1999
----------------- -------- --------
Land.................................................... $ 95 $ 93
Buildings and improvements.............................. 5-40 years 2,759 2,405
Machinery and equipment................................. 3-10 years 6,245 4,840
------ ------
Total................................................... $9,099 $7,338
====== ======
Authorizations for property, plant and equipment expenditures in future
years were approximately $2236 million at December 31, 2000, and $1468 million
at December 31, 1999.
INVESTMENTS
Equity investments primarily consisted of 56,952,399 Micron common shares and
other publicly traded investments. Included in the Micron common shares are
24,666,715 shares received by TI in October 2000, when TI converted its
$740 million 6.5% Micron convertible notes into Micron common shares. The Micron
securities were received in 1998 in connection with TI's sale of its memory
business.
TI Ventures is a venture fund that invests in companies involved in the
development of new markets. As of year-end 2000, investments were held in 21
companies focused primarily on next-generation applications of digital signal
processors.
Other investments consist of mutual funds that are acquired to generate
returns that offset changes in certain liabilities related to deferred
compensation arrangements. The mutual funds hold a variety of debt and equity
investments.
B-8
Following is information on the investments (millions of dollars):
UNREALIZED
------------------------------ FAIR
COST GAINS (LOSSES) NET VALUE
-------- -------- -------- -------- --------
2000
EQUITY INVESTMENTS............................... $1,357 $ 899 $(52) $ 847 $2,204
TI VENTURES...................................... 54 65 -- 65 119
OTHER INVESTMENTS................................ 77 -- -- -- 77
------ ------ ---- ------ ------
TOTAL............................................ $1,488 $ 964 $(52) $ 912 $2,400
====== ====== ==== ====== ======
1999
Equity investments............................... $ 964 $1,659 $ (3) $1,656 $2,620
Debt investments................................. 697 330 -- 330 1,027
TI Ventures...................................... 38 475 -- 475 513
Other investments................................ 46 -- (1) (1) 45
------ ------ ---- ------ ------
Total............................................ $1,745 $2,464 $ (4) $2,460 $4,205
====== ====== ==== ====== ======
Investments are stated at fair value, which is based on market quotes,
current interest rates or management estimates, as appropriate. Adjustments to
fair value of the equity, TI Ventures and, in 1999, debt investments, which are
all classified as available-for-sale, are recorded as an increase or decrease in
stockholders' equity. Adjustments to fair value of the other investments, which
are classified as trading, are recorded in operating expense. Cost or amortized
cost, as appropriate, was determined on a specific identification basis.
Proceeds from sales of equity, debt and TI Ventures investments were
$2232 million in 2000, $309 million in 1999 and $33 million in 1998. There were
$1816 million and $125 million of gross realized gains and zero gross realized
losses from sales of these investments in 2000 and 1999. Similar amounts in 1998
were zero.
GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLES
MILLIONS OF
DOLLARS
----------------------
AMORTIZATION LIVES 2000 1999
------------------ -------- --------
Goodwill.................................................. 5-8 years $659 $265
Developed technology...................................... 3-10 years 140 107
Other intangibles......................................... 2-10 years 162 130
---- ----
Total..................................................... $961 $502
==== ====
Other intangibles include items such as trained workforce and customer base.
The balances shown are net of total accumulated amortization of $308 million and
$168 million at year-end 2000 and 1999.
Amortization of goodwill and other acquisition-related costs (including
deferred compensation, a contra-stockholders' equity account) was $160 million,
$69 million and $47 million for 2000, 1999 and 1998. Of the total amortization,
goodwill amortization was $71 million, $25 million and $10 million, with the
remainder primarily related to developed technology.
B-9
NON-CASH INVESTING ACTIVITY
Following is a discussion of major TI transactions which involved non-cash
amounts. In 2000, TI acquired Burr-Brown in a pooling of interests acquisition
for approximately 88 million shares of TI common stock, including stock options
and convertible notes. In 1998, TI sold its memory business to Micron. As a
result, TI received Micron common shares and notes with values of $881 million
and $836 million, respectively. In addition to TI's memory assets, Micron
received $550 million in cash from TI to facilitate the deployment of Micron's
technology throughout the acquired business. In the fourth quarter of 1998, TI
made an additional $130 million payment to Micron as part of the contractually
required working capital.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
MILLIONS OF DOLLARS
----------------------
2000 1999
-------- --------
Accounts payable............................................ $ 997 $ 687
Accrued salaries, wages and vacation pay.................... 365 421
Other accrued expenses and liabilities...................... 559 614
------ ------
Total....................................................... $1,921 $1,722
====== ======
DEBT AND LINES OF CREDIT
MILLIONS OF DOLLARS
----------------------
LONG-TERM DEBT 2000 1999
-------------- -------- --------
6.875% notes due 2000....................................... $ -- $ 200
9.0% notes due 2001......................................... 55 55
6.65% notes, due in installments through 2001............... 50 127
9.25% notes due 2003........................................ 103 104
7.0% notes due 2004......................................... 400 400
6.125% notes due 2006....................................... 300 300
8.75% notes due 2007........................................ 43 43
3.80% to 6.10% lira notes................................... 91 133
4.25% convertible subordinated notes due 2007............... 250 --
Other....................................................... 51 51
------ ------
1,343 1,413
Less current portion long-term debt......................... 127 314
------ ------
Total....................................................... $1,216 $1,099
====== ======
The coupon rates for the notes due 2006 have been swapped for LIBOR-based
variable rates through 2006, for an effective interest rate of approximately
6.1% and 5.6% as of December 31, 2000 and 1999. The lira notes are due in
installments through 2005.
The 4.25% convertible subordinated notes issued February 24, 2000, may be
redeemed at the issuer's option at specified prices, beginning in 2003. The
notes are convertible at the holder's option into an aggregate 5,624,784 shares
of TI common stock at a common stock conversion price of $44.45 per share. See
the Guarantor Information note for further information.
TI has guaranteed the payment obligations of a supplier under a
$210 million lease financing facility maturing 2003. Obligations under this
facility were $172 million and $2 million at year-end 2000 and 1999.
B-10
In October 2000, TI was released from its guarantee of borrowings by TECH
Semiconductor Singapore under its $450 million principal amount credit facility.
See the Divestitures note for further information.
Interest incurred on loans in 2000, 1999 and 1998 was $98 million,
$84 million and $86 million. Of these amounts, $23 million in 2000, $8 million
in 1999 and $10 million in 1998 were capitalized as a component of capital asset
construction costs. Interest paid on loans (net of amounts capitalized) was
$75 million in 2000, $76 million in 1999 and $76 million in 1998.
Aggregate maturities of long-term debt due during the four years subsequent
to December 31, 2001, are as follows:
MILLIONS OF DOLLARS
-------------------
2002........................................................ $ 25
2003........................................................ 156
2004........................................................ 423
2005........................................................ 8
The company maintains lines of credit to support commercial paper borrowings
and to provide additional liquidity. These lines of credit totaled $733 million
at December 31, 2000, and $723 million at December 31, 1999. Of these amounts,
at December 31, 2000 and 1999, $600 million existed to support commercial paper
borrowings or short-term bank loans.
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
FINANCIAL INSTRUMENTS: In addition to the swaps discussed in the preceding
note, as of December 31, 2000, the company had forward currency exchange
contracts outstanding of $201 million to hedge net balance sheet exposures
(including $51 million to buy Taiwan dollars, $47 million to sell yen and
$29 million to buy euros). At December 31, 1999, the company had forward
currency exchange contracts outstanding of $567 million to hedge net balance
sheet exposures (including $99 million to buy yen, $102 million to sell yen, and
$214 million to buy euros). As of December 31, 2000 and 1999, the carrying
amounts and current market settlement values of these swaps and forward
contracts were not significant. The company uses forward currency exchange
contracts, to minimize the adverse earnings impact from the effect of exchange
rate fluctuations on the company's non-U.S. dollar net balance sheet exposures.
The interest rate swaps for the company's notes due 2006 are used to change the
characteristics of the interest rate stream on the debt from fixed rates to
short-term variable rates in order to achieve a mix of interest rates that, over
time, is expected to moderate financing costs. The effect of these interest rate
swaps was to reduce interest expense by $1 million, $4 million and $3 million in
2000, 1999, and 1998.
In order to minimize its exposure to credit risk, the company limits its
counterparties on the forward currency exchange contracts and interest rate
swaps to investment-grade rated financial institutions.
As of December 31, 2000 and 1999, the fair value of long-term debt, based on
current interest rates, was approximately $1450 million and $1401 million,
compared with the historical cost amount of $1343 million and $1413 million.
RISK CONCENTRATION: Financial instruments that potentially subject the company
to concentrations of credit risk are primarily cash investments, accounts
receivable and noncurrent investments. The company places its cash investments
in investment-grade, short-term debt securities and limits the amount of credit
exposure to any one commercial issuer. At year-end 2000, TI held $100 million of
one-year notes issued by Edison International (EI), the parent of Southern
California Edison
B-11
Company (SCE). SCE is a California utility company currently experiencing
financial difficulties. The notes, which mature July 18, 2001, were purchased in
July 2000 for face amount. The estimated market value of the EI notes held by TI
is below face amount by $20 million. Pending a more definitive determination of
EI's financial condition, TI has written down the investment by $20 million at
year-end 2000 through accumulated other comprehensive income in stockholders'
equity.
Concentrations of credit risk with respect to the receivables are limited
due to the large number of customers in the company's customer base and their
dispersion across different industries and geographic areas. The company
maintains an allowance for losses based upon the expected collectibility of
accounts receivable. At December 31, 2000, TI had an account receivable of
$173 million from Hyundai Electronics Industries Co., Ltd. (Hyundai) under the
terms of a patent license agreement expiring December 31, 2007. Hyundai has
requested a renegotiation of the payment schedule of the receivable and TI is in
discussions with Hyundai on this issue. TI, which has significant legal remedies
available, believes the receivable balance is collectible.
The company's noncurrent investments at year-end 2000 have an aggregate fair
value of $2400 million ($4205 million at year-end 1999). The investments are in
high-technology companies and are subject to price volatility and other
uncertainties. They include a significant concentration of Micron common shares
with a fair value of $2022 million at year-end 2000. The company adjusts the
carrying amounts of the investments to fair value each quarter.
STOCKHOLDERS' EQUITY
The company is authorized to issue 10,000,000 shares of preferred stock. None is
currently outstanding.
Each outstanding share of the company's common stock carries one-fourth of a
stock purchase right. Under certain circumstances, each right may be exercised
to purchase one one-thousandth of a share of the company's participating
cumulative preferred stock for $200. Under certain circumstances following the
acquisition of 20% or more of the company's outstanding common stock by an
acquiring person (as defined in the rights agreement), each right (other than
rights held by an acquiring person) may be exercised to purchase common stock of
the company or a successor company with a market value of twice the $200
exercise price. The rights, which are redeemable by the company at one cent per
right, expire in June 2008.
Changes in accumulated other comprehensive income are as follows (millions
of dollars):
EQUITY, DEBT AND
PENSION LIABILITY CASH INVESTMENTS
ADJUSTMENT ADJUSTMENT TOTAL
----------------- ---------------- --------
Balance, December 31, 1997......................... $ (63) $ 10 $ (53)
Annual adjustments............................... (117) 716 599
Tax effect of above.............................. -- (251) (251)
----- ------- -------
Balance, December 31, 1998......................... (180) 475 295
Annual adjustments............................... 132 1,857 1,989
Tax effect of above.............................. -- (649) (649)
Reclassifications of realized transactions, net
of tax of $43 million.......................... -- (82) (82)
----- ------- -------
Balance, December 31, 1999......................... (48) 1,601 1,553
ANNUAL ADJUSTMENTS............................... 27 246 273
TAX EFFECT OF ABOVE.............................. -- (87) (87)
TAX VALUATION ALLOWANCE REDUCTION................ 15 -- 15
RECLASSIFICATION OF REALIZED TRANSACTIONS, NET OF
TAX OF $636 MILLION............................ -- (1,180) (1,180)
----- ------- -------
BALANCE, DECEMBER 31, 2000......................... $ (6) $ 580 $ 574
===== ======= =======
B-12
RESEARCH AND DEVELOPMENT
Research and development expense totaled $1747 million in 2000, $1379 million in
1999 and $1265 million in 1998.
Acquisition-related purchased in-process R&D charges were $112 million in
2000, $79 million in 1999 and $25 million in 1998. 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 acquired after 1998 were
assessed, analyzed and valued within the context and framework articulated by
the Securities and Exchange Commission herein described as the Exclusion
Approach. Earlier acquisitions were valued using the Income Approach.
Significant assumptions, detailed in the table below, 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 over-runs 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.
MILLIONS OF DOLLARS
----------------------------------------------------------------------------------------------------------------------------------
PURCHASED
OTHER DEFERRED IN-PROCESS
ENTITY ACQUISI- CONSID- INTAN- COMPEN- R&D APPRAISAL R&D DISCOUNT
ACQUIRED TION DATE ERATION GOODWILL GIBLES SATION CHARGE METHOD FOCUS RATE
----------------- --------- -------- -------- -------- -------- ---------- --------- -------------------- --------
Alantro Third $277 $148 $ 81 $ 32 $ 52 Exclusion Wireless networking 24%
Communications, quarter approach technology for home
Inc. 2000 and office
Dot Wireless, Third $467 $302 $ 46 $119 $ 60 Exclusion Architecture for 20%
Inc. quarter approach third generation
2000 (3G) wireless
devices for
delivering voice and
high speed data to
mobile users
Butterfly VLSI, First $ 52 $ 33 $ 5 -- $ 10 Exclusion Short distance 25%
Ltd. quarter approach wireless technology
1999 for voice-plus-data
transmission
products
Libit Signal Second $365 $207 $106 -- $ 52 Exclusion Silicon Solutions 22%
Processing Ltd. quarter approach and Internet
1999 telephony software
for cable modems,
etc. for Internet
access
Integrated Sensor Third $ 67 $ 32 $ 11 -- $ 16 Exclusion Intelligent sensors 25%
Solutions, Inc. quarter approach for auto/ind.
1999 markets
GO DSP/Spectron First $ 39 $ 7 $ 7 -- $ 25 Income DSP software tools, 30%
quarter approach including real-time
1998 operating systems
for DSP development
MILLIONS OF DOLLA MILLIONS OF DOLLARS
----------------- -------------------------------------
COST/TIME TO COMPLETE
R&D PROJECTS YEAR
------------------------ CASH FLOWS
ENTITY AT AT PROJECTED
ACQUIRED ACQUISITION DEC. 2000 TO BEGIN
----------------- ----------- ---------- ----------
Alantro $4.1/256 $5.8/359 2002
Communications, engineer engineer
Inc. months months
Dot Wireless, $2.9/172 $.5/31 2003
Inc. engineer engineer
months months
Butterfly VLSI, $5/264 Project 2000
Ltd. engineer completed
months
Libit Signal $5/492 Project 2000
Processing Ltd. engineer completed
months
Integrated Sensor $4/233 Project 2000
Solutions, Inc. engineer completed
months
GO DSP/Spectron $7/540 Project 1998
engineer completed
months
B-13
OTHER INCOME (EXPENSE) NET
MILLIONS OF DOLLARS
------------------------------
2000 1999 1998
-------- -------- --------
Interest income............................................. $ 296 $182 $171
Other income (expense) net.................................. 2,018 221 130
------ ---- ----
Total..................................................... $2,314 $403 $301
====== ==== ====
Other income increased in 2000, compared to 1999, primarily due to
investment gains, including $1211 million and $425 million of gains from the
sale of Micron common stock in the second and third quarters of 2000. Other
income also included $88 million in the fourth quarter of 2000 from recognition
of a gain on the 1998 sale of the memory business to Micron. As discussed in the
Divestitures note, gain recognition had been deferred pending repayment of the
remaining TI-provided financing to Micron, which occurred in the fourth quarter
of 2000.
The increase in other income in 1999, compared to 1998, was primarily due to
increased investment gains. Other income included gains of $87 million in the
third quarter of 1999 from the sale of several noncurrent stock investments and
a gain of $83 million in the second quarter of 1998 from the sale of TI's
interest in the TI-Acer joint venture to Acer Corporation.
STOCK OPTIONS
The company has stock options outstanding to participants under the Texas
Instruments 2000 Long-Term Incentive Plan, approved by stockholders on
April 20, 2000. Options are also outstanding under the 1996 Long-Term Incentive
Plan, the Texas Instruments Long-Term Incentive Plan and the 1988 Stock Option
Plan; however, no further options may be granted under these plans. Under all
these stockholder-approved plans, unless the options are acquisition-related
replacement options, the option price per share may not be less than
100 percent of the fair market value on the date of the grant. Substantially all
the options have a 10-year term. Options granted subsequent to 1996 generally
vest ratably over four years. Options granted prior to that are fully vested.
Under the 2000 Long-Term Incentive Plan, the company may grant stock
options, including incentive stock options; restricted stock and restricted
stock units; performance units; and other stock-based awards. The plan provides
for the issuance of 120,000,000 shares of the company's common stock; in
addition, if any award under the 1996 Long-Term Incentive Plan, the Long-Term
Incentive Plan or the 1988 Stock Option Plan terminates, then any unissued
shares subject to the terminated award become available for granting awards
under the 2000 Long-Term Incentive Plan. No more than 13,400,000 shares of
common stock may be awarded as restricted stock, restricted stock units or other
stock-based awards under the plan. In 2000, 1999, and 1998, 215,500, 636,000 and
468,000 shares of restricted stock units were granted, which have a minimum
vesting period of three years from date of grant (weighted-average award-date
value of $54.44, $27.87 and $12.95 per share). Compensation expense for
restricted stock units totaled $4.7 million, $11.2 million and $4.3 million in
2000, 1999 and 1998.
