Table of Contents
SCHEDULE 14A INFORMATION
Proxy Statement
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the Securities Exchange Act of 1934
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Table of Contents
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 18, 2002
Dear Stockholders:
You are cordially invited
to attend the 2002 annual meeting of stockholders on Thursday, April 18, 2002 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 a board proposal to approve a Texas Instruments Executive Officer Performance Plan. |
• |
Consider and act upon a board proposal to approve a TI Employees 2002 Stock Purchase Plan. |
• |
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, 2002 are entitled to vote at the annual meeting.
We urge you to vote your shares as
promptly as possible by: (1) accessing the Internet web site, (2) calling the toll-free number, or (3) signing, dating and mailing the enclosed proxy.
Sin |
cerely, |
 |
Joseph F. Hubach |
Senior Vice President, |
Secretary and |
General Counsel |
Dallas, Texas
March 1, 2002
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EXECUTIVE OFFICES: 12500 TI BOULEVARD, DALLAS, TEXAS
MAILING ADDRESS: POST OFFICE BOX 660199, DALLAS, TEXAS 75266-0199
PROXY STATEMENT
March 1, 2002
TI’s board of directors requests your proxy for the annual meeting of stockholders on April 18, 2002. 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 mentioned in the notice of annual meeting. This proxy statement and
related proxy are being distributed on or about March 1, 2002.
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.
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.
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.
1
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 |
JAMES R. ADAMS Director Chair, Audit Committee; member, Board Organization and
Nominating 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. | |
 |
DAVID L. BOREN Director Member, Audit Committee and Stockholder Relations and
Public Policy Committee. President of the University of Oklahoma since 1994. U.S. Senator, 1979-94; Governor of Oklahoma, 1975-79. Director, AMR Corporation,
Phillips Petroleum Company and Torchmark Corporation; chairman, Oklahoma Foundation for Excellence. | |
 |
JAMES B. BUSEY IV Director Member, Board Organization and Nominating
Committee and Compensation 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. | |
 |
DANIEL A. CARP Director Chair, Board Organization and Nominating Committee;
member, Stockholder Relations and Public Policy Committee. Chairman of the board and chief executive officer of Eastman Kodak Company since 2000; president and
chief operating officer since January 2002; director since 1997. President of Eastman Kodak, 1997-2001; executive vice president and assistant chief operating officer, 1995-97. Member, The Business Council and The Business Roundtable.
|
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 |
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. | |
 |
GERALD W. FRONTERHOUSE Director Member, Compensation Committee and Stockholder
Relations and Public Policy Committee. Investments. Chief executive officer of First RepublicBank Corporation, 1985-88. Chairman of the board and director,
Hoblitzelle Foundation. | |
 |
DAVID R. GOODE Director Chair, Compensation Committee; member, Audit
Committee. Chairman of the board and chief executive officer of Norfolk Southern Corporation since 1992; president since 1991. Director, Caterpillar, Inc., Delta
Air Lines, Inc. and Georgia-Pacific Corporation; member, The Business Council and The Business Roundtable. | |
 |
WAYNE R. SANDERS Director Member, Board Organization and Nominating Committee
and Compensation Committee. Chairman of the board of Kimberly-Clark Corporation since 1992; chief executive officer since 1991; director since 1989. Director,
Adolph Coors Company, Coors Brewing Company; vice-chairman, board of trustees, Marquette University. |
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 |
RUTH J. SIMMONS Director Chair, Stockholder Relations and Public Policy
Committee; member, Audit Committee. President of Brown University since 2001. President of Smith College, 1995-2001; vice provost of Princeton University, 1992-95;
provost of Spelman College, 1990-91. Director, 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. |
The table below shows the directors’ ages and holdings of common stock of the
company and the year each became a director.