The company also has stock options outstanding under the Employee Stock
Purchase Plan approved by stockholders in 1997. The plan provides for options to
be offered semiannually to all eligible employees in amounts based on a
percentage of the employee's compensation. The option price per share may not be
less than 85 percent of the fair market value on the date of grant. If the
optionee authorizes and does not cancel payroll deductions that will be equal to
or greater than the purchase price, options granted become exercisable in seven
months, and expire not more than 13 months, from date of grant. There are no
options outstanding under the 1988 Employee Stock Option Purchase Plan, the
predecessor to the Employee Stock Purchase Plan.
B-14
Under the Stock Option Plan for Non-Employee Directors adopted in
April 1998, the company grants stock options to each non-employee director once
a year, in the period beginning January 1999 and extending through 2003. Each
grant is an option to purchase 5,000 shares (10,000 shares beginning
January 2001) with an option price equal to fair market value on the date of
grant. Grants made prior to May 2000 were adjusted to reflect the two-for-one
stock split that occurred in that month.
Stock option transactions during 2000, 1999 and 1998 were as follows:
LONG-TERM WEIGHTED- EMPLOYEE WEIGHTED-
INCENTIVE AVERAGE STOCK AND AVERAGE
AND STOCK EXERCISE STOCK OPTION EXERCISE
OPTION PLANS PRICE PURCHASE PLANS PRICE
------------- ---------- --------------- ----------
Balance, Dec. 31, 1997.............. 105,600,399 $ 6.36 5,318,956 $11.18
Granted........................... 37,041,440 11.96 6,532,380* 11.47
Granted, acquisition-related...... 4,710,630 5.60 -- --
Forfeited......................... (5,734,374) 10.32 (973,956) 12.01
Expired........................... -- -- -- --
Exercised**....................... (18,096,868) 4.37 (6,282,084) 11.38
------------ ------ ----------- ------
Balance, Dec. 31, 1998.............. 123,521,227 8.12 4,595,296 11.15
Granted........................... 35,217,994 25.52 4,127,756* 26.03
Granted, acquisition-related...... 4,259,648 2.59 -- --
Forfeited......................... (2,943,835) 14.03 (187,378) 15.66
Expired........................... -- -- -- --
Exercised**....................... (23,033,184) 5.61 (5,950,882) 13.23
------------ ------ ----------- ------
Balance, Dec. 31, 1999.............. 137,021,850 12.90 2,584,792 36.21
GRANTED........................... 28,464,550 54.33 2,090,018* 63.74
GRANTED, ACQUISITION-RELATED...... 438,509 5.63 -- --
FORFEITED......................... (3,978,272) 28.59 (543,448) 63.37
EXPIRED........................... -- -- -- --
EXERCISED**....................... (17,093,818) 8.12 (3,027,926) 41.00
------------ ------ ----------- ------
BALANCE, DEC. 31, 2000.............. 144,852,819 $20.67 1,103,436 $59.66
============ ====== =========== ======
------------------------
* Excludes options offered but not accepted.
** Includes previously unissued shares and treasury shares of 18,448,817 and
1,672,927; 24,296,441 and 4,687,625; and 20,770,942 and 3,608,010 for 2000,
1999 and 1998.
In accordance with the terms of APB No. 25, the company records no
compensation expense for its non-acquisition-related stock option awards. As
required by SFAS No. 123, the company provides the following disclosure of
hypothetical values for these awards. The weighted-average grant-date value of
options granted during 2000, 1999 and 1998 was estimated to be $30.50, $12.77
and $6.31 under the 2000 Long-Term Incentive Plan and the 1996 Long-Term
Incentive Plan (Long-Term Plans) and $21.01, $7.04 and $3.34 under the Employee
Stock Purchase Plan (Employee Plan). These values were estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998: expected dividend yields of .16%, .32% and
.71% (Long-Term Plans) and .11%, .30% and .74% (Employee Plan); expected
volatility of 51%, 43% and 43%; risk-free interest rates of 6.66%, 5.33% and
5.47% (Long-Term Plans) and 6.30%, 5.07% and 5.32% (Employee Plan); and expected
lives of 6 years (Long-Term Plans) and .83 years (Employee Plan). Had
compensation expense been recorded based on these hypothetical values, the
company's 2000 net income would have been $2796 million, or diluted earnings per
share of $1.57 A similar computation for 1999 and 1998 would have resulted in
net income of $1303 million and $362 million, or diluted earnings per share of
$0.74 and $0.21. Because options vest over several years and additional option
grants are expected, the effects of these hypothetical calculations are not
likely to be representative of similar future calculations.
B-15
Summarized information about stock options outstanding under the Long-Term
Plans at December 31, 2000, is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------- -------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT DEC. 31, CONTRACTUAL EXERCISE AT DEC. 31, EXERCISE
PRICES 2000 LIFE PRICE 2000 PRICE
--------------------- ------------ ------------- ---------- ------------ ----------
$ .01 to 5.74 28,204,585 4.2 years $ 4.38 26,986,652 $ 4.46
5.81 to 11.56 47,625,150 6.6 9.97 26,156,519 9.70
11.62 to 54.47 43,458,085 8.1 24.60 11,116,486 22.29
55.22 to 84.32 25,564,999 9.1 57.02 17,892 62.53
------------------- ----------- ------------- ------ ---------- ------
$ .01 to 84.32 144,852,819 7.0 years $20.67 64,277,549 $ 9.69
=================== =========== ============= ====== ========== ======
At December 31, 2000, the stock options outstanding under the Employee Plan
have exercise prices of $69.70 and $57.01, depending on the date of grant, and a
remaining contractual life of three or nine months. Of the total outstanding
options, 230,499 are exercisable at year-end 2000.
At year-end 2000, 154,704,910 shares were available for future grants under
the 2000 Long-Term Incentive Plan and 24,484,156 shares under the Employee Stock
Purchase Plan. As of year-end 2000, 299,560,583 shares were reserved for
issuance under the company's stock option and incentive plans and 25,587,592
shares were reserved for issuance under the Employee Stock Purchase Plan.
In 1997, the company began a stock repurchase program with the goal of
reducing the potential dilutive effect of shares to be issued upon the exercise
of stock options under the Employee Stock Purchase Plan and the 1996 Long-Term
Incentive Plan and predecessor long-term incentive plans. In 1999, as part of
the process for the company's acquisition of Telogy Networks, Inc. to qualify as
a pooling of interests for accounting purposes, the TI board of directors
rescinded the share repurchase program associated with all plans except the
Employee Stock Purchase Plan. Treasury shares acquired in connection with the
repurchase program and other stock transactions in 2000, 1999 and 1998 were
1,880,220 shares, 3,905,177 shares and 4,463,283 shares. Previously unissued
common shares issued for restricted stock units under the 1996 Long-Term
Incentive Plan and predecessor long-term incentive plans and the Annual
Incentive Plan in 2000, 1999 and 1998 were 404,000 shares, 41,060 shares and
135,392 shares. Treasury shares issued under the Texas Instruments Restricted
Stock Unit Plan for Directors in 2000, 1999 and 1998 were 11,440 shares, zero
shares and zero shares.
RETIREMENT AND INCENTIVE PLANS
The company provides various retirement plans for employees including pension,
savings and deferred profit sharing plans. Incentive plans include profit
sharing payments and annual performance awards.
U.S. RETIREMENT PLANS: The company provides a defined contribution plan whereby
the company contributes 2% of an employee's earnings, and a matched savings
program whereby an employee's contribution, up to 4% of the employee's earnings,
is matched by the company at a dollar-per-dollar rate. The contributions may be
invested in several investment funds including TI common stock.
In lieu of the plan described above, most U.S. employees hired prior to
December 1, 1997, elected during a 1997 selection period to remain in a prior TI
plan. In that plan the company provides a matched savings program whereby an
employee's contribution, up to 4% of the
B-16
employee's earnings (subject to statutory limitations), is matched by the
company at the rate of 50 cents per dollar. Available investments are the same
as above. Also provided is a defined benefit plan with benefits based on an
employee's years of service and last five years of compensation.
Certain of the profit sharing plans worldwide provide that, depending on the
individual plan, a portion of the profit sharing earned by employees is
contributed to a deferred plan. Prior to 1999, 50% of profit sharing earned by
U.S. employees was deferred; beginning in 1999, none is deferred. Several
investment options are available for deferred amounts, including TI common
stock. While the board of directors of the company has authorized the issuance
of 36,935,344 shares of previously unissued TI common shares for deferred profit
sharing and savings plans worldwide, none has been issued in the three years
ended December 31, 2000. Instead, the trustees of these plans worldwide have
purchased outstanding TI common shares: 16,199,007 shares in 2000, 23,929,068
shares in 1999 and 19,065,450 shares in 1998.
The company's aggregate expense for U.S. employees under the defined
contribution, deferred profit sharing and matched savings plans was $50 million
in 2000, $39 million in 1999 and $57 million in 1998.
The company's U.S. employees are currently eligible to receive, during
retirement, specified company-paid medical benefits. The plan is contributory
and premiums are adjusted annually. For employees retiring on or after
January 5, 1993, the company has specified a maximum annual amount per retiree,
based on years of service, that it will pay toward retiree medical premiums. For
employees who retired prior to that date, the company maintains a consistent
level of cost sharing between the company and the retiree. Effective January 1,
1998, new employees are eligible for retiree medical benefits when they reach
20 years of service, regardless of age. For a 15-year transition period,
employees hired prior to 1998 qualify for eligibility under either the 20-year
rule or the previous requirement, which was based upon retirement eligibility
under the defined benefit pension plan. Coverage eligibility under the 20-year
rule is only available at termination, i.e., no subsequent election to
participate is allowable.
Expense of the U.S. defined benefit and retiree health care benefit plans
was as follows:
MILLIONS OF DOLLARS
------------------------------------------------------------------------------
RETIREE
DEFINED BENEFIT HEALTH CARE
------------------------------------ ------------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
Service cost.................................... $ 27 $ 35 $ 37 $ 3 $ 3 $ 3
Interest cost................................... 44 49 49 25 23 21
Expected return on plan assets.................. (46) (42) (39) (4) -- --
Amortization of prior service cost.............. 2 1 2 -- -- --
Amortization of transition obligation........... (4) (4) (5) -- -- --
Recognized net actuarial (gain)loss............. (3) 1 1 -- -- --
----- ---- ---- ---- --- ---
Total........................................... $ 20 $ 40 $ 45 $ 24 $26 $24
===== ==== ==== ==== === ===
Settlement and curtailment gains (losses) of the U.S. defined benefit plan
recognized in 2000, 1999 and 1998 were $8 million and $1 million; zero and zero;
and zero and $(6) million. For the retiree health care benefit plan they were
zero and $6 million; zero and zero; and zero and $1 million.
B-17
Obligation and asset data for the U.S. defined benefit and retiree health
care benefit plans at December 31 were as follows:
MILLIONS OF DOLLARS
--------------------------------------------------
DEFINED RETIREE
BENEFIT HEALTH CARE
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of year.................. $ 582 $ 719 $ 341 $ 352
Service cost........................................... 27 35 3 3
Interest cost.......................................... 44 49 25 23
Plan participant's contributions....................... -- -- 8 8
Benefits paid.......................................... (67) (145) (42) (35)
Plan amendments........................................ 6 -- -- --
Actuarial (gain) loss.................................. 73 (76) 42 (10)
Settlements............................................ (29) -- -- --
Curtailments........................................... (1) -- (6) --
Special termination benefit............................ 1 -- -- --
------ ----- ------ -----
Benefit obligation at end of year........................ 636 582 371 341
------ ----- ------ -----
Change in plan assets:
Fair value of plan assets at beginning of year........... 552 546 --
Actual return on plan assets........................... 15 119 (7)
Employer contribution.................................. 134 27 313
Benefits paid.......................................... (63) (140) --
Settlements............................................ (26) -- --
------ ----- ------
Fair value of plan assets at end of year................. 612 552 306
------ ----- ------ -----
Funded status............................................ (24) (30) (65) (341)
Unrecognized net actuarial (gain) loss................. (71) (185) 38 (15)
Unrecognized prior service cost........................ 6 4 (1) (2)
Unrecognized transition obligation..................... (1) (5) -- --
------ ----- ------ -----
Accrued retirement at December 31........................ (90) (216) (28) (358)
Less current portion..................................... (19) 30 5 23
------ ----- ------ -----
Accrued U.S. retirement costs............................ $ (109) $(186) $ (23) $(335)
====== ===== ====== =====
The U.S. defined benefit and retiree health care obligations for 2000 and
1999 were determined using assumed discount rates of 7.5% and 7.75%. The assumed
average long-term pay progression rate was 4.35%. The assumed long-term rate of
return on plan assets was 9.0%. The retiree health care benefit obligation was
determined using health care cost trend rates of 9.0% for 2001-2003 decreasing
to 4.5% in 2004. Increasing (decreasing) the health care cost trend rates by one
percentage point would have increased (decreased) the retiree health care
benefit obligation at December 31, 2000, by $16 million/$(14) million and 2000
plan expense by $1 million/$(1) million.
NON-U.S. RETIREMENT PLANS: Retirement coverage for non-U.S. employees of the
company is provided, to the extent deemed appropriate, through separate plans.
Defined retirement benefits are based on an employee's years of service and
compensation, generally during a fixed number of years immediately prior to
retirement.
Certain non-U.S. locations provide for deferral of profit sharing amounts
with contributions generally invested in TI common stock. The related expense
for these contributions was $13 million in 2000, $10 million in 1999 and
$3 million in 1998.
B-18
Expense of the non-U.S. defined benefit plans was as follows:
MILLIONS OF DOLLARS
------------------------------------
2000 1999 1998
-------- -------- --------
Service cost................................................ $ 57 $ 56 $ 53
Interest cost............................................... 37 31 31
Expected return on plan assets.............................. (43) (43) (40)
Amortization of prior service cost.......................... 1 1 (1)
Amortization of transition obligation....................... 2 2 2
Recognized net actuarial loss............................... 10 18 12
----- ---- ----
Total....................................................... $ 64 $ 65 $ 57
===== ==== ====
Settlement and curtailment gains (losses) of the non-U.S. defined benefit
plans recognized in 2000, 1999 and 1998 were $(2) million and zero; $(3) million
and zero; and $(5) million and zero.
Obligation and asset data for the non-U.S. defined benefit plans at
December 31 were as follows:
MILLIONS OF DOLLARS
----------------------
2000 1999
-------- --------
Change in benefit obligation:
Benefit obligation at beginning of year..................... $ 1,193 $ 985
Service cost.............................................. 57 56
Interest cost............................................. 37 31
Benefits paid............................................. (29) (20)
Actuarial (gain) loss..................................... (14) 164
Settlements............................................... -- (11)
Curtailments.............................................. (13) (12)
------- ------
Benefit obligation at end of year........................... 1,231 1,193
------- ------
Change in plan assets:
Fair value of plan assets at beginning of year.............. 750 542
Actual return on plan assets.............................. 79 108
Employer contribution..................................... 37 41
Benefits paid............................................. (27) (21)
Settlements............................................... -- (11)
Actuarial gain (loss)..................................... (62) 91
------- ------
Fair value of plan assets at end of year.................... 777 750
------- ------
Funded status............................................... (454) (443)
Unrecognized net actuarial loss........................... 233 254
Unrecognized prior service cost........................... 6 7
Unrecognized transition obligation........................ 6 9
Adjustments from Sept. 30 to Dec. 31...................... 6 (33)
------- ------
Net non-U.S. amount recognized.............................. $ (203) $ (206)
======= ======
Amounts recognized in the balance sheet consist of:
Accrued retirement, current............................... $ (5) $ (4)
Accrued retirement, noncurrent............................ (245) (275)
Prepaid benefit cost...................................... 18 17
Intangible asset.......................................... 6 8
Accumulated other comprehensive income.................... 23 48
------- ------
Total....................................................... $ (203) $ (206)
======= ======
B-19
The range of assumptions used for the non-U.S. defined benefit plans
reflects the different economic environments within the various countries. The
defined benefit obligations were determined as of December 31 using a range of
assumed discount rates of 2.5% to 6.0% and a range of assumed average long-term
pay progression rates of 3.0% to 5.0%. The range of assumed long-term rates of
return on plan assets was 6.0% to 7.0%. Accrued retirement at December 31, 2000
and 1999 includes projected benefit obligations of $1043 million and
$1077 million and accumulated benefit obligations of $808 million and
$827 million, versus plan assets of $578 million and $564 million, for three
plans whose obligations exceed their assets.
RESTRUCTURING ACTIONS
TI ACTIONS:
In the first quarter of 2000, the company recorded pretax charges of
$29 million, associated with actions including the closing of the sensors &
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 December 31, 2000,
$1 million of severance costs had been paid. Of the $29 million charge,
$20 million is included in cost of revenues, $6 million in selling, general and
administrative expense, and $3 million in research and development expense.
In the third quarter of 2000, the company recorded net pretax charges of
$10 million for several semiconductor and sensors & 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 actions
affected 432 jobs. As of December 31, 2000, $9 million 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 selling, general and
administrative expense.
In the fourth quarter of 2000, the company recorded a pretax charge of
$3 million, included in selling, general and administrative expense, for a
severance action by Educational & Productivity Solutions affecting 51 jobs in
Europe and the U.S. As of December 31, 2000, a nominal amount of the severance
costs had been paid.
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, and $1 million for other related
costs. Of the $14 million charge, $11 million was included in cost of revenues
and $3 million in selling, general and administrative expense. In the third
quarter of 1999, additional severance actions were taken for this program. This
resulted in a pretax charge of $7 million, included in cost of revenues, in the
third quarter for the elimination of an additional 105 jobs in Hatogaya, Japan.
At year-end 1999, this program was complete.
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 marketplace, 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 revenue and $2 million in selling, 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. The fixed assets were to be
sold for scrap value and were therefore written down to zero, their sales value.
At year-end 2000, this program was complete.
In the second quarter of 1998, the company announced that, as a result of
the various business divestitures over the past several years, the pending sale
of its memory business and weakness in the current semiconductor market
environment, it was implementing a severance/manufacturing efficiency program in
order to more closely match the size and cost of its support functions with the
company's
B-20
overall size and to further combine manufacturing resources for more efficient
operations. The program, which primarily affected the company's corporate
activities and semiconductor business, included the elimination of 3,441 jobs
around the world through voluntary programs, attrition, outsourcing and layoffs,
as well as the closing of several facilities. As a result, the company took a
pretax charge of $219 million in the second quarter, of which $126 million was
included in selling, general and administrative expense and $93 million in cost
of revenues. Of the $219 million charge, $161 million was for severance,
$41 million for asset write-downs and $17 million for vendor cancellation and
lease charges. Of the $41 million for asset write-downs, $25 million was for
U.S. semiconductor inventories and $16 million was for fixed assets, primarily
accelerated depreciation on assets phased out during 1998 in connection with the
winding down of production at a semiconductor manufacturing facility in
Singapore. The fixed assets were subsequently sold for scrap at a nominal value.
Of the $17 million for vendor cancellation and lease charges, $15 million was
for required vendor fees for cancellation of purchase contracts for chemicals,
supplies and equipment as a result of a U.S. facility shutdown. At year-end
1999, this program was complete.
In the third quarter of 1998, the company recorded a $14 million charge for
accelerated depreciation on fixed assets primarily located in the semiconductor
manufacturing facility in Singapore. This action was taken in connection with
the severance/manufacturing efficiency program announced during the second
quarter of 1998. This asset write-down charge was included in cost of revenues.
In the fourth quarter of 1998, the company took further steps to enhance
manufacturing efficiency, including the announced closing of a semiconductor
assembly operation and sale of a sensors & controls manufacturing operation,
both in Europe. The sale was completed on December 31, 1998. The assembly
operation closing, which is complete, affected 740 employees. As a result of
these actions, the company took a fourth-quarter 1998 pretax charge of
$72 million, of which $27 million was included in cost of revenues, $24 million
in other income (expense) net and $21 million in selling, general and
administrative expense. Of this $72 million charge, $35 million was for
severance, $35 million for other cash-related costs and $2 million for asset
write-downs, primarily to adjust fixed assets in the European sensors & controls
operation to actual sale value. Of the $35 million severance charge, all had
been paid by year-end 1999. Of the other $35 million charge, $20 million was a
cash payment required as part of an agreement with the third-party buyer of a
sensors & controls manufacturing operation in Europe. The balance was for
previously-received government grants expected to be repaid as a result of the
closing of the European semiconductor assembly operation.
UNITRODE ACTIONS:
In the third quarter of 1999, Unitrode recorded a $4 million charge, included in
selling, general and administrative expense, primarily for severance to former
executives. The amount was paid that quarter.
In the first quarter of 1998, Unitrode recorded a $6 million charge, of
which $3 million was included in cost of revenues, $1 million in selling,
general and administrative expense, and $2 million in other income (expense)
net. Of the $6 million charge, $3 million was for inventory write-offs for
scrapped custom inventory which did not meet customer specifications and
$1 million was to write-down equipment to net realizable value. The equipment
was subsequently sold. The balance of the charge, $2 million, was to record a
non-temporary impairment in the value of a noncurrent equity investment.
In the third quarter of 1998, Unitrode recorded a $12 million charge, of
which $5 million was included in cost of revenues and $7 million in other income
(expense) net. Of the $12 million charge, $3 million was for severance to
eliminate 23 semiconductor-related jobs. The employees left and were paid the
severance in that quarter. A $2 million charge was recorded to write-down
semiconductor equipment being sold for scrap at a nominal value and $7 million
was for costs to settle a patent infringement lawsuit.
B-21
Set forth below is a reconciliation of individual restructuring accruals (in
millions of dollars).
1998
BALANCE, PRIOR ---------------------
ACTIONS--PRIMARILY SC SINGAPORE
SEVERANCE AND AND AND U.S.
BUSINESS CORP WRITE-
DESCRIPTION* TOTAL DIVESTITURE-RELATED ACTIONS DOWNS
------------ -------- ------------------- -------- ----------
BALANCE, DECEMBER 31, 1997.................................. $ 152 $152
CHARGES:
Severance................................................... 199 $ 161
Vendor and warranty obligations............................. 17 17
Asset write-downs........................................... 64 $ 55
Grant repayment............................................. 15
Cash payment owed to buyer.................................. 20
Lawsuit settlement.......................................... 7
Various charges............................................. 8
DISPOSITIONS:
Severance payments.......................................... (142) (11) (110)
Vendor and warranty obligation payments..................... (66) (49) (17)
Cash payment to buyer....................................... (20)
Transaction cost payments................................... (2) (2)
Lawsuit settlement payment.................................. (7)
Non-cash write-down of assets............................... (64) (55)
Change in estimates......................................... (16) (29) (2)
----- ---- ----- ----
BALANCE, DECEMBER 31, 1998.................................. 165 61 49 --
----- ---- ----- ----
CHARGES:
Severance................................................... 33
Vendor and warranty obligations............................. 1
Asset write-downs........................................... 2
Various charges............................................. 1
DISPOSITIONS:
Severance payments.......................................... (86) (11) (27)
Vendor and warranty obligation payments..................... (2) (2)
Grant repayment............................................. (6)
Non-cash write-down of assets............................... (2)
Various payments............................................ (11) (2)
Change in estimates......................................... (19) (2) (5)
----- ---- ----- ----
BALANCE DECEMBER 31, 1999................................... 76 44 17 --
----- ---- ----- ----
CHARGES:
SEVERANCE................................................... 34
VARIOUS CHARGES............................................. 1
DISPOSITIONS:
SEVERANCE PAYMENTS.......................................... (26) (4) (8)
VARIOUS PAYMENTS............................................ (2) (1)
CHANGE IN ESTIMATES......................................... (13) (7)
----- ---- ----- ----
BALANCE DECEMBER 31, 2000................................... $ 70 $ 32 $ 9 $ --
===== ==== ===== ====
1998 1999
-------------------------- ----------------------------------
SC OPERATION UNITRODE SC SC COST
CLOSING & SEMI- OPERATION REDUCTION UNITRODE
S&C SALE OF CONDUCTOR CLOSING ACTION IN SEVERANCE
DESCRIPTION* OPERATION ACTION IN JAPAN U.S. ACTION
------------ ------------- ---------- --------- --------- ----------
BALANCE, DECEMBER 31, 1997..................................
CHARGES:
Severance................................................... $ 35 $ 3
Vendor and warranty obligations.............................
Asset write-downs........................................... 2 7
Grant repayment............................................. 15
Cash payment owed to buyer.................................. 20
Lawsuit settlement.......................................... 7
Various charges............................................. 7 1
DISPOSITIONS:
Severance payments.......................................... (19) (2)
Vendor and warranty obligation payments.....................
Cash payment to buyer....................................... (20)
Transaction cost payments...................................
Lawsuit settlement payment.................................. (7)
Non-cash write-down of assets............................... (2) (7)
Change in estimates......................................... 15**
---- ---
BALANCE, DECEMBER 31, 1998.................................. 53 2
---- ---
CHARGES:
Severance................................................... $ 20 $ 9 $ 4
Vendor and warranty obligations............................. 1
Asset write-downs........................................... 2
Various charges............................................. 1
DISPOSITIONS:
Severance payments.......................................... (21) (19) (4) (4)
Vendor and warranty obligation payments.....................
Grant repayment............................................. (6)
Non-cash write-down of assets............................... (2)
Various payments............................................ (8) (1)
Change in estimates......................................... (12)***
---- --- ---- --- ---
BALANCE DECEMBER 31, 1999................................... 6 1 2 6 --
---- --- ---- --- ---
CHARGES:
SEVERANCE...................................................
VARIOUS CHARGES.............................................
DISPOSITIONS:
SEVERANCE PAYMENTS.......................................... (1) (3)
VARIOUS PAYMENTS............................................ (1)
CHANGE IN ESTIMATES......................................... (2) (3)
---- --- ---- --- ---
BALANCE DECEMBER 31, 2000................................... $ 5 $-- $ -- $-- $--
==== === ==== === ===
2000
--------------------------------
S&C SC AND E&PS
SITE S&C SEVERANCE
DESCRIPTION* CLOSING ACTIONS ACTION
------------ -------- -------- ----------
BALANCE, DECEMBER 31, 1997..................................
CHARGES:
Severance...................................................
Vendor and warranty obligations.............................
Asset write-downs...........................................
Grant repayment.............................................
Cash payment owed to buyer..................................
Lawsuit settlement..........................................
Various charges.............................................
DISPOSITIONS:
Severance payments..........................................
Vendor and warranty obligation payments.....................
Cash payment to buyer.......................................
Transaction cost payments...................................
Lawsuit settlement payment..................................
Non-cash write-down of assets...............................
Change in estimates.........................................
BALANCE, DECEMBER 31, 1998..................................
CHARGES:
Severance...................................................
Vendor and warranty obligations.............................
Asset write-downs...........................................
Various charges.............................................
DISPOSITIONS:
Severance payments..........................................
Vendor and warranty obligation payments.....................
Grant repayment.............................................
Non-cash write-down of assets...............................
Various payments............................................
Change in estimates.........................................
BALANCE DECEMBER 31, 1999...................................
CHARGES:
SEVERANCE................................................... $ 12 $ 19 $ 3
VARIOUS CHARGES............................................. 1
DISPOSITIONS:
SEVERANCE PAYMENTS.......................................... (1) (9)
VARIOUS PAYMENTS............................................
CHANGE IN ESTIMATES......................................... (1)
---- ---- ----
BALANCE DECEMBER 31, 2000................................... $ 11 $ 10 $ 3
==== ==== ====
----------------------------------
* Abbreviations
SC = Semiconductor Business
S&C = Sensors and Controls Business
Corp. = Corporate Division
E&PS = Educational & Productivity Solutions Business
** Includes the effect of an $8 million reclassification of
semiconductor-related grant repayment obligations from the "Balance, prior
actions" column and an $8 million reclassification of S&C-related
liabilities, primarily for grant repayment obligations, from the "Balance,
prior actions" column. These reclassifications did not affect income.
*** The adjustment includes the results of a fourth quarter 1999 settlement with
the Portuguese government over issues related to the liquidation of the
company's joint venture with Samsung.
B-22
BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA
Texas Instruments develops, manufactures and sells a variety of products used in
the commercial electronic and electrical equipment industry, primarily for
industrial and consumer markets.
TI HAS THREE PRINCIPAL BUSINESSES: Semiconductor, Sensors & Controls (formerly
known as Materials & Controls) and Educational & Productivity Solutions. Each of
these is a business segment, with its respective financial performance detailed
in this report.
Semiconductor consists of digital signal processors, analog integrated
circuits, standard logic devices, application-specific integrated circuits,
reduced instruction-set computing microprocessors, microcontrollers and digital
imaging devices. They are sold to original-equipment manufacturers, contract
manufacturers and distributors.
Sensors & Controls consists primarily of electrical and electronic controls,
sensors and radio frequency identification systems. They are sold to
original-equipment manufacturers and distributors.
Educational & Productivity Solutions includes graphing and educational
calculators, which are marketed primarily through retailers and to schools
through instructional dealers.
Operating profits of the three principal businesses exclude the effects of
special charges and gains, but include the effects of profit sharing. Beginning
in 2000, management decided to assess profit performance of its business
segments excluding the effect of acquisition-related amortization. Accordingly,
2000 business segment operating profit amounts exclude this amortization, which
totals $160 million. Business segment operating profit amounts for 1999 and 1998
include this amortization, which totals $69 million and $47 million. The results
for semiconductor include the effects of all royalty revenues from
semiconductor-related cross-license agreements. Business assets are the owned or
allocated assets used by each business.
Included in corporate activities are general corporate expenses, elimination
of intersegment transactions (which are generally intended to approximate market
prices), and royalty revenues from computer-related cross-license agreements.
Assets of corporate activities include unallocated cash, short-term investments,
noncurrent investments and deferred income taxes.
Divested activities include the historical operating results and assets of
the materials portion of Sensors & Controls (sold in 2000), memory (sold in
1998), and other smaller divestitures.
BUSINESS SEGMENT NET REVENUES
MILLIONS OF DOLLARS
------------------------------
2000 1999 1998
-------- -------- --------
Semiconductor
Trade..................................................... $10,267 $ 8,215 $ 6,821
Intersegment.............................................. 17 16 8
------- ------- -------
10,284 8,231 6,829
------- ------- -------
Sensors & Controls
Trade..................................................... 1,029 911 849
Intersegment.............................................. 1 1 1
------- ------- -------
1,030 912 850
------- ------- -------
Educational & Productivity Solutions
Trade..................................................... 446 484 456
Corporate activities........................................ 3 (8) 17
Divested activities......................................... 112 140 723
------- ------- -------
Total....................................................... $11,875 $ 9,759 $ 8,875
======= ======= =======
B-23
BUSINESS SEGMENT PROFIT (LOSS)
MILLIONS OF DOLLARS
------------------------------
2000 1999 1998
-------- -------- --------
Semiconductor............................................... $ 2,607 $ 1,894 $ 1,460
Sensors & Controls.......................................... 191 151 131
Educational & Productivity Solutions........................ 111 106 76
Corporate activities........................................ (234) (285) (198)
Special charges/gains and acquisition-related amortization,
net of applicable profit sharing.......................... 1,429 (163) (475)
Interest on loans/other income (expense) net, excluding 2000
net gains of $1,791 million, 1999 net losses of $1 million
and 1998 net gains of $50 million included above in
Special charges/gains and acquisition-related
amortization.............................................. 447 328 174
Divested activities......................................... 27 51 (487)
------- ------- -------
Income before provision for income taxes and cumulative
effect of an accounting change............................ $ 4,578 $ 2,082 $ 681
======= ======= =======
Details of special charges and gains are as follows:
MILLIONS OF DOLLARS
------------------------------
2000 1999 1998
-------- -------- --------
Purchased in-process R&D charge............................. $ (112) $ (79) $ (25)
Pooling of interests transaction costs...................... (50) (101) --
Semiconductor and Sensors & Controls restructuring and other
actions, of which $11 million was included in other income
(expense) net............................................. (41) -- --
Acquisition-related amortization............................ (160) -- --
Severance/manufacturing efficiency programs................. -- -- (233)
Semiconductor restructuring................................. -- (33) --
Closing of a semiconductor operation and sale of a sensors &
controls operation, of which $(24) million was included in
other income (expense) net................................ -- -- (72)
Unitrode items, of which $(9) million was included in other
income (expense) net in 1998.............................. -- (4) (21)
Gain on sale of Micron stock................................ 1,636 -- --
Gain on sale of the memory business......................... 88 -- --
Gain on sale of the materials operation..................... 56 -- --
Gain on sale of interest in TI-Acer joint venture........... -- -- 83
Discontinuance of TI-Hitachi joint venture.................. -- -- (219)
Other....................................................... 12 54 12
------- ------- -------
Total....................................................... $ 1,429 $ (163) $ (475)
======= ======= =======
B-24
BUSINESS SEGMENT ASSETS
MILLIONS OF DOLLARS
------------------------------
2000 1999 1998
-------- -------- --------
Semiconductor............................................... $ 8,228 $ 6,534 $ 4,953
Sensors & Controls.......................................... 499 459 365
Educational & Productivity Solutions........................ 124 150 117
Corporate activities........................................ 8,869 8,193 6,268
Divested activities......................................... -- 91 126
------- ------- -------
Total....................................................... $17,720 $15,427 $11,829
======= ======= =======
BUSINESS SEGMENT PROPERTY, PLANT AND EQUIPMENT DEPRECIATION AND ADDITIONS
MILLIONS OF DOLLARS
------------------------------
DEPRECIATION 2000 1999 1998
------------ -------- -------- --------
Semiconductor............................................... $ 1,115 $ 900 $ 937
Sensors & Controls.......................................... 45 41 40
Educational & Productivity Solutions........................ 1 1 1
Corporate activities........................................ 49 56 82
Divested activities......................................... 6 7 141
------- ------- -------
Total....................................................... $ 1,216 $ 1,005 $ 1,201
======= ======= =======
MILLIONS OF DOLLARS
------------------------------
ADDITIONS 2000 1999 1998
--------- -------- -------- --------
Semiconductor............................................... $ 2,615 $ 1,308 $ 762
Sensors & Controls.......................................... 65 38 44
Educational & Productivity Solutions........................ 1 2 1
Corporate activities........................................ 78 46 37
Divested activities......................................... 3 4 223
------- ------- -------
Total....................................................... $ 2,762 $ 1,398 $ 1,067
======= ======= =======
The following geographic area data include trade revenues, based on product
shipment destination and royalty payor location, and property, plant and
equipment based on physical location:
GEOGRAPHIC AREA NET TRADE REVENUES
MILLIONS OF DOLLARS
------------------------------
2000 1999 1998
-------- -------- --------
United States............................................... $ 3,209 $ 3,213 $ 2,915
Japan....................................................... 2,119 1,873 1,711
Rest of world............................................... 6,547 4,673 4,249
------- ------- -------
Total....................................................... $11,875 $ 9,759 $ 8,875
======= ======= =======
GEOGRAPHIC AREA PROPERTY, PLANT AND EQUIPMENT (NET)
MILLIONS OF DOLLARS
------------------------------
2000 1999 1998
-------- -------- --------
United States............................................... $ 3,825 $ 2,918 $ 2,591
Japan....................................................... 634 392 427
Rest of world............................................... 988 623 525
------- ------- -------
Total....................................................... $ 5,447 $ 3,933 $ 3,543
======= ======= =======
B-25
INCOME TAXES
INCOME BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE EFFECT OF AN ACCOUNTING
CHANGE
MILLIONS OF DOLLARS
------------------------------
U.S. NON-U.S. TOTAL
-------- -------- --------
2000........................................................ $3,944 $634 $4,578
1999........................................................ 1,396 686 2,082
1998........................................................ 249 432 681
PROVISION (CREDIT) FOR INCOME TAXES
MILLIONS OF DOLLARS
-----------------------------------------------
U.S. FEDERAL NON-U.S. U.S. STATE TOTAL
------------ -------- ---------- --------
2000
CURRENT.............................................. $1,119 $328 $51 $1,498
DEFERRED............................................. 91 (98) -- (7)
------ ---- --- ------
TOTAL................................................ $1,210 $230 $51 $1,491
====== ==== === ======
1999
Current.............................................. $ 329 $285 $25 $ 639
Deferred............................................. (20) 12 -- (8)
------ ---- --- ------
Total................................................ $ 309 $297 $25 $ 631
====== ==== === ======
1998
Current.............................................. $ 11 $275 $(7) $ 279
Deferred............................................. (9) (40) (1) (50)
------ ---- --- ------
Total................................................ $ 2 $235 $(8) $ 229
====== ==== === ======
Principal reconciling items from income tax computed at the statutory
federal rate follow.