| DIRECTOR |
COMMON STOCK OWNERSHIP AT DECEMBER 31, 2001* | |||||
| DIRECTOR |
AGE |
SINCE |
||||
| James R. Adams |
62 |
1989 |
621,280 | |||
| David L. Boren |
60 |
1995 |
36,380 | |||
| James B. Busey IV |
69 |
1992 |
57,097 | |||
| Daniel A. Carp |
53 |
1997 |
31,164 | |||
| Thomas J. Engibous |
49 |
1996 |
3,441,457 | |||
| Gerald W. Fronterhouse |
65 |
1986 |
66,589 | |||
| David R. Goode |
61 |
1996 |
36,132 | |||
| Wayne R. Sanders |
54 |
1997 |
37,700 | |||
| Ruth J. Simmons |
56 |
1999 |
15,500 | |||
* |
Includes (a) shares that can be acquired within 60 days through the exercise of options by Mr. Adams, 598,500 shares, Mr. Boren, 13,500 shares, Mr. Busey, 22,500 shares, Mr. Carp, 22,500
shares, Mr. Engibous, 3,305,000 shares, Mr. Fronterhouse, 22,500 shares, Mr. Goode, 22,500 shares, Mr. Sanders, 22,500 shares and Ms. Simmons, 7,500 shares; (b) shares credited to profit sharing stock accounts for Mr. Adams, 3,384 shares and Mr.
Engibous, 17,714 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, 57,600 shares, Mr. Fronterhouse, 22,880 shares,
Mr. Goode, 13,632 shares, Mr. Sanders, 9,600 shares and Ms. Simmons, 8,000 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.
|
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During 2001, the board held 10 meetings. The board has four standing committees described below. Overall
attendance at board and committee meetings was approximately 95%.
Audit Committee. 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 5 times in 2001.
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 the company. |
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.
The Board Organization and Nominating Committee met 5 times in 2001.
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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 8 times in 2001.
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. |
• |
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 3 times in 2001.
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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 2001, the company made payments (an aggregate of $6,089) relating to premiums for life, medical, dental, travel
and accident insurance policies covering directors.
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.
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.
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.
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
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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 1999, 2000 and 2001.
| Annual Compensation |
Long-Term Compensation |
||||||||||||||||||
| Awards |
Payouts |
||||||||||||||||||
| Name
and Principal Position |
Year |
Salary |
Bonus |
Other Annual Compensation (1) |
Restricted Stock Awards (2) |
Stock Options (in Shares) |
Long-Term Incentive Plan Payouts |
All Other Compensation (3) | |||||||||||
| T.J. Engibous |
2001 |
$ |
836,700 |
|
0 |
— |
0 |
842,000 |
0 |
$ |
60,802 | ||||||||
| Chairman, |
2000 |
$ |
796,200 |
$ |
1,300,000 |
— |
0 |
700,000 |
0 |
$ |
818,556 | ||||||||
| President & CEO |
1999 |
$ |
744,170 |
$ |
2,200,000 |
— |
0 |
1,000,000 |
0 |
$ |
588,731 | ||||||||
| R.K. Templeton |
2001 |
$ |
591,700 |
|
0 |
— |
0 |
535,000 |
0 |
$ |
104,054 | ||||||||
| Executive Vice |
2000 |
$ |
497,200 |
$ |
900,000 |
— |
0 |
400,000 |
0 |
$ |
639,096 | ||||||||
| President & Chief |
1999 |
$ |
457,670 |
$ |
1,500,000 |
— |
0 |
600,000 |
0 |
$ |
430,643 | ||||||||
| Operating Officer |
|||||||||||||||||||
| W.A. Aylesworth |
2001 |
$ |
375,850 |
|
0 |
— |
0 |
145,000 |
0 |
$ |
13,121 | ||||||||
| Senior Vice |
2000 |
$ |
365,400 |
$ |
300,000 |
— |
0 |
100,000 |
0 |
$ |
232,424 | ||||||||
| President & Chief |
1999 |
$ |
365,400 |
$ |
500,000 |
— |
0 |
200,000 |
0 |
$ |
199,150 | ||||||||
| Financial Officer |
|||||||||||||||||||
| M.J. Hames (4) |
2001 |
$ |
320,600 |
|
0 |
— |
0 |
230,000 |
0 |
$ |
273,726 | ||||||||
| Senior Vice |
2000 |
$ |
268,000 |
$ |
425,000 |
— |
0 |
100,000 |
0 |
$ |
235,395 | ||||||||
| President |
|||||||||||||||||||
| S.P. Madavi (5) |
2001 |
$ |
425,004 |
|
0 |
— |
0 |
0 |
0 |
$ |
2,429,170 | ||||||||
| Senior Vice |
|||||||||||||||||||
| President |
|||||||||||||||||||
(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, 2001, the value of restricted stock units awarded to Messrs. Engibous and Templeton was $1,612,800 and $3,360,000, respectively. The restricted stock units for
Mr. Engibous were awarded in 1996. Payments under the award are based primarily on the extent to which the company met certain performance goals during the five-year period ending December 31, 2001, but the amounts generally are payable
only if Mr. Engibous remains employed by the company for a period of ten years from the date of the award. The restricted stock units for Mr. Templeton were awarded prior to his becoming an executive officer.
|
(3) |
During 2001, the company made payments in connection with split-dollar life insurance policies in the following amounts: Mr. Engibous, $57,382; Mr. Templeton, $14,532; and Mr.