MILLIONS OF DOLLARS
------------------------------
2000 1999 1998
-------- -------- --------
Computed tax at statutory rate.............................. $1,602 $729 $238
Effect of purchased in-process R&D.......................... 40 28 4
Effect of non-U.S. rates.................................... (102) (61) 75
Research and experimental tax credits....................... (64) (54) (21)
Effect of U.S. state income taxes........................... 33 11 (13)
Effect of joint venture costs............................... -- -- (48)
Other....................................................... (18) (22) (6)
------ ---- ----
Total provision for income taxes............................ $1,491 $631 $229
====== ==== ====
Provision has been made for deferred taxes on undistributed earnings of
non-U.S. subsidiaries to the extent that dividend payments from such companies
are expected to result in additional tax liability. The remaining undistributed
earnings (approximately $867 million at December 31, 2000) have been
indefinitely reinvested; therefore, no provision has been made for taxes due
upon remittance of these earnings. Determination of the amount of unrecognized
deferred tax liability on these unremitted earnings is not practicable.
B-26
The primary components of deferred income tax assets and liabilities at
December 31 were as follows:
MILLIONS OF DOLLARS
-------------------
2000 1999
-------- --------
Deferred income tax assets:
Accrued retirement costs (pension and retiree health
care)................................................... $ 208 $ 273
Inventories and related reserves.......................... 301 211
Accrued expenses.......................................... 332 257
Loss and credit carryforwards............................. 29 51
Other..................................................... 87 24
----- -------
957 816
----- -------
Less valuation allowance.................................... (16) (91)
----- -------
941 725
----- -------
Deferred income tax liabilities:
Investments............................................... (313) (860)
Property, plant and equipment............................. (201) (105)
Intangibles............................................... (117) (46)
International earnings.................................... (3) (12)
Other..................................................... (75) (44)
----- -------
(709) (1,067)
----- -------
Net deferred income tax asset (liability)................... $ 232 $ (342)
===== =======
As of December 31, 2000 and 1999, the net deferred income tax asset
(liability) of $232 million and $(342) million was presented in the balance
sheet, based on tax jurisdiction, as deferred income tax assets of $701 million
and $656 million and deferred income tax liabilities of $(469) million and
$(998) million. The valuation allowance shown above reflects the company's
ongoing assessment regarding the realizability of certain U.S. and non-U.S.
deferred income tax assets. The balance of the deferred income tax assets is
considered realizable based on carryback potential, existing taxable temporary
differences and expectation of future income levels comparable to recent
results. Such future income levels are not assured because of the nature of the
company's businesses, which are generally characterized by rapidly changing
technology and intense competition. In the fourth quarter of 2000, the valuation
allowance was reduced by $84 million, of which $69 million reduced the provision
for income taxes and $15 million increased accumulated other comprehensive
income in stockholders' equity. The reduction was due to the company's current
assessment of the expected realizability of deferred tax assets, primarily in
Japan.
The company has aggregate U.S. and non-U.S. tax loss carryforwards of
approximately $52 million. Of this amount, $40 million expires through the year
2015, and $12 million of the loss carryforwards has no expiration.
Income taxes paid were $1222 million, $425 million and $173 million for
2000, 1999 and 1998.
B-27
RENTAL EXPENSE AND LEASE COMMITMENTS
Rental and lease expense was $161 million in 2000, $154 million in 1999 and
$161 million in 1998. The company conducts certain operations in leased
facilities and also leases a portion of its data processing and other equipment.
The lease agreements frequently include purchase and renewal provisions and
require the company to pay taxes, insurance and maintenance costs.
At December 31, 2000, the company was committed under noncancelable leases
with minimum rentals in succeeding years as follows:
MILLIONS OF DOLLARS
-------------------
2001........................................................ $ 96
2002........................................................ 56
2003........................................................ 31
2004........................................................ 18
2005........................................................ 16
Thereafter.................................................. 105
DIVESTITURES
In the first quarter of 1998, TI's U.S. DRAM semiconductor manufacturing joint
venture with Hitachi, Ltd. (Hitachi) was discontinued as a result of a
combination of severe price declines and overcapacity in the DRAM market. As
part of this first quarter discontinuance, TI purchased the assets of the
venture for approximately $98 million. Also as part of this first quarter
discontinuance, TI and Hitachi decided to assume and share equally in the
payment of the venture's obligations. TI's share of those payments was
$219 million, which was paid and charged to cost of revenues in the first
quarter.
In the second quarter of 1998, the company sold its interest in the TI-Acer
DRAM manufacturing joint venture to Acer Corporation for $120 million in cash.
This sale resulted in a pretax gain of $83 million. On September 30, 1998, TI
sold its memory business, including its remaining DRAM manufacturing joint
venture interests in TECH Semiconductor Singapore (TECH) and KTI Semiconductor
in Japan to Micron Technology, Inc. (Micron). As a result, TI received
57,866,184 Micron common shares, a $740 million 6.5% note convertible into an
additional 24,666,715 Micron common shares and a $210 million 6.5% subordinated
note. In addition to TI's memory assets, Micron received $550 million in cash
from TI to facilitate the deployment of Micron's technology throughout the
acquired business. In the fourth quarter of 1998, TI made an additional
$130 million payment to Micron as part of the contractually required working
capital. In connection with the sale, TI agreed to guarantee the payment
obligations of TECH under a $450 million principal amount credit facility for
debt maturing 2002. In 1999, TI sold the 6.5% subordinated note at a small gain.
In the fourth quarter of 2000, TI was released from its guarantee of TECH debt.
Also in the fourth quarter, TI converted the 6.5% convertible note into
24,666,715 Micron common shares. A pretax gain on the sale of the memory
business had been previously deferred pending repayment of the TI-provided
financing. A pretax gain, net of transaction and other costs, of $88 million,
was accordingly recognized in the fourth quarter of 2000. Italian government
auditors have substantially completed a review, conducted in the ordinary
course, of approximately $275 million of grants from the Italian government to
TI's former memory operations in Italy. The auditors have raised a number of
issues relating to compliance with grant requirements and the eligibility of
specific expenses for the grants. These issues are subject to final decision by
the Ministry of the Treasury. Depending on the Ministry's decision, the review
may result in a demand from the Italian government that TI repay a portion of
the grants. In November 2000, a criminal proceeding concerning a portion of the
grants relating to specified research and development activities was dismissed
without indictment. The company believes that the grants were obtained and used
in compliance with applicable law and contractual obligations.
B-28
GUARANTOR INFORMATION
In connection with its third quarter 2000 pooling of interests acquisition of
Burr-Brown (now known as TI Tucson), Texas Instruments Incorporated (TI), the
parent, has fully and unconditionally guaranteed payment of the principal and
interest under TI Tucson's $250 million principal amount of 4.25% Convertible
Subordinated Notes issued February 24, 2000, and due 2007. Such guarantee is
subordinated to TI's existing and future senior indebtedness. In addition, in
December 2000, irrevocable letters of credit were obtained by TI which guarantee
payment of the principal and interest of the Notes. In connection with the
issuance of these letters of credit, TI has agreed to maintain cash deposits
with the issuing banks equal to the Notes' outstanding principal, plus one
year's interest, for the term of the banks' guarantees. TI has accordingly
classified the deposit, $261 million at year-end 2000, as a noncurrent asset.
In lieu of providing separate audited financial statements of TI Tucson, TI
has included the accompanying consolidating condensed financial statements in
accordance with Rule 3-10(c) of the SEC's Regulation S-X. Due to the issuance of
the letters of credit discussed above, the Notes are now exempt securities under
Section 3(a)(2) of the Securities Act of 1933, as amended, and therefore the
following financial information will not be provided subsequent to December 31,
2000.
B-29
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(MILLIONS OF DOLLARS)
NON-
TI TUCSON GUARANTOR
TEXAS ----------------------------------- SUBSIDIARIES
INSTRUMENTS OPERATING SPECIAL TI TUCSON AND
INCORPORATED RESULTS ITEMS CONSOLIDATED ELIMINATIONS CONSOLIDATED
------------ --------- -------- ------------ ------------ ------------
Net revenues.................... $10,461 $461 $ 15 $476 $ 938 $11,875
Operating costs and expenses:
Cost of revenues.............. 5,887 222 23 245 (12) 6,120
Research and development...... 1,331 56 -- 56 360 1,747
Selling, general and
administrative.............. 1,207 64 18 82 380 1,669
------- ---- ---- ---- ----- -------
Total....................... 8,425 342 41 383 728 9,536
------- ---- ---- ---- ----- -------
Profit from operations.......... 2,036 119 (26) 93 210 2,339
Other income (expense) net...... 2,259 23 2 25 30 2,314
Interest on loans............... 82 10 -- 10 (17) 75
------- ---- ---- ---- ----- -------
Income before provision for
income taxes and cumulative
effect of an accounting
change........................ 4,213 132 (24) 108 257 4,578
Provision for income taxes...... 1,291 41 (8) 33 167 1,491
------- ---- ---- ---- ----- -------
Income before cumulative effect
of an accounting change....... 2,922 91 (16) 75 90 3,087
Cumulative effect of an
accounting change............. -- -- -- -- (29) (29)
------- ---- ---- ---- ----- -------
Income before equity in earnings
of subsidiaries............... 2,922 91 (16) 75 61 3,058
Equity in earnings of
subsidiaries.................. 136 -- -- -- (136) --
------- ---- ---- ---- ----- -------
Net income...................... $ 3,058 $ 91 $(16) $ 75 $ (75) $ 3,058
======= ==== ==== ==== ===== =======
B-30
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(MILLIONS OF DOLLARS)
NON-
TI TUCSON GUARANTOR
TEXAS ------------------------------------- SUBSIDIARIES
INSTRUMENTS OPERATING SPECIAL TI TUCSON AND
INCORPORATED RESULTS ITEMS CONSOLIDATED ELIMINATIONS CONSOLIDATED
------------ --------- ---------- ------------ ------------ ------------
Net revenues.................... $8,121 $291 $ -- $291 $1,347 $9,759
Operating costs and expenses:
Cost of revenues.............. 4,449 139 -- 139 481 5,069
Research and development...... 1,151 46 -- 46 182 1,379
Selling, general and
administrative.............. 1,005 47 -- 47 504 1,556
------ ---- ---------- ---- ------ ------
Total....................... 6,605 232 -- 232 1,167 8,004
------ ---- ---------- ---- ------ ------
Profit from operations.......... 1,516 59 -- 59 180 1,755
Other income (expense) net...... 280 3 -- 3 120 403
Interest on loans............... 67 -- -- -- 9 76
------ ---- ---------- ---- ------ ------
Income before provision for
income taxes.................. 1,729 62 -- 62 291 2,082
Provision for income taxes...... 411 17 -- 17 203 631
------ ---- ---------- ---- ------ ------
Income before equity in earnings
of subsidiaries............... 1,318 45 -- 45 88 1,451
Equity in earnings of
subsidiaries.................. (133) -- -- -- 133 --
------ ---- ---------- ---- ------ ------
Net income...................... $1,185 $ 45 $ -- $ 45 $ 221 $1,451
====== ==== ========== ==== ====== ======
B-31
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(MILLIONS OF DOLLARS)
NON-
TI TUCSON GUARANTOR
TEXAS ------------------------------------- SUBSIDIARIES
INSTRUMENTS OPERATING SPECIAL TI TUCSON AND
INCORPORATED RESULTS ITEMS CONSOLIDATED ELIMINATIONS CONSOLIDATED
------------ --------- ---------- ------------ ------------ ------------
Net revenues.................... $7,312 $258 $ -- $258 $1,305 $8,875
Operating costs and expenses:
Cost of revenues.............. 4,912 125 -- 125 568 5,605
Research and development...... 1,056 40 -- 40 169 1,265
Selling, general and
administrative.............. 1,050 48 -- 48 451 1,549
------ ---- ---------- ---- ------ ------
Total....................... 7,018 213 -- 213 1,188 8,419
------ ---- ---------- ---- ------ ------
Profit from operations.......... 294 45 -- 45 117 456
Other income (expense) net...... 639 4 -- 4 (342) 301
Interest on loans............... 63 1 -- 1 12 76
------ ---- ---------- ---- ------ ------
Income (loss) before provision
for income taxes.............. 870 48 -- 48 (237) 681
Provision for income taxes...... 24 12 -- 12 193 229
------ ---- ---------- ---- ------ ------
Income (loss) before equity in
earnings of subsidiaries...... 846 36 -- 36 (430) 452
Equity in earnings of
subsidiaries.................. 394 -- -- -- (394) --
------ ---- ---------- ---- ------ ------
Net income (loss)............... $1,240 $ 36 $ -- $ 36 $ (824) $ 452
====== ==== ========== ==== ====== ======
B-32
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 2000
(MILLIONS OF DOLLARS)
NON-
GUARANTOR
TEXAS SUBSIDIARIES
INSTRUMENTS TI TUCSON AND
INCORPORATED CONSOLIDATED ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
Assets
Current Assets:
Cash and cash equivalents................ $ 181 $ 71 $ 493 $ 745
Short-term investments................... 2,745 445 68 3,258
Accounts receivable...................... 1,436 71 697 2,204
Inventories.............................. 572 62 599 1,233
Prepaid expenses......................... 49 3 28 80
Deferred income taxes.................... -- 13 582 595
------- ---- ------- -------
Total current assets................... 4,983 665 2,467 8,115
------- ---- ------- -------
Property, plant and equipment (net)........ 3,650 92 1,705 5,447
Investments................................ 1,898 10 492 2,400
Goodwill and other acquisition-related
intangibles.............................. -- -- 961 961
Deferred income taxes...................... -- 21 85 106
Other assets............................... 661 -- 30 691
Investment in subsidiaries................. 3,404 -- (3,404) --
Intercompany accounts (net)................ 148 (42) (106) --
------- ---- ------- -------
Total assets........................... $14,744 $746 $ 2,230 $17,720
======= ==== ======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable and current portion long-
term debt.............................. $ 105 $ 1 $ 42 $ 148
Accounts payable and accrued expenses.... 1,106 60 755 1,921
Income taxes payable..................... 12 4 307 323
Accrued retirement and profit sharing
contributions.......................... 290 -- 131 421
------- ---- ------- -------
Total current liabilities.............. 1,513 65 1,235 2,813
------- ---- ------- -------
Long-term debt............................. 888 252 76 1,216
Accrued retirement costs................... 132 -- 246 378
Deferred income taxes...................... 243 4 222 469
Deferred credits and other liabilities..... 248 -- 8 256
Stockholders' equity....................... 11,720 425 443 12,588
------- ---- ------- -------
Total liabilities and stockholders'
equity................................... $14,744 $746 $ 2,230 $17,720
======= ==== ======= =======
B-33
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 1999
(MILLIONS OF DOLLARS)
NON-
GUARANTOR
TEXAS SUBSIDIARIES
INSTRUMENTS TI TUCSON AND
INCORPORATED CONSOLIDATED ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
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 and accrued expenses.... 865 40 817 1,722
Income taxes payable..................... 15 10 245 270
Accrued retirement and profit sharing
contributions.......................... 261 1 112 374
------- ---- ------- -------
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
======= ==== ======= =======
B-34
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
(MILLIONS OF DOLLARS)
NON-
GUARANTOR
TEXAS SUBSIDIARIES
INSTRUMENTS TI TUCSON AND
INCORPORATED CONSOLIDATED ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
Cash flows from operating activities:
Income before cumulative effect of an accounting
change............................................ $ 2,922 $ 75 $ 90 $ 3,087
Depreciation........................................ 842 21 353 1,216
Amortization of acquisition-related costs........... 16 -- 144 160
Purchased in-process research and development....... -- -- 112 112
Deferred income taxes............................... -- (7) 8 1
Net currency exchange (gains) losses................ 34 (2) (21) 11
(Increase) decrease in working capital (excluding
cash and cash equivalents, short-term investments,
deferred income taxes, and loans payable and
current portion long-term debt):
Accounts receivable............................... (267) 37 (118) (348)
Inventories....................................... (214) (13) (145) (372)
Prepaid expenses.................................. 11 6 10 27
Accounts payable and accrued expenses............. 290 29 (73) 246
Income taxes payable.............................. (3) -- (52) (55)
Accrued retirement and profit sharing
contributions................................... 30 -- 21 51
Gains on sale of Micron stock....................... (1,636) -- -- (1,636)