Aylesworth, $9,701. Also, the company made payments in connection with travel and accident insurance policies in the amount of $20 for each of the executive officers named in the summary compensation table. |
During 2001, the company made matching contributions to 401(k) accounts in the amount of $3,400 for Messrs. Engibous, Aylesworth and Hames and $6,800 for Messrs. Templeton and Madavi. No profit
sharing payments were made for 2001.
The company made contributions under its defined contribution retirement plan in the amount of $3,400 for Messrs. Templeton and Madavi. The
company accrued additional amounts of $79,302 and $13,376 for the benefit of Messrs. Templeton and Madavi, respectively, to offset Internal Revenue Code limitations on amounts that could be contributed to the defined contribution retirement plan.
The amount shown for Mr. Hames includes $259,402 for relocation allowances and reimbursement of costs incurred in connection with his relocation to Dallas, Texas, and $10,904
for unused vacation time that cannot be carried forward into 2002.
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In connection with its acquisition of Burr-Brown Corporation, the company agreed to pay Mr. Madavi a special transition bonus; $2,405,574 of that
bonus was paid in 2001. The bonus is of a non-recurring nature.
(4) |
Mr. Hames became an executive officer of the company in 2000. |
(5) |
Mr. Madavi became an executive officer of the company in 2001. |
The following table shows stock options granted to the named executive officers in 2001. 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. The options have a 10-year term and generally are exercisable within 30 days following the termination of an optionee’s employment. The options become
fully exercisable in the event of a change in control (as defined in the options) of the company. 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.
| Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (10 Years) | ||||||||||||||||||||||
| 5% |
10% | |||||||||||||||||||||
| Name |
Options Granted (in Shares) (1) |
% Of Total Options Granted To Employees In 2001 |
Exercise Price (per Share) |
Expiration Date |
Stock Price (per Share) (2) |
Gain |
Stock Price (per Share) (2) |
Gain | ||||||||||||||
| T.J. Engibous |
500,000 |
1.43 |
% |
$ |
50.38 |
1/17/11 |
$ |
82.06 |
$ |
15,840,000 |
$ |
130.67 |
$ |
40,145,000 | ||||||||
| 342,000 |
0.98 |
% |
$ |
31.30 |
11/29/11 |
$ |
50.98 |
$ |
6,730,560 |
$ |
81.18 |
$ |
17,058,960 | |||||||||
| R.K. Templeton |
325,000 |
0.93 |
% |
$ |
50.38 |
1/17/11 |
$ |
82.06 |
$ |
10,296,000 |
$ |
130.67 |
$ |
26,094,250 | ||||||||
| 210,000 |
0.60 |
% |
$ |
31.30 |
11/29/11 |
$ |
50.98 |
$ |
4,132,800 |
$ |
81.18 |
$ |
10,474,800 | |||||||||
| W.A. Aylesworth |
90,000 |
0.26 |
% |
$ |
50.38 |
1/17/11 |
$ |
82.06 |
$ |
2,851,200 |
$ |
130.67 |
$ |
7,226,100 | ||||||||
| 55,000 |
0.16 |
% |
$ |
31.30 |
11/29/11 |
$ |
50.98 |
$ |
1,082,400 |
$ |
81.18 |
$ |
2,743,400 | |||||||||
| M.J. Hames |
130,000 |
0.37 |
% |
$ |
50.38 |
1/17/11 |
$ |
82.06 |
$ |
4,118,400 |
$ |
130.67 |
$ |
10,437,700 | ||||||||
| 100,000 |
0.29 |
% |
$ |
31.30 |
11/29/11 |
$ |
50.98 |
$ |
1,968,000 |
$ |
81.18 |
$ |
4,988,000 | |||||||||
| S.P. Madavi |
0 |
— |
|
|
— |
— |
|
— |
|
— |
|
— |
|
— | ||||||||
(1) |
These nonqualified options were granted on January 17, 2001 and November 29, 2001 and become exercisable in four equal annual installments beginning on January 17, 2002 and November 29,
2002, respectively. An option for 250,000 shares previously granted to Mr. Madavi will remain exercisable until the expiration of the term, following the termination of his employment. |
(2) |
The price of TI common stock at the end of the 10-year term of the stock options granted on January 17, 2001 would be $82.06 at a 5% annual appreciation rate and $130.67 at a 10% annual
appreciation rate. The price of TI common stock at the end of the 10-year term of the stock options granted on November 29, 2001 would be $50.98 at a 5% annual appreciation rate and $81.18 at a 10% annual appreciation rate.
|
The following table lists the number of shares acquired and the value
realized as the result of option exercises in 2001 by the named executive officers. It also includes the number and value of the exercisable and unexercisable options as of December 31, 2001. The table contains values for “in-the-money”
options, meaning a positive spread between the year-end share price of $28.00 and the exercise price.
| Number of Unexercised Options at December 31, 2001 |
Value of Unexercised In-the-Money Options at December 31, 2001
| ||||||||||||||
| Name |
Shares Acquired on Exercise |
Value Realized |
Exercisable |
Unexercisable |
Exercisable |
Unexercisable | |||||||||
| T.J. Engibous |
— |
|
— |
2,555,000 |
2,067,000 |
$ |
37,132,400 |
$ |
4,838,000 | ||||||
| R.K. Templeton |
— |
|
— |
2,090,000 |
1,225,000 |
$ |
35,989,600 |
$ |
2,409,600 | ||||||
| W.A. Aylesworth |
— |
|
— |
685,000 |
360,000 |
$ |
11,312,800 |
$ |
967,600 | ||||||
| M.J. Hames |
— |
|
— |
535,000 |
395,000 |
$ |
9,242,400 |
$ |
679,200 | ||||||
| S.P. Madavi |
207,000 |
$ |
4,960,022 |
649,000 |
651,500 |
$ |
6,186,495 |
$ |
4,197,960 | ||||||
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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, 2001 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
defined contribution plan for Mr. Templeton’s benefit are included in the summary compensation table.
Mr. Madavi terminated his
participation in the defined benefit pension plan of Burr-Brown Corporation in connection with the company’s acquisition of Burr-Brown in 2000. Mr. Madavi has an accrued annual benefit of $8,400 in the Burr-Brown plan. This accrued benefit is
expressed as a single life annuity beginning at age 65 and will be reduced if received prior to age 65. Contributions to the company’s defined contribution retirement plan for Mr. Madavi’s benefit are included in the summary compensation
table.
| Average Credited Earnings (1) |
Estimated Annual Benefits Under Pension Plan for Specified Years of Credited Service (2)(3) |
||||||||||||||||||||
| 15 Years |
20 Years |
25 Years |
30 Years |
35 Years |
40 Years |
45 Years |
|||||||||||||||
| 500,000 |
108,314 |
|
144,418 |
|
180,523 |
|
216,627 |
|
252,732 |
|
290,232 |
|
327,732 |
| |||||||
| 1,000,000 |
220,814 |
|
294,418 |
|
368,023 |
|
441,627 |
|
515,232 |
|
590,232 |
|
665,232 |
| |||||||
| 1,500,000 |
333,314 |
|
444,418 |
|
555,523 |
|
666,627 |
|
777,732 |
|
890,232 |
|
1,002,732 |
| |||||||
| 2,000,000 |
445,814 |
|
594,418 |
|
743,022 |
|
891,627 |
|
1,040,232 |
|
1,190,232 |
|
1,340,232 |
| |||||||
| 2,500,000 |
558,314 |
|
744,418 |
|
930,522 |
|
1,116,627 |
|
1,302,732 |
|
1,490,232 |
|
1,677,732 |
| |||||||
| 3,000,000 |
670,814 |
|
894,418 |
|
1,118,022 |
|
1,341,627 |
|
1,565,232 |
|
1,790,232 |
|
2,015,232 |
| |||||||
(1) |
The average credited earnings is the average of the five consecutive years of highest earnings. |
At December 31, 2001, the named executive officers were credited with the following years of credited service and had the following average credited earnings: Mr. Engibous, 24 years, $2,102,816;
Mr. Aylesworth, 34 years, $795,493; and Mr. Hames, 20 years, $670,320. Mr. Templeton had 16 years of credited service and $536,761 in average credited earnings as of December 31, 1997.