Increase (decrease) in noncurrent accrued retirement
costs............................................. (389) -- 20 (369)
Other............................................... 156 (48) (54) 54
------- ----- ------- -------
Net cash provided by operating activities............. 1,792 98 295 2,185
Cash flows from investing activities:
Additions to property, plant and equipment.......... (1,761) (16) (985) (2,762)
Purchases of short-term investments................. (5,216) (172) (21) (5,409)
Sales and maturities of short-term investments...... 3,994 208 (24) 4,178
Purchases of noncurrent investments................. (111) (22) -- (133)
Sales of noncurrent investments..................... 2,186 12 -- 2,198
Acquisitions of businesses, net of cash acquired.... (3) -- -- (3)
Proceeds from sale of businesses.................... 107 -- -- 107
------- ----- ------- -------
Net cash provided by (used in) investing activities... (804) 10 (1,030) (1,824)
Cash flows from financing activities:
Additions to loans payable.......................... -- 3 20 23
Payments on loans payable........................... -- (19) -- (19)
Additions to long-term debt......................... -- 243 7 250
Payments on long-term debt.......................... (280) -- (27) (307)
Dividends paid on common stock...................... (141) -- -- (141)
Sales and other common stock transactions........... 353 11 (122) 242
Common stock repurchase program..................... (155) -- -- (155)
Increase in noncurrent assets for restricted cash... (261) -- -- (261)
Change in intercompany accounts..................... (483) (393) 876 --
------- ----- ------- -------
Net cash provided by (used in) financing activities... (967) (155) 754 (368)
Effect of exchange rate changes on cash............... (34) -- 5 (29)
------- ----- ------- -------
Net increase (decrease) in cash and cash
equivalents......................................... (13) (47) 24 (36)
Cash and cash equivalents at beginning of year........ 194 118 469 781
------- ----- ------- -------
Cash and cash equivalents at end of year.............. $ 181 $ 71 $ 493 $ 745
======= ===== ======= =======
B-35
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(MILLIONS OF DOLLARS)
NON-
GUARANTOR
TEXAS SUBSIDIARIES
INSTRUMENTS TI TUCSON AND
INCORPORATED CONSOLIDATED ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
Cash flows from operating activities:
Net Income.......................................... $ 1,185 $ 46 $ 220 $ 1,451
Depreciation........................................ 601 19 385 1,005
Amortization of acquisition-related costs........... -- -- 69 69
Purchased in-process research and development....... -- -- 79 79
Adjustment to conform fiscal year end of pooled
acquisition....................................... -- -- (9) (9)
Deferred income taxes............................... -- (2) (9) (11)
Net currency exchange (gains) losses................ 19 -- (10) 9
(Increase) decrease in working capital (excluding
cash and cash equivalents, short-term investments,
deferred income taxes, and loans payable and
current portion long-term debt):
Accounts receivable............................... (353) (9) (82) (444)
Inventories....................................... (92) 3 (118) (207)
Prepaid expenses.................................. (7) 1 (14) (20)
Accounts payable and accrued expenses............. 128 12 (44) 96
Income taxes payable.............................. (191) -- 255 64
Accrued retirement and profit sharing
contributions................................... 139 -- 105 244
Increase in noncurrent accrued retirement costs..... 4 -- 7 11
Other............................................... 85 -- (65) 20
------- ---- ----- -------
Net cash provided by operating activities............. 1,518 70 769 2,357
Cash flows from investing activities:
Additions to property, plant and equipment.......... (1,045) (25) (328) (1,398)
Purchases of short-term investments................. (2,496) (4) (29) (2,529)
Sales and maturities of short-term investments...... 2,216 1 20 2,237
Purchases of noncurrent investments................. (77) (10) -- (87)
Sales of noncurrent investments..................... 256 16 -- 272
Acquisitions of businesses, net of cash acquired.... (469) -- -- (469)
------- ---- ----- -------
Net cash used in investing activities................. (1,615) (22) (337) (1,974)
Cash flows from financing activities:
Additions to loans payable.......................... -- 11 -- 11
Payments on loans payable........................... -- (13) -- (13)
Additions to long-term debt......................... 530 -- (130) 400
Payments on long-term debt.......................... (200) (1) (61) (262)
Dividends paid on common stock...................... (134) -- -- (134)
Sales and other common stock transactions........... 339 6 (120) 225
Common stock repurchase program..................... (468) (5) -- (473)
Change in intercompany accounts....................... 192 -- (192) --
------- ---- ----- -------
Net cash provided by (used in) financing activities... 259 (2) (503) (246)
Effect of exchange rate changes on cash............... (47) -- (14) (61)
------- ---- ----- -------
Net increase (decrease) in cash and cash
equivalents......................................... 115 46 (85) 76
Cash and cash equivalents at beginning of year........ 79 72 554 705
------- ---- ----- -------
Cash and cash equivalents at end of year.............. $ 194 $118 $ 469 $ 781
======= ==== ===== =======
B-36
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(MILLIONS OF DOLLARS)
NON-
GUARANTOR
TEXAS SUBSIDIARIES
INSTRUMENTS TI TUCSON AND
INCORPORATED CONSOLIDATED ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ -------------
Cash flows from operating activities:
Net Income.......................................... $ 1,240 $ 36 $ (824) $ 452
Depreciation........................................ 654 17 530 1,201
Amortization of acquisition-related costs........... -- -- 47 47
Purchased in-process research and development....... -- -- 25 25
Deferred income taxes............................... -- 1 (46) (45)
Net currency exchange (gains) losses................ (13) -- 9 (4)
(Increase) decrease in working capital (excluding
cash and cash equivalents, short-term investments,
deferred income taxes, and loans payable and
current portion long-term debt):
Accounts receivable............................... 103 4 184 291
Inventories....................................... 11 (7) 56 60
Prepaid expenses.................................. (32) 1 16 (15)
Accounts payable and accrued expenses............. (121) (10) (309) (440)
Income taxes payable.............................. (90) -- 115 25
Accrued retirement and profit sharing
contributions................................... (22) -- (11) (33)
Increase (decrease) in noncurrent accrued retirement
costs............................................. 59 -- (17) 42
Other............................................... (105) -- (115) (220)
------- ----- ------- -------
Net cash provided by (used in) operating activities... 1,684 42 (340) 1,386
Cash flows from investing activities:
Additions to property, plant and equipment.......... (518) (26) (523) (1,067)
Purchases of short-term investments................. (2,205) (8) (49) (2,262)
Sales and maturities of short-term investments...... 2,493 4 71 2,568
Purchases of noncurrent investments................. (29) (32) -- (61)
Sales of noncurrent investments..................... -- 33 -- 33
Acquisitions of businesses, net of cash acquired.... (152) -- -- (152)
Payments made in connection with sale of memory
business.......................................... (680) -- -- (680)
Proceeds from sale of businesses.................... 100 -- -- 100
------- ----- ------- -------
Net cash used in investing activities................. (991) (29) (501) (1,521)
Cash flows from financing activities:
Additions to loans payable.......................... -- 10 -- 10
Payments on loans payable........................... -- (5) (4) (9)
Payments on long-term debt.......................... -- (1) (67) (68)
Dividends paid on common stock...................... (133) -- -- (133)
Sales and other common stock transactions........... 145 4 5 154
Common stock repurchase program..................... (253) (3) -- (256)
Change in intercompany accounts..................... (945) -- 945 --
------- ----- ------- -------
Net cash provided by (used in) financing activities... (1,186) 5 879 (302)
Effect of exchange rate changes on cash............... 6 -- (1) 5
------- ----- ------- -------
Net increase (decrease) in cash and cash
equivalents......................................... (487) 18 37 (432)
Cash and cash equivalents at beginning of year........ 566 54 517 1,137
------- ----- ------- -------
Cash and cash equivalents at end of year.............. $ 79 $ 72 $ 554 $ 705
======= ===== ======= =======
B-37
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Texas Instruments Incorporated
We have audited the accompanying consolidated balance sheets of Texas
Instruments Incorporated and subsidiaries (the Company) at December 31, 2000 and
1999, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Texas
Instruments Incorporated and subsidiaries at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
As discussed in the Accounting Policies and Practices footnote to the
financial statements, in 2000 the Company changed its method of accounting for
revenue recognition.
/s/ Ernst & Young LLP
Dallas, Texas
January 22, 2001
B-38
SUMMARY OF SELECTED FINANCIAL DATA
MILLIONS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS
--------------------------------------------------------------
YEARS ENDED DECEMBER 31, 2000 1999 1998 1997 1996
------------------------------ ---------- ---------- ---------- ---------- ----------
Net revenues.................. $ 11,875 $ 9,759 $ 8,875 $ 10,224 $ 10,333
Operating costs and expenses.. 9,536 8,004 8,419 9,514 10,293
---------- ---------- ---------- ---------- ----------
Profit from operations........ 2,339 1,755 456 710 40
Other income (expense) net.... 2,314 403 301 201 91
Interest on loans............. 75 76 76 94 73
---------- ---------- ---------- ---------- ----------
Income before provision for
income taxes and cumulative
effect of an accounting
change...................... 4,578 2,082 681 817 58
Provision for income taxes.... 1,491 631 229 446 47
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of an accounting
change...................... $ 3,087 $ 1,451 $ 452 $ 371 $ 11
========== ========== ========== ========== ==========
Diluted earnings per common
share before cumulative
effect of an accounting
change...................... $ 1.73 $ .83 $ .26 $ .22 $ .01
========== ========== ========== ========== ==========
Basic earnings per common
share before cumulative
effect of an accounting
change...................... $ 1.80 $ .86 $ .27 $ .23 $ .01
========== ========== ========== ========== ==========
Dividends declared per common
share....................... $ .085 $ .085 $ .064 $ .085 $ .085
Average common and dilutive
potential common shares
outstanding during year, in
thousands................... 1,791,630 1,749,659 1,711,145 1,697,644 1,648,339
MILLIONS OF DOLLARS
--------------------------------------------------------------
DECEMBER 31, 2000 1999 1998 1997 1996
------------------------------ ---------- ---------- ---------- ---------- ----------
Working capital............... $ 5,302 $ 3,656 $ 2,914 $ 3,817 $ 2,142
Property, plant and
equipment (net)............. 5,447 3,933 3,543 4,343 4,277
Total assets.................. 17,720 15,427 11,829 11,393 9,801
Long-term debt................ 1,216 1,099 1,031 1,287 1,699
Stockholders' equity.......... 12,588 9,578 7,010 6,344 4,438
---------- ---------- ---------- ---------- ----------
Employees..................... 42,481 39,597 38,064 46,341 62,053
Stockholders of record........ 30,043 27,706 30,659 30,935 34,165
See Notes to Consolidated Financial Statements and Management Discussion and
Analysis of Financial Condition and Results of Operations.
B-39
SUPPLEMENTAL FINANCIAL INFORMATION
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Note: TI's financial results reflect the completed pooling of interests
acquisition in 2000 of Burr-Brown Corporation and the inclusion of its financial
results in the Semiconductor segment. Historical results have been restated to
reflect Burr-Brown's operations. Year 2000 amounts reflect compliance with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 101 on
revenue recognition, including recognition of a $29 million charge to net income
for the cumulative effect of an accounting change as of January 1, 2000. All of
the share and per-share amounts have been adjusted to reflect a two-for-one
stock split effective May 22, 2000.
2000 RESULTS OF OPERATIONS COMPARED WITH 1999
In 2000, TI delivered some of the best financial results in its history,
including record revenue and profit, and a strong cash position. TI also
strengthened its strategic position in DSP and Analog. Most notable was the
acquisition of Burr-Brown, making TI one of the premier players in
high-performance Analog. Additionally, TI emerged as one of the fastest-growing
providers of DSL and cable modem chipsets, and catalog products became one of
the most important contributors to TI's revenue growth by increasing half a
billion dollars, or 47 percent. DSP and Analog continue to be the core
semiconductor drivers of Internet-age electronics, despite a weaker economic
environment that is resulting in slower near-term demand for customers' products
and, therefore, TI products.
Semiconductor revenue growth in the fourth quarter of 2000 was affected by a
combination of higher inventories at customers and lower consumption rates of
electronic end-equipment. As weakening in their own business environments became
evident, customers responded by adjusting their demand, which significantly
impacted TI's semiconductor revenue and orders late in the quarter.
SUMMARY OF 2000 FINANCIAL RESULTS
For the year 2000, TI reported the following:
- Total revenue was $11,875 million, up 22 percent from $9759 million in
1999 due to growth in semiconductor.
- Semiconductor revenue was $10,284 million, up 25 percent from
$8231 million in 1999 due to gains in Analog and DSP.
- Cost of revenue in 2000 was $6120 million compared to $5069 million in
1999. Cost of revenue increased about the same as the increase in revenue,
on a percentage basis.
- Including purchased in-process R&D from acquisitions, R&D increased to
$1747 million in 2000, compared with $1379 million in 1999, due to
strategic investment in DSP and Analog.
- Selling, general and administrative expense (SG&A) in 2000 was
$1669 million, up from $1556 million in 1999 primarily due to higher
semiconductor selling-related activities. The increase was less than the
increase in revenue, on a percentage basis.
- In 2000, other income increased $1911 million, primarily due to the sale
of 25.6 million shares of Micron Technology, Inc. (Micron) common stock.
- The income tax rate for 2000 was 32.6 percent.
- TI orders for the year were $12,372 million, up 20 percent from
$10,327 million in 1999 due to growth in semiconductor.
B-40
- Results for 2000 include special charges of $29 million in the first
quarter, associated with actions including the closing of the sensors &
controls manufacturing facility in Versailles, Kentucky, and TI's
acquisition of Toccata Technology ApS; an investment gain of
$1211 million in the second quarter from the sale of 20 million shares of
Micron common stock; in the third quarter, investment gains of
$425 million from the sale of 5.6 million shares of Micron common stock,
and special charges of $163 million of which $112 million was for
purchased in-process R&D costs from the Dot Wireless, Inc. and Alantro
Communications, Inc. acquisitions, $41 million for pooling of interests
transaction costs from the Burr-Brown acquisition and $10 million, net,
for several semiconductor and sensors & controls restructuring and other
actions in the U.S., Japan and Europe; and in the fourth quarter, a gain,
net of transaction and other costs, of $88 million from the sale of the
memory business. Gain recognition had been previously deferred pending
repayment of the remaining TI-provided financing for the 1998 transaction,
which occurred in the fourth quarter of 2000. The fourth quarter also
includes a gain of $56 million from the sale of the materials portion of
Sensors & Controls, a credit to the income tax provision of $69 million
for deferred tax valuation allowance reductions, primarily in Japan, a
charge of $3 million for a severance action by Educational & Productivity
Solutions, and a charge of $9 million for additional pooling of interests
transaction costs from the Burr-Brown acquisition.
Also included in 2000 results is ongoing amortization of goodwill and
other acquisition-related intangibles of $25 million in the first quarter;
$25 million in the second quarter; $41 million in the third quarter; and
$68 million in the fourth quarter.
Results for 1999 include special charges of $25 million in the first
quarter, due primarily to a consolidation of semiconductor operations in
Japan; $52 million in the second quarter for in-process R&D costs
associated with the acquisition of Libit Signal Processing Ltd.;
$50 million in the third quarter, primarily for in-process R&D costs
associated with TI's acquisition of Integrated Sensor Solutions, Inc. and
costs associated with the pooling of interests acquisition of Telogy
Networks, Inc.; and, in the fourth quarter, transaction-related costs of
$86 million associated with TI's pooling of interests acquisition of
Unitrode Corporation and a tax benefit effect of $67 million, primarily
for research and experimental tax credit items.
Also included in 1999 results is ongoing amortization of goodwill and
other acquisition-related intangibles of $10 million in the first quarter;
$9 million in the second quarter; $24 million in the third quarter; and
$26 million in the fourth quarter. In addition, the third quarter of 1999
included special charges recognized by Unitrode of $4 million.
Additional information relating to these items appears below under the
heading "Special Charges and Gains."
OUTLOOK
TI expects its revenue for the first quarter of 2001 will decline about
20 percent compared to fourth quarter 2000 revenue of $3033 million due to the
economic slowdown that is continuing to constrain demand for technology
products.
As noted above, TI initially experienced a sharp downturn in its markets
late in the fourth quarter of 2000, as its customers reacted to weakening demand
and higher inventories. Market conditions have not subsequently improved and
customers have continued to cancel or reschedule backlog, causing visibility to
remain limited.
Revenue from TI's non-semiconductor activities, including Sensors & Controls
(formerly Materials & Controls) and E&PS, is expected to be about even with
fourth quarter. Fourth quarter revenue for those activities was $338 million.
B-41
Due to the drop in revenue, operating margin for the first quarter,
excluding acquisition-related amortization and special charges and gains, is
expected to decline about six to eight percentage points from 22.5 percent in
the fourth quarter.
Early in the first quarter, TI began a phased cost-reduction plan to limit
the impact of reduced revenue on profitability. Actions include the temporary
idling of manufacturing facilities and shortened workweeks in some areas.
Throughout the company, TI has put a temporary freeze on hiring, has
significantly cut discretionary expenses such as travel, and has announced a
voluntary retirement program.
Additionally, the company has lowered its capital spending plans for 2001 to
$2 billion, a 30 percent reduction from last year's $2.8 billion.
TI is continuing its strong R&D investments, estimated to be $1.7 billion
for 2001, up from $1.6 billion last year, excluding acquisition-related
amortization and purchased in-process R&D. These investments are focused on
areas that increase TI's competitiveness and efficiency, including
300-millimeter manufacturing for DSP, 200-millimeter manufacturing for Analog,
and .13-micron technologies.
Other income is expected to decline to about $70 million in the first
quarter, primarily due to lower interest and investment income. Other income,
excluding gains from the sale of businesses, was $130 million in the fourth
quarter.
Depreciation for 2001 is expected to increase to $1.5 billion, compared with
$1.2 billion in 2000.
SEMICONDUCTOR
For the year, semiconductor revenue was $10,284 million, up 25 percent from 1999
due to growth in Analog and DSP products.
Analog revenue increased 28 percent in 2000 due to growth in catalog and
wireless products. DSP revenue grew 29 percent in 2000 due to growth in catalog
and wireless products. For the year, Analog and DSP comprised about 65 percent
of TI's semiconductor revenue. TI's remaining semiconductor revenue increased
for the year.
TI's semiconductor revenue in key markets was as follows:
- Wireless revenue increased more than $500 million, or 28 percent, to
$2.3 billion.
- Revenue from TI's catalog DSP and Analog products increased more than
$500 million, or 47 percent, to $1.6 billion.
- Broadband communications revenue, including DSL and cable modems, grew
to about $150 million from a negligible amount in 1999.
Operating profit grew 38 percent to $2607 million in 2000 due to increased
shipments in DSP and Analog.
For the year semiconductor orders increased 23 percent.
SENSORS & CONTROLS
The Sensors & Controls business (formerly Materials & Controls) sold its
specialty-clad metals and electrical contacts (or "materials") operation on
November 13, 2000 for a gain. All Sensors & Controls results are reported
without the materials operations.
For the year, revenue increased 13 percent to $1030 million, primarily due
to gains in sensor product revenue, including the effect of a third-quarter 1999
acquisition.
B-42
Operating profit grew 26 percent to $191 million in 2000 primarily due to
growth in revenue.
EDUCATIONAL & PRODUCTIVITY SOLUTIONS (E&PS)
Revenue for E&PS declined 8 percent during the year to $446 million from
$484 million in 1999 due to the weak retail environment.
For the year, operating profit was $111 million, or 24.9 percent of revenue,
compared with $106 million in 1999 due to lower SG&A.
FINANCIAL CONDITION
For 2000, cash and cash equivalents plus short-term investments increased by
$1177 million to $4003 million, primarily due to the sale of Micron common
stock. In the fourth quarter of 2000, TI used $313 million of cash to prefund a
portion of TI's post-retirement health-care liability. This action will reduce
the amount of retiree medical expenses that would otherwise have been incurred
in future periods. Also in the fourth quarter of 2000, TI obtained letters of
credit that guarantee TI's payment obligation to holders of TI-Tucson's
(formerly Burr-Brown) $250 million, 4.25 percent Convertible Subordinated Notes
due 2007. In connection with the issuance of these letters of credit, TI agreed
to maintain cash deposits with the issuing banks equal to the Notes' outstanding
principal, plus one year's interest, for the term of the banks' guarantees. TI
has accordingly classified the deposit, $261 million at year-end 2000, as a
noncurrent asset.
Cash flow from operating activities was $2185 million for the year.
Capital expenditures totaled $2762 million in 2000, compared with
$1398 million in 1999.
Depreciation for 2000 was $1216 million, compared with $1005 million in
1999.
TI maintains lines of credit to support commercial paper borrowings and to
provide additional liquidity. These lines of credit totaled $733 million at
December 31, 2000. Of this amount, $600 million exists to support commercial
paper borrowings or short-term bank loans.
At the end of 2000, the debt-to-total-capital ratio was 0.10 versus 0.13 at
the end of 1999.
TI has revised its employee profit sharing program to focus its global work
force on achieving and sustaining new and more aggressive long-term objectives:
annual 30 percent revenue growth and 30 percent operating margin.
MARKET RISK SENSITIVE INSTRUMENTS: The U.S. dollar is the functional currency
for financial reporting. In this regard, the company uses forward currency
exchange contracts to minimize the adverse earnings impact from the effect of
exchange rate fluctuations on the company's non-U.S. dollar net balance sheet
exposures. For example, at year-end 2000, the company had forward currency
exchange contracts outstanding of $201 million (including $29 million to buy
euros, $51 million to buy Taiwan dollars and $47 million to sell yen). Similar
hedging activities existed at year-end 1999. Because most of the aggregate
non-U.S. dollar balance sheet exposure is hedged by these exchange contracts, a
hypothetical 10% plus or minus fluctuation in non-U.S. currency exchange rates
would not be expected to have a material earnings impact, e.g., based on
year-end 2000 balances and rates, a pretax currency exchange gain or loss of
$6 million.
The company has interest rate swaps that change the characteristics of the
interest payments on its $300 million of 6.125% notes due 2006 from fixed-rate
payments to short-term LIBOR-based variable rate payments in order to achieve a
mix of interest rates on the company's long-term debt which, over time, is
expected to moderate financing costs. The effect of these interest rate swaps
was to decrease interest expense by $1 million in 2000. The year-end 2000
effective interest rate for the $300 million of notes due 2006, including the
effect of the swaps, was approximately 6.1% (5.6% at year-end 1999). These swaps
are sensitive to interest rate changes. For example, if
B-43
short-term interest rates increase (decrease) by one percentage point from
year-end 2000 rates, annual pretax interest expense would increase (decrease) by
$3 million.
The company's long-term debt has a fair value, based on current interest
rates, of approximately $1450 million at year-end 2000 ($1401 million at
year-end 1999). Fair value will vary as interest rates change. The following
table presents the aggregate maturities and historical cost amounts of the debt
principal and related weighted-average interest rates by maturity dates at
year-end 2000:
MILLIONS OF DOLLARS
----------------------------------------------
U.S. DOLLAR AVERAGE LIRA AVERAGE
FIXED-RATE INTEREST FIXED-RATE INTEREST
MATURITY DATE DEBT RATE DEBT RATE
------------- ----------- -------- ---------- --------
2001................................................. $ 106 7.83% $21 4.77%
2002................................................. 3 3.50% 22 4.77%
2003................................................. 134 8.69% 22 4.73%
2004................................................. 400 7.00% 23 4.74%
2005................................................. -- -- 8 4.47%
Thereafter........................................... 604 5.54% -- --
------ ---- --- ----
Total.............................................. $1,247 6.54% $96 4.73%
====== ==== === ====
Total long-term debt historical cost amount at year-end 2000 was
$1343 million.
The company's cash equivalents and short-term investments are debt
securities with remaining maturities within three months (cash equivalents) and
beyond three months and within 13 months (short-term investments). Their
aggregate fair value and carrying amount was $3572 million at year-end 2000
($2613 million at year-end 1999). Fair value will vary as interest rates change.
The following table presents the aggregate maturities of cash equivalents and
short-term investments and related weighted-average interest rates by maturity
dates at year-end 2000:
MILLIONS OF DOLLARS
---------------------------
CASH EQUIVALENTS AVERAGE
AND SHORT-TERM INTEREST
MATURITY DATE INVESTMENTS RATE
------------- ---------------- --------
2001........................................................ $3,572 6.79%
The company's investments at year-end 2000 consisted of the following (items
at year-end 1999 were similar):
- Equity investments--primarily 56,952,399 Micron common shares and
several other publicly traded investments.
- TI Ventures--a venture fund that invests in companies involved in the
development of new markets. As of year-end 2000, investments were held
in 21 companies primarily focused on next-generation applications of
digital signal processors.
- Other investments--consist of mutual funds that are acquired to
generate returns that offset changes in certain liabilities related to
deferred compensation arrangements. The mutual funds hold a variety of
debt and equity investments.
The equity investments (fair value of $2204 million) and venture fund (fair
value of $119 million) are sensitive to equity price changes. For example, if
prices of the equity investments increase or decrease 10%, the company would
record an increase or decrease in stockholders' equity, net of tax, of
$143 million. Similarly, if prices of the venture fund investments increase or
decrease 10%, the company would record an increase or decrease in stockholders'
equity, net of tax, of $8 million. Changes in prices of the other investments
(fair value of $77 million) are expected to offset related
B-44
changes in deferred compensation liabilities such that a 10% increase or
decrease in investment prices would not affect operating results.
1999 RESULTS OF OPERATIONS COMPARED WITH 1998
SUMMARY OF 1999 FINANCIAL RESULTS
For the year 1999, TI reported the following:
- Total revenue was $9759 million, up 10 percent from $8875 million in 1998,
due primarily to strong growth in semiconductor. Excluding the divested
dynamic random access memory (DRAM) business, total revenue was up
18 percent over 1998.
- Semiconductor revenue was $8231 million, up 21 percent from $6829 million
in 1998.
- Cost of revenue in 1999 was $5069 million compared with $5605 million in
1998. The decrease was primarily due to the divestiture of the memory
business.
- Including in-process R&D from acquisitions, R&D totaled $1379 million in
1999 compared with $1265 million in 1998.
- Selling, general and administrative expense in 1999 was $1556 million,
essentially unchanged from $1549 million in 1998.
- In 1999, other income increased $102 million, primarily due to increased
investment gains.
- The income tax rate for 1999 was 30.3 percent.
- TI orders for the year were $10,327 million, up 22 percent from
$8451 million in 1998, reflecting continued strong demand for
semiconductors.
- Results for 1999 include special charges of $25 million in the first
quarter, due primarily to a consolidation of semiconductor operations in
Japan; $52 million in the second quarter, for in-process R&D costs
associated with the acquisition of Libit Signal Processing Ltd.;
$50 million in the third quarter, primarily for in-process R&D costs
associated with TI's acquisition of Integrated Sensor Solutions, Inc. and
costs associated with the pooling of interests acquisition of Telogy; and,
in the fourth quarter, transaction-related costs of $86 million associated
with TI's pooling of interests acquisition of Unitrode and a tax benefit
effect of $67 million, primarily for research and experimental tax credit
items.
Also included in 1999 results is ongoing acquisition-related amortization of
$10 million in the first quarter; $9 million in the second quarter; $24 million
in the third quarter; and $26 million in the fourth quarter. In addition, the
third quarter of 1999 included special charges recognized by Unitrode of
$4 million.
Results for 1998 included special charges of $244 million in the first
quarter, primarily due to the discontinuance of the memory-chip manufacturing
joint venture with Hitachi; $219 million in the second quarter, primarily due to
a worldwide restructuring of support functions and consolidation of
manufacturing operations; $14 million in the third quarter, primarily due to
additional depreciation for fixed assets that were removed from service in
Singapore; and $72 million in the fourth quarter, substantially all of which
related to the closing of an assembly/test joint venture with Samsung
Electronica, Lda. in Portugal, and the disposition of the Aversa, Italy plant.
Special charges of $21 million were recognized by Unitrode in 1998.
B-45
Also included in 1998 results was ongoing acquisition-related amortization
of $11 million in the first quarter; $12 million in the second quarter;
$12 million in the third quarter; and $12 million in the fourth quarter.
In 1998, other income included a second-quarter pretax gain of $83 million
on the sale to Acer Corporation of TI's shares in the TI-Acer DRAM joint
venture.
Additional information relating to these items appears below under the
heading "Special Charges and Gains."
SEMICONDUCTOR: For 1999, semiconductor revenue was $8231 million, up
21 percent, primarily due to strength in DSP and analog. Operating margin was
23.0 percent, up 1.6 points from 21.4 percent in 1998.
DSP revenue grew 28 percent in 1999 due primarily to strength in wireless,
and to a lesser extent due to gains in catalog. Analog revenue grew 15 percent
in 1999, primarily due to wireless.
In 1999, revenue for wireless grew 37 percent to about $1.8 billion, and
revenue for catalog grew 21 percent to about $1.1 billion. Revenue in mass
storage for 1999 declined 6 percent to about $900 million. In 1999, revenue in
networking declined 28 percent to about $300 million due about equally to legacy
networking solutions and analog modems.
SENSORS & CONTROLS: Revenue for 1999 increased to $912 million, an increase of
7 percent over 1998's $850 million, primarily due to automotive sensor products.
Operating margin improved to 16.6 percent from 15.3 percent in 1998. This
improved operating performance reflects the continuing impact of Sensors &
Controls' best-cost producer strategy, as well as higher revenue.
EDUCATIONAL & PRODUCTIVITY SOLUTIONS (E&PS): In 1999, E&PS increased revenue by
6 percent to $484 million, compared with $456 million in 1998. Operating margin
increased from 16.6 percent to 21.8 percent as a result of cost improvements.
SPECIAL CHARGES AND GAINS
FOURTH QUARTER OF 2000:
In the fourth quarter of 2000, TI recognized a gain of $88 million from the
sale of its memory business. Gain recognition had previously been deferred
pending repayment of the remaining TI-provided financing for the 1998
transaction, which occurred in the fourth quarter of 2000. TI also recognized a
gain of $56 million from the sale of the materials portion of the Sensors &
Controls business.
In the fourth quarter of 2000, TI recorded a $69 million credit to the
provision for income taxes from the reduction of deferred tax valuation
allowances primarily in Japan. The company also recorded a pretax charge of
$3 million, included in selling, general and administrative expense, for a
severance action by Educational & Productivity Solutions affecting 51 jobs in
Europe and the U.S. As of December 31, 2000, a nominal amount of the severance
costs had been paid. The primary benefit from this action is reduced personnel
costs, which are estimated to reach $6 million annually. The benefit is expected
to begin in the first quarter of 2001. The company also recorded a charge of
$9 million in the quarter for additional pooling of interests transaction costs
from the Burr-Brown Corporation acquisition ($5 million included in selling,
general and administrative expense and $4 million in cost of revenues).
THIRD QUARTER OF 2000:
In the third quarter of 2000, TI recorded investment gains, included in
other income, of $425 million from the sale of 5.6 million shares of Micron
common stock. Also recorded were
B-46
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 transaction costs from the
pooling of interests acquisition of Burr-Brown, and $10 million, net, for
several semiconductor and sensors & controls restructuring and other actions in
the U.S, Japan and Europe. Of the $163 million, $112 million is an increase in
research and development expense, $46 million in selling, 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
restructuring actions is reduced personnel costs from the 432 jobs affected by
severance. The benefit is estimated to reach $31 million annually. The benefit
began in the fourth quarter of 2000. At year-end 2000, $9 million of severance
had been paid.
SECOND QUARTER OF 2000:
In the second quarter of 2000, an investment gain of $1211 million, included
in other income, was realized from the sale of 20 million shares of Micron
common stock.
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 sensors & 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 by the first quarter of 2001. Of the
$29 million, $20 million is included in cost of revenues, $6 million in selling,
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 began in
the fourth quarter of 2000. As of December 31, 2000, $1 million of the severance
cost had been paid.
FOURTH QUARTER OF 1999:
In the fourth quarter of 1999, a special charge of $86 million was taken for
transaction-related costs associated with TI's pooling of interests acquisition
of Unitrode Corporation. Of the $86 million charge, $83 million was included in
selling, general and administrative expense, $2 million in cost of revenues and
$1 million in other income (expense) net.
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, 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 selling, 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
year-end 2000, this program was complete. The primary benefit from this action
is reduced personnel 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 included in cost of revenue in the
third quarter for the elimination of an additional 105 jobs in Hatogaya, Japan.
At year-end 1999, this program was complete.
B-47
Also included is $15 million of transaction-related costs from the pooling
acquisition of Telogy and a $4 million pretax operating charge by Unitrode for a
severance action. These charges were included in selling, general and
administrative expenses.
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 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 selling, 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.
FOURTH QUARTER OF 1998:
In the fourth quarter of 1998, the company took further steps to enhance
manufacturing efficiency, including the announced closing of a semiconductor
assembly operation and sale of a sensors & controls manufacturing operation,
both in Europe. The sale was completed on December 31, 1998. The primary benefit
from these actions was the consolidation of manufacturing facilities, which
increased efficiencies and reduced manufacturing costs. Estimated savings from
such actions were approximately $24 million annually. The benefit began in the
first quarter of 1999. The assembly operation closing, which is complete,
affected 740 employees. As a result of these actions, the company took a
fourth-quarter 1998 pretax charge of $72 million, of which $27 million was
included in cost of revenues, $24 million in other income (expense) net and
$21 million in selling, general and administrative expense. Of this $72 million
charge, $35 million was for severance, $35 million for other cash-related costs
and $2 million for asset write-downs, primarily to adjust fixed assets in the
European sensors & controls operation to actual sale value. Of the $35 million
severance charge, all had been paid by the year end 1999. Of the other
$35 million charge, $20 million was a cash payment required as part of an
agreement with the third-party buyer of a sensors & controls manufacturing
operation in Europe. The balance was for previously-received government grants
expected to be repaid as a result of the closing of the European semiconductor
assembly operation.
THIRD QUARTER OF 1998:
In the third quarter of 1998, the company recorded a $14 million charge for
accelerated depreciation on fixed assets primarily located in a semiconductor
manufacturing facility in Singapore. This action was taken in connection with
the severance/manufacturing efficiency program announced during the second
quarter of 1998 (program is more fully described below under the heading Second
Quarter of 1998). This asset write-down charge was included in cost of revenues.
Also included in the third quarter are $3 million of acquisition transaction
costs incurred by Unitrode in a prior pooling acquisition. In addition, Unitrode
recorded a $12 million charge, of which $5 million was included in cost of
revenues and $7 million in other income (expense) net. Of the $12 million
charge, $3 million was for severance to eliminate 23 semiconductor-related jobs.
The employees left and were paid the severance in that quarter. A $2 million
charge was recorded to write-down semiconductor equipment being sold for scrap
at a nominal value and $7 million was for costs to settle a patent infringement
lawsuit.
B-48
SECOND QUARTER OF 1998:
In the second quarter of 1998, the company announced that, as a result of
the various business divestitures over the past several years, the pending sale
of its memory business (subsequently completed in September 1998), and weakness
at that time in the semiconductor market environment, it was implementing a
severance/manufacturing efficiency program in order to more closely match the
size and cost of its support functions with the company's overall size and to
further combine manufacturing resources for more efficient operations. The
primary benefit from this severance/manufacturing efficiency program was reduced
personnel costs; total benefits were estimated to reach $270 million annually.
The benefit began in the third quarter of 1998.
The program, which primarily affected the company's corporate activities and
semiconductor business, included the elimination of 3,441 jobs around the world
through voluntary programs, attrition, outsourcing and layoffs, as well as the
closing of several facilities. As a result, the company took a pretax charge of
$219 million in the second quarter of 1998, of which $126 million was included
in selling, general and administrative expense and $93 million in cost of
revenues. Of the $219 million charge, $161 million was for severance,
$41 million for asset write-downs and $17 million for vendor cancellation and
lease charges.
Of the $41 million for asset write-downs, $25 million was for U.S.
semiconductor inventories and $16 million was for fixed assets, primarily
accelerated depreciation on assets phased out during 1998 in connection with the
winding down of production at a semiconductor manufacturing facility located in
Singapore. The primary benefits from this consolidation action were increased
efficiencies and reduced manufacturing costs. Estimated savings from such
actions were approximately $9 million annually. The benefit began in the fourth
quarter of 1998.
Of the $17 million for vendor cancellation and lease charges, $15 million
was for required vendor fees for cancellation of purchase contracts for
chemicals, supplies and equipment as a result of a U.S. facility shutdown.
At year-end 1999, the program was complete.
In the second quarter of 1998, the company sold its shares in the TI-Acer
DRAM semiconductor manufacturing joint venture to Acer Corporation for
$120 million in cash. This sale resulted in a pretax gain of $83 million,
included in other income.
FIRST QUARTER OF 1998:
In the first quarter of 1998, TI's U.S. DRAM semiconductor manufacturing
joint venture with Hitachi, Ltd. was discontinued as a result of a combination
of severe price declines and overcapacity in the DRAM market. As part of this
first quarter discontinuance, TI purchased the assets of the venture for
approximately $98 million. Also as part of this first quarter discontinuance, TI
and Hitachi decided to assume and share equally in the payment of the venture's
obligations. TI's share of those payments was $219 million, which was paid and
charged to cost of revenues in the first quarter. Also in the first quarter,
Unitrode recorded a $6 million charge, of which $3 million was included in cost
of revenues, $1 million in selling, general and administrative expense, and
$2 million in other income (expense) net. Of the $6 million charge, $3 million
was for inventory write-offs for scrapped custom inventory which did not meet
customer specifications and $1 million was to write-down equipment to net
realizable value. The equipment was subsequently sold. The balance of the
charge, $2 million, was to record a non-temporary impairment in the value of a
non-current equity investment.
B-49
PURCHASED IN-PROCESS R&D CHARGES:
Acquisition-related purchased in-process R&D charges were $112 million in
2000, $79 million in 1999 and $25 million in 1998. These charges are for the
value of purchased 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 acquired after 1998 were
assessed, analyzed and valued within the context and framework articulated by
the Securities and Exchange Commission herein described as the Exclusion
Approach. Earlier acquisitions were valued using the Income Approach.
Significant assumptions, detailed in the table below, 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.
MILLIONS OF DOLLARS
-------------------------------------------------------------------------------------------------------------------------------
OTHER DEFERRED PURCHASED
ENTITY ACQUISITION CONSID- INTAN- COMPEN- IN-PROCESS APPRAISAL R&D
ACQUIRED DATE ERATION GOODWILL GIBLES SATION R&D CHARGE METHOD FOCUS
----------------- ----------- -------- --------- -------- --------- ------------ ---------- --------------------
Alantro Third $277 $148 $ 81 $ 32 $ 52 Exclusion Wireless networking
Communications, quarter approach technology for home
Inc. 2000 and office
Dot Wireless, Inc Third $467 $302 $ 46 $119 $ 60 Exclusion Architecture for
quarter approach third generation
2000 (3G: wireless
devices for
delivering voice and
high speed data to
mobile users
Butterfly VLSI, First $ 52 $ 33 $ 5 -- $ 10 Exclusion Short distance
Ltd. quarter approach wireless technology
1999 for voice-plus-data
transmission
products
Libit Signal Second $365 $207 $106 -- $ 52 Exclusion Silicon solutions
Processing Ltd. quarter approach and Internet
1999 telephony software
for cable modems,
etc. for Internet
access
Integrated Sensor Third $ 67 $ 32 $ 11 -- $ 16 Exclusion Intelligent sensors
Solutions, Inc. quarter approach for auto/ind.
1999 markets
GO DSP/Spectron First $ 39 $ 7 $ 7 -- $ 25 Income DSP software tools,
quarter approach including real-time
1998 operating systems
for DSP development
MILLIONS OF DOLLA MILLIONS OF DOLLARS
----------------- --------------------------------------------------
COST/TIME TO
COMPLETE R&D
PROJECTS YEAR
------------------------ CASH FLOWS
ENTITY DISCOUNT AT AT PROJECTED
ACQUIRED RATE ACQUISITION DEC. 2000 TO BEGIN
----------------- --------- ----------- ---------- -----------
Alantro 24% $4.1/256 $5.8/359 2002
Communications, engineer engineer
Inc. months months
Dot Wireless, Inc 20% $2.9/172 $ .5/31 2003
engineer engineer
months months
Butterfly VLSI, 25% $5/264 Project 2000
Ltd. engineer completed
months
Libit Signal 22% $5/492 Project 2000
Processing Ltd. engineer completed
months
Integrated Sensor 25% $4/233 Project 2000
Solutions, Inc. engineer completed
months
GO DSP/Spectron 30% $7/540 Project 1998
engineer completed
months
B-50
QUARTERLY FINANCIAL DATA
MILLIONS OF DOLLARS, EXCEPT
PER-SHARE AMOUNTS
-----------------------------------------
2000 1ST 2ND 3RD 4TH
---- -------- -------- -------- --------
Net revenues.............................................. $2,761 $2,932 $3,149 $3,033
Gross profit.............................................. 1,341 1,446 1,512 1,457
Profit from operations.................................... 554 645 526 615
Income before cumulative effect of an accounting change... 450 1,296 676 665
Net income................................................ $ 421 $1,296 $ 676 $ 665
====== ====== ====== ======
Diluted earnings per common share:
Income before cumulative effect of an accounting
change................................................ $ .25 $ .72 $ .38 $ .37
Net income.............................................. $ .24 $ .72 $ .38 $ .37
====== ====== ====== ======
Basic earnings per common share:
Income before cumulative effect of an accounting
change................................................ $ .26 $ .76 $ .39 $ .38
Net income.............................................. $ .25 $ .76 $ .39 $ .38
====== ====== ====== ======
MILLIONS OF DOLLARS, EXCEPT
PER-SHARE AMOUNTS
-----------------------------------------
1999 1ST 2ND 3RD 4TH
---- -------- -------- -------- --------
Net revenues.............................................. $2,142 $2,463 $2,515 $2,638
Gross profit.............................................. 979 1,208 1,208 1,295
Profit from operations.................................... 316 477 460 503
Net income................................................ $ 263 $ 341 $ 402 $ 445
====== ====== ====== ======
Diluted earnings per common share......................... $ .15 $ .20 $ .23 $ .25
====== ====== ====== ======
Basic earnings per common share........................... $ .16 $ .20 $ .24 $ .26
====== ====== ====== ======
Results for the first quarter of 2000 include a charge of $29 million
associated with actions including the closing of a sensors & controls facility
in Kentucky and a business purchase acquisition. The second quarter of 2000
includes an investment gain of $1211 million from the sale of Micron common
stock. Third quarter 2000 results include an investment gain of $425 million
from the sale of Micron common stock and special charges of $163 million, of
which $112 million is for purchased in-process R&D costs from two business
purchase acquisitions, $41 million for pooling of interests transaction costs,
and $10 million, net, for several semiconductor and sensors & controls
restructuring and other actions in the United States, Japan and Europe. Fourth
quarter 2000 includes a gain of $88 million from the 1998 sale of the memory
business (gain recognition had been previously deferred); a gain of $56 million
from the sale of the materials portion of Sensors & Controls; a credit to the
income tax provision of $69 million for deferred tax valuation allowance
reductions, primarily in Japan; a charge of $3 million for a severance action by
Educational & Productivity Solutions; and a charge of $9 million for additional
pooling of interests transaction costs from the Burr-Brown acquisition.
Results for the first quarter of 1999 include a charge of $14 million for
consolidation of semiconductor manufacturing operations in Japan and a charge of
$10 million for the value of purchased in-process R&D costs from a business
purchase acquisition. The second quarter of 1999 charge of $52 million was for
the value of purchased in-process R&D costs from a business purchase
acquisition. Third quarter 1999 results include a charge of $7 million for
additional severance actions in Japan, a charge of $12 million for U.S.
semiconductor severance and other
B-51
actions and a $4 million charge by Unitrode for a severance action. Also
included is a $16 million charge for the value of purchased in-process R&D costs
from a business purchase acquisition and $15 million for pooling of interests
transaction costs. Fourth quarter 1999 results include $86 million of pooling of
interests acquisition costs and a $67 million reduction in the income tax
provision for research and experimental tax credit items.
Quarterly data for the first three quarters of 2000 have been restated to
comply with Staff Accounting Bulletin No. 101. The effect of the change on the
first quarter of 2000 was to increase income before the cumulative effect of the
accounting change by $5 million ($.003 per share) and decrease net income by
$24 million ($.013 per share). The effect of the change on the second, third and
fourth quarters of 2000 was to decrease net income by $5 million ($.003 per
share), $2 million ($.001 per share) and $10 million ($.006 per share).
Quarterly data for the 1999 quarters as well as the 2000 quarters prior to
the May 2000 two-for-one stock split and August 2000 pooling of interests
acquisition of Burr-Brown have been restated to reflect the effect of these
transactions.
Diluted earnings per common share are based on average common and dilutive
potential common shares outstanding in millions (1,794.7 shares and 1,771.5
shares for the fourth quarters of 2000 and 1999). The diluted earnings per share
computation for the fourth quarter of 2000 excludes 26.0 million shares for
stock options because their effect would have been antidilutive.
COMMON STOCK PRICES AND DIVIDENDS
TI common stock is listed on the New York Stock Exchange and traded principally
in that market. The table below shows the high and low prices of TI common stock
as reported by THE WALL STREET JOURNAL and the dividends paid per common share
for each quarter during the past two years.
QUARTER
-----------------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
Stock prices:
2000 HIGH $99.78 $90.00 $74.50 $53.25
LOW................................................ 45.25 60.13 46.50 35.00
1999 High $26.97 $36.25 $46.72 $55.75
Low................................................ 21.50 24.75 33.55 37.88
Dividends paid:
2000................................................... $.0213 $.0213 $.0213 $.0213
1999................................................... $.0213 $.0213 $.0213 $.0213
B-52
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
Thomas J. Engibous
Chairman of the Board, President and
Chief Executive Officer
James R. Adams
Retired Chairman of the Board,
Texas Instruments; Retired Group President,
SBC Communications, Inc.
David L. Boren
President, The University of Oklahoma
James B. Busey IV
Retired Admiral, U.S. Navy
Daniel A. Carp
Chairman of the Board, President and
Chief Executive Officer,
Eastman Kodak Company
Gerald W. Fronterhouse
Investments
David R. Goode
Chairman of the Board, President and
Chief Executive Officer,
Norfolk Southern Corporation
Wayne R. Sanders
Chairman of the Board and
Chief Executive Officer,
Kimberly-Clark Corporation
Ruth J. Simmons
President, Smith College
(Effective July 1,
President, Brown University)
Clayton K. Yeutter
Of Counsel, Hogan & Hartson
EXECUTIVE OFFICERS
Thomas J. Engibous
Chairman of the Board, President and
Chief Executive Officer
Richard K. Templeton
Executive Vice President and
Chief Operating Officer
William A. Aylesworth
Senior Vice President, Treasurer
and Chief Financial Officer
Gilles Delfassy
Senior Vice President
Michael J. Hames
Senior Vice President
Joseph F. Hubach
Senior Vice President, Secretary
and General Counsel
Stephen H. Leven
Senior Vice President
Keh-Shew Lu
Senior Vice President
Richard J. Schaar
Senior Vice President
M. Samuel Self
Senior Vice President and
Controller
Elwin L. Skiles, Jr.
Senior Vice President
Teresa L. West
Senior Vice President
Thomas Wroe, Jr.
Senior Vice President
TI FELLOWS
A TI Fellow is a scientist or technologist who is recognized by his or her peers
and TI management for outstanding performance. Fellows are elected based on
exceptional technical contributions which have significantly contributed to TI
shareholder value.
TI Fellows elected in 2000:
Donald C. Abbott
Russ Ashdown
Robert E. Frankel
Chris Heegard
Uming Ko
Robert Mammano
Peter J. Rickert
Reid E. Tatge
William E. Witowsky
B-53
OTHER INFORMATION
SEC FORM 10-K
Stockholders may obtain a copy of the company's annual report to the Securities
and Exchange Commission on Form 10-K without charge (except for exhibits) by
writing to:
Manager of Investor Relations
P.O. Box 660199, MS 8657
Dallas, TX 75266-0199
SAFE HARBOR STATEMENT
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: This report 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 integrated circuits 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 or the timing of
customer inventory corrections;
- 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 Results of Operations" in Item 1
of the company's most recent Form 10-K. The forward-looking statements included
in this report are made only as of the date of publication and the company
undertakes no obligation to update the forward-looking statements to reflect
subsequent events or circumstances.
B-54
DIRECTIONS TO ANNUAL MEETING SITE
FROM DFW AIRPORT
Take the North Airport exit to 635E. Take 635E to the Greenville Avenue Exit.
Turn right on Greenville. Turn right on Forest Lane. Texas Instruments will be
on your right at the second traffic light. Please use the south entrance to the
building.
DIRECTIONS FROM LOVE FIELD AIRPORT
Take Mockingbird Lane to 75N (Central Expressway). Travel north on 75 to the
Forest Lane Exit. Turn right on Forest Lane. You will pass two traffic lights.
At the third light, the entrance to Texas Instruments will be on your left.
Please use the south entrance to the building.
PROXY PROXY
[TI LOGO]
PROXY FOR ANNUAL MEETING TO BE HELD APRIL 19, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints JAMES R. ADAMS and THOMAS J. ENGIBOUS, or
either of them, the true and lawful attorneys of the undersigned with power
of substitution, to vote as proxies for the undersigned at the annual meeting
of stockholders of TEXAS INSTRUMENTS INCORPORATED to be held in Dallas,
Texas, on April 19, 2001, at 10:00 a.m. (Dallas time) and at any or all
adjournments thereof, according to the number of shares of common stock which
the undersigned would be entitled to vote if then personally present, in the
election of directors and upon other matters properly coming before the
meeting.
IMPORTANT-THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
-------------------------------------------------------------------------------
Dear Stockholder:
On the reverse side of this card are instructions on how to vote your
shares regarding the election of directors by telephone or Internet.
Please consider voting by telephone or Internet. Your vote is recorded
as though you had mailed in your proxy card.
TEXAS INSTRUMENTS
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [/]
-----------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the election of each Board nominee.
FOR ALL
Election of Directors FOR WITHHELD Except Nominee(s)
ALL ALL Written Below
Nominees: 01-J.R. Adams, [ ] [ ] [ ]______________
02-D.L. Boren, 03-J.B. Busey IV,
04-D.A. Carp, 05-T.J. Engibous,
06-G.W. Fronterhouse, 07-D.R. Goode,
08-W.R. Sanders and 09-R.J. Simmons.
In their discretion the named proxies are
authorized to vote upon such other matters as may
properly come before the meeting.
IF NO CONTRARY INDICATION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF EACH BOARD NOMINEE.
Dated __________________________, 2001
______________________________________________
Signature
______________________________________________
Signature
NOTE: Please sign exactly as your name appears on
this document. For joint accounts both owners
should sign. When signing as executor,
administrator, attorney, trustee or guardian,
etc., please give your full title.
IF YOU WISH TO VOTE BY TELEPHONE OR INTERNET, PLEASE
SEE THE INSTRUCTIONS BELOW.
------------------------------------------------------------------------------
CONTROL NUMBER
______________ [TI LOGO]
| |
|______________|
YOU CAN VOTE YOUR SHARES BY TELEPHONE OR INTERNET!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
Texas Instruments Incorporated encourages you to take advantage of the
convenient ways to vote your shares. If voting by proxy, you may vote by
mail, or choose one of the two methods described below. Your telephone or
Internet
vote authorizes the named proxies to vote your shares in the same manner as
if you marked, signed, and returned your proxy card. To vote by telephone or
Internet, follow these easy steps:
TO VOTE BY PHONE
Call toll free 1-888-776-5653 any time on a touch tone telephone. There
is NO CHARGE to you for the call.
Enter the Control Number located above.
To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen to the
instructions.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 - THANK YOU FOR VOTING.
TO VOTE BY INTERNET
Go to the following website: www.computershare.com/us/proxy
Enter the information requested on your computer screen, including your
Control Number located above.
Follow the simple instructions on the screen.
IF YOU VOTE BY TELEPHONE OR INTERNET, DO NOT MAIL BACK THE PROXY CARD.
THANK YOU FOR VOTING!
[TI LOGO]
Proxy for Annual Meeting to be held April 19, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints James R. Adams and Thomas J. Engibous, or
either of them, the true and lawful attorneys of the undersigned with power
of substitution, to vote as proxies for the undersigned at the annual meeting
of stockholders of Texas Instruments Incorporated to be held in Dallas,
Texas, on April 19, 2001, at 10:00 a.m. (Dallas time) and at any or all
adjournments thereof, according to the number of shares of common stock which
the undersigned would be entitled to vote if then personally present, in the
election of directors and upon other matters properly coming before the
meeting.
-----------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the election of each Board
nominee.
Election of Directors:
01-J. R. Adams o For o Withhold
02-D. L. Boren o For o Withhold
03-J. B. Busey IV o For o Withhold
04-D. A. Carp o For o Withhold
05-T. J. Engibous o For o Withhold
06-G. W. Fronterhouse o For o Withhold
07-D. R. Goode o For o Withhold
08-W. R. Sanders o For o Withhold
09-R. J. Simmons o For o Withhold
-----------------------------------------------------------------------------
In their discretion the named proxies are authorized to vote upon such other
matters as may properly come before the meeting.
-----------------------------------------------------------------------------
IF NO CONTRARY INDICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
EACH BOARD NOMINEE.
----------------
| Submit Votes |
----------------
ANNUAL MEETING OF STOCKHOLDERS
April 19, 2001
March 2, 2001
TO: Participants in the TI 401(k) Savings Plan (the "Savings Plan") and the
TI Contribution and 401(k) Savings Plan (the "Contribution and Savings Plan")
The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
and Instructions to Trustee on Voting relate to shares of common stock of
Texas Instruments Incorporated held by the Trustee for your profit sharing
accounts.
As noted in the Proxy Statement, the TI board of directors has designated the
following nominees for election to the board for the ensuing year: JAMES R.
ADAMS, DAVID L. BOREN, JAMES B. BUSEY IV, DANIEL A. CARP, THOMAS J. ENGIBOUS,
GERALD W. FRONTERHOUSE, DAVID R. GOODE, WAYNE R. SANDERS and RUTH J. SIMMONS.
Biographies of the nominees appear in the Proxy Statement. The board of
directors of TI recommends a vote FOR the election of directors.
Under the Savings Plan and the Contribution and Savings Plan, each
participant is a "named fiduciary" who has the right to direct the voting of
stock credited to his or her accounts. In addition, you and the other
participants are entitled as the "named fiduciaries" who control TI stock
voting for these plans to direct the voting of stock credited to the accounts
of participants who do not give voting instructions.
The Trustee is required to vote the shares held for each of your accounts in
accordance with your instructions. If you wish to instruct the Trustee on the
voting of shares held for your accounts, you should complete and sign the
"Instructions to Trustee on Voting" form enclosed and return it in the
addressed, postage-free envelope or use the telephone voting procedures
specified on the voting instructions form by April 16, 2001.
If you are a participant in the Savings Plan and you do not instruct the
Trustee on voting the shares held in your accounts by April 16, 2001 in the
manner specified on the voting instructions form, the Trustee will vote such
shares in the same proportions as the shares for which the Trustee receives
voting instructions from other Savings Plan participants. Similarly, if you
are a participant in the Contribution and Savings Plan, and do not instruct
the Trustee on voting the shares held for your accounts by April 16, 2001 in
the manner specified on the voting instructions form, the Trustee will vote
such shares in the same proportions as the shares for which the Trustee
receives voting instructions from other Contribution and Savings Plan
participants.
NOTE: If you own TI shares in your own name, a Proxy for those shares will be
sent to you in a separate package. Please sign and date the Proxy, if
applicable, and return it in the envelope provided, or follow the telephone
or Internet voting procedures accompanying the Proxy.
/s/ STEVE LEVEN
Steve Leven
Director, Worldwide Human Resources
INSTRUCTIONS TO TRUSTEE ON VOTING
TI COMMON STOCK HELD UNDER THE
TI 401(K) SAVINGS PLAN
PLEASE VOTE BY SIGNING ON REVERSE SIDE AND RETURNING IN THE ENCLOSED
ENVELOPE OR BY FOLLOWING THE TELEPHONE VOTING PROCEDURES
THESE VOTING INSTRUCTIONS ARE REQUESTED IN CONJUNCTION
WITH A PROXY SOLICITATION BY THE BOARD OF DIRECTORS
OF TEXAS INSTRUMENTS INCORPORATED.
I hereby instruct Bankers Trust Company of the Southwest as Trustee of the
Texas Instruments Incorporated Defined Contribution Plan Master Trust
("Trust") to vote in person or by proxy, at the annual meeting of
stockholders of Texas Instruments Incorporated ("TI") on April 19, 2001, or
any adjournments thereof, the shares of TI common stock held in the TI Stock
Fund under the Trust which are attributable to my Profit Sharing Account,
CODA Account and Tax Credit Employee Stock Ownership Account in the manner
indicated on the reverse side of this form with respect to each item
identified thereon.
The Trustee will vote the shares represented by this voting instruction form
if, by April 16, 2001, (a) the form is properly signed and received, or (b)
the telephone voting procedures are followed. Shares for which no voting
instructions have been received will be voted in the same proportions as the
shares for which voting instructions are received.
-----------------------------------------------------------------------------
On the reverse side of this card are procedures on how to vote your
shares regarding the election of directors by telephone. Please
consider voting by telephone. Your vote is recorded as though you had
mailed in your voting instruction form.
PLEASE MARK YOUR CHOICE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY:
[ / ]
------------------------------------------------------------------------
The Board of Directors of TI recommends a vote FOR the election of each Board
nominee.
FOR ALL
Election of Directors - FOR WITHHELD Except Nominee(s)
ALL ALL Written Below
Nominees: 01-J.R. Adams, [ ] [ ] [ ]______________
02-D.L. Boren, 03-J.B. Busey IV,
04-D.A. Carp, 05-T.J. Engibous,
06-G.W. Fronterhouse, 07-D.R. Goode,
08-W.R. Sanders and 09-R.J. Simmons.
Dated __________________________, 2001
IF NO CONTRARY INDICATION IS MADE THE
SHARES REPRESENTED BY THIS VOTING
INSTRUCTION FORM WILL BE VOTED FOR
THE ELECTION OF EACH BOARD NOMINEE.
_____________________________________
Signature
NOTE: Please sign exactly as name
appears hereon. When signing as executor,
administrator, attorney, trustee or
guardian, etc., please give your full
title.
IF YOU WISH TO VOTE BY TELEPHONE, PLEASE SEE THE PROCEDURES BELOW.
----------------------------------------------------------------------------
CONTROL NUMBER
--------------
| |
|--------------|
YOU CAN VOTE YOUR SHARES BY TELEPHONE!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
Call toll free 1-888-776-5654 any time on a touch tone telephone. There
is NO CHARGE to you for the call.
Enter the Control Number located above.
To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen to the
instructions.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 - THANK YOU FOR VOTING.
IF YOU VOTE BY TELEPHONE, DO NOT MAIL BACK THE VOTING INSTRUCTION FORM.
THANK YOU FOR VOTING!
INSTRUCTIONS TO TRUSTEE ON VOTING
TI COMMON STOCK HELD UNDER THE
TI CONTRIBUTION AND 401(K) SAVINGS PLAN
PLEASE VOTE BY SIGNING ON REVERSE SIDE AND RETURNING IN THE ENCLOSED
ENVELOPE OR BY FOLLOWING THE TELEPHONE VOTING PROCEDURES
THESE VOTING INSTRUCTIONS ARE REQUESTED IN CONJUNCTION
WITH A PROXY SOLICITATION BY THE BOARD OF DIRECTORS
OF TEXAS INSTRUMENTS INCORPORATED.
I hereby instruct Bankers Trust Company of the Southwest as Trustee of the
Texas Instruments Incorporated Defined Contribution Plan Master Trust
("Trust") to vote in person or by proxy, at the annual meeting of
stockholders of Texas Instruments Incorporated ("TI") on April 19, 2001, or
any adjournments thereof, the shares of TI common stock held in the TI Stock
Fund under the Trust which are attributable to my Profit Sharing Account,
401(k) Account and Tax Credit Employee Stock Ownership Account in the manner
indicated on the reverse side of this form with respect to each item
identified thereon.
The Trustee will vote the shares represented by this voting instruction form
if, by April 16, 2001, (a) the form is properly signed and received, or (b)
the telephone voting procedures are followed. Shares for which no voting
instructions have been received will be voted in the same proportions as the
shares for which voting instructions are received.
-----------------------------------------------------------------------------
On the reverse side of this card are procedures on how to vote your
shares regarding the election of directors by telephone. Please
consider voting by telephone. Your vote is recorded as though you had
mailed in your voting instruction form.
PLEASE MARK YOUR CHOICE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY:
[ / ]
-------------------------------------------------------------------------------
The Board of Directors of TI recommends a vote FOR the election of each Board
nominee.
FOR ALL
Election of Directors - FOR WITHHELD Except Nominee(s)
ALL ALL Written Below
Nominees: 01-J.R. Adams, [ ] [ ] [ ]______________
02-D.L. Boren, 03-J.B. Busey IV,
04-D.A. Carp, 05-T.J. Engibous,
06-G.W. Fronterhouse, 07-D.R. Goode,
08-W.R. Sanders and 09-R.J. Simmons.
Dated __________________________, 2001
IF NO CONTRARY INDICATION IS MADE THE
SHARES REPRESENTED BY THIS VOTING
INSTRUCTION FORM WILL BE VOTED FOR
THE ELECTION OF EACH BOARD NOMINEE.
________________________________________
Signature
NOTE: Please sign exactly as name
appears hereon. When signing as executor,
administrator, attorney, trustee or
guardian, etc., please give your full
title.
IF YOU WISH TO VOTE BY TELEPHONE, PLEASE SEE THE PROCEDURES BELOW.
-----------------------------------------------------------------------------
CONTROL NUMBER
--------------
| |
|--------------|
YOU CAN VOTE YOUR SHARES BY TELEPHONE!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
Call toll free 1-888-776-5655 any time on a touch tone telephone. There is
NO CHARGE to you for the call.
Enter the Control Number located above.
To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen to the
instructions.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 - THANK YOU FOR VOTING.
IF YOU VOTE BY TELEPHONE, DO NOT MAIL BACK THE VOTING INSTRUCTION FORM.
THANK YOU FOR VOTING!
ANNUAL MEETING OF STOCKHOLDERS
April 19, 2001
March 2, 2001
TO: Participants in the Burr-Brown Corporation Future Investment Plan (the
"Plan")
The accompanying Notice of Annual Meeting of Stockholders and Proxy Statement
and Instructions to Trustee on Voting relate to shares of common stock of
Texas Instruments Incorporated held by the Trustee for your account.
As noted in the Proxy Statement, the TI board of directors has designated the
following nominees for election to the board for the ensuing year: JAMES R.
ADAMS, DAVID L. BOREN, JAMES B. BUSEY IV, DANIEL A. CARP, THOMAS J. ENGIBOUS,
GERALD W. FRONTERHOUSE, DAVID R. GOODE, WAYNE R. SANDERS and RUTH J. SIMMONS.
Biographies of the nominees appear in the Proxy Statement. The board of
directors of TI recommends a vote FOR the election of directors.
The Trustee is required to vote the shares held for your account in
accordance with your instructions. If you wish to instruct the Trustee on the
voting of shares held for your account, you should complete and sign the
"Instructions to Trustee on Voting" form enclosed and return it in the
addressed, postage-free envelope or use the telephone voting procedures
specified on the voting instructions form by April 16, 2001. If you are a
participant in the Plan and you do not instruct the Trustee on voting the
shares held in your account by April 16, 2001 in the manner specified on the
voting instructions form, the Trustee will not vote such shares.
NOTE: If you own TI shares in your own name, a Proxy for those shares will be
sent to you in a separate package. Please sign and date the Proxy, if
applicable, and return it in the envelope provided, or follow the telephone
or Internet voting procedures accompanying the Proxy.
/s/ STEVE LEVEN
Steve Leven
Director, Worldwide Human Resources
INSTRUCTIONS TO TRUSTEE ON VOTING
TI COMMON STOCK HELD UNDER THE
BURR-BROWN CORPORATION FUTURE INVESTMENT PLAN
PLEASE VOTE BY SIGNING ON REVERSE SIDE AND RETURNING IN THE ENCLOSED
ENVELOPE OR BY FOLLOWING THE TELEPHONE VOTING PROCEDURES
THESE VOTING INSTRUCTIONS ARE REQUESTED IN CONJUNCTION
WITH A PROXY SOLICITATION BY THE BOARD OF DIRECTORS
OF TEXAS INSTRUMENTS INCORPORATED.
I hereby instruct Fidelity Management Trust Company as Trustee of the
Burr-Brown Corporation Future Investment Plan Trust ("Trust") to vote in
person or by proxy, at the annual meeting of stockholders of Texas
Instruments Incorporated ("TI") on April 19, 2001, or any adjournments
thereof, the shares of TI common stock held in the Texas Instruments Stock
Fund under the Trust which are attributable to my account in the manner
indicated on the reverse side of this form with respect to each item
identified thereon.
The Trustee will vote the shares represented by this voting instruction form
if, by April 16, 2001, (a) the form is properly signed and received, or (b)
the telephone voting procedures are followed. Shares for which no voting
instructions have been received will not be voted.
-----------------------------------------------------------------------------
On the reverse side of this card are procedures on how to vote your
shares regarding the election of directors by telephone. Please
consider voting by telephone. Your vote is recorded as though you had
mailed in your voting instruction form.
PLEASE MARK YOUR CHOICE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY:
[ / ]
-------------------------------------------------------------------------------
The Board of Directors of TI recommends a vote FOR the election of each Board
nominee.
FOR ALL
Election of Directors - FOR WITHHELD Except Nominee(s)
ALL ALL Written Below
Nominees: 01-J.R. Adams, [ ] [ ] [ ]______________
02-D.L. Boren, 03-J.B. Busey IV,
04-D.A. Carp, 05-T.J. Engibous,
06-G.W. Fronterhouse, 07-D.R. Goode,
08-W.R. Sanders and 09-R.J. Simmons.
Dated __________________________, 2001
IF NO CONTRARY INDICATION IS MADE THE SHARES
REPRESENTED BY THIS VOTING INSTRUCTION FORM WILL BE
VOTED FOR THE ELECTION OF EACH BOARD NOMINEE.
__________________________________________________
Signature
NOTE: Please sign exactly as name appears hereon.
When signing as executor, administrator, attorney,
trustee or guardian, etc., please give your full
title.
IF YOU WISH TO VOTE BY TELEPHONE, PLEASE SEE THE PROCEDURES BELOW.
----------------------------------------------------------------------------
CONTROL NUMBER
--------------
| |
|--------------|
YOU CAN VOTE YOUR SHARES BY TELEPHONE!
QUICK * EASY * IMMEDIATE * AVAILABLE 24 HOURS A DAY * 7 DAYS A WEEK
Call toll free 1-888-457-2962 any time on a touch tone telephone. There is
NO CHARGE to you for the call.
Enter the Control Number located above.
To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen to the
instructions.
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1 - THANK YOU FOR VOTING.
IF YOU VOTE BY TELEPHONE, DO NOT MAIL BACK THE VOTING INSTRUCTION FORM.
THANK YOU FOR VOTING!