(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 pension 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 $4,186 for 15 years of credited service, $5,582 for 20 years of credited service, $6,977 for 25 years of credited service, $8,373 for 30 years of credited service, $9,768 for 35 years of credited service, $9,768 for 40
years of credited service and $9,768 for 45 years of credited service.
The company does not have any employment
contracts with its executive officers. However, in October 1996, Burr-Brown Corporation, which the company acquired in 2000, entered into a severance agreement with Mr. Madavi, Burr-Brown’s President and Chief Executive Officer at the time.
Under this agreement, severance benefits will be paid to Mr. Madavi upon his termination of employment under
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certain specified circumstances. In the absence of a change in control of the company, the agreement does not provide any severance benefits to Mr. Madavi in the event of his voluntary
resignation or if his employment is terminated for misconduct. If the company terminated Mr. Madavi’s employment for a justifiable reason (including his failure to correct one or more material deficiencies in his performance after receipt of
written notice from the Board), then he would be entitled to: (i) a one-time lump sum payment equal to his average annual base salary and bonus for the preceding three years and (ii) the continuation of his base salary for twelve months. If the
company terminated Mr. Madavi’s employment without cause (for any reason other than misconduct or a justifiable reason), then the company would pay him a severance benefit equal to two times his average annual base salary and bonus for the
preceding three years, with one-half of such amount to be paid in an immediate lump sum and the balance to be paid in twelve equal monthly installments.
If the
company incurred a “change in control” (a change in ownership of more than fifty percent of the total combined voting power of the company’s outstanding securities or the sale of all or substantially all of the company’s assets
or dissolution of the company), then Mr. Madavi would be entitled to a severance benefit equal to: (a) two times his average annual base salary and bonus for the preceding three years, if he voluntarily left the company within two years after the
change in control; (b) three times his average annual base salary and bonus for the preceding three years, if he was constructively terminated within six months after the change in control; or (c) four times his average annual base salary and bonus
for the preceding three years, if he is terminated without cause following the change in control. In addition, if the company were acquired through a hostile takeover and Mr. Madavi left the company’s employ at any time within the succeeding
two years, then he would be entitled to a lump sum severance payment equal to two times his average annual base salary and bonus for the preceding three years.
The severance agreement also imposes certain non-competition covenants and consulting obligations upon Mr. Madavi during the period severance benefits are to be paid to him following his termination of employment, whether or not such
termination is in connection with a change in control. In addition, the company will, at its expense, provide continued health care coverage under the company’s medical/dental plans to Mr. Madavi and his eligible dependents for up to a
twelve-month period following his termination.
The severance agreement also requires that all future option grants made to Mr. Madavi contain certain vesting
acceleration provisions, ranging from twenty percent (20%) to one hundred percent (100%) accelerated vesting, in connection with his termination of employment or certain changes in control or ownership of the company.
The severance agreement was effective through December 31, 2001 and automatically renewed on January 1, 2002 and will renew each calendar year thereafter unless the company gives written
notice of non-renewal at least one hundred eighty days prior to the start of any such subsequent calendar year. Should Mr. Madavi resign within six months after such non-renewal, the company will be obligated to negotiate a reasonable severance
package with him comparable to termination benefits provided to similarly-situated chief executive officers in the industry.
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The Compensation Committee of the board of directors has furnished the following report on executive
compensation paid or awarded to executive officers for 2001:
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 2001 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 2001 were made such that TI executive officers 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 and market capitalization). Decisions regarding annual performance awards for 2001 were primarily driven by the company’s 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.
Guidelines for awards granted under TI’s long-term
incentive program were set with the intention of providing TI executive officers with stock option grants for a comparable number of shares and value to those granted by competitor companies. The Committee, in its discretion, adjusted the awards
considering each executive officer’s individual contribution to the implementation of the strategic plan of the company.
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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 2001 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’ 2001 performance compared to the company’s performance, and determined to grant no annual performance awards to executive officers. Accordingly, the level
of annual compensation for 2001 (base salary plus incentive awards) of Mr. Engibous was below the median annual compensation of CEOs of competitor companies.
Long-term Compensation
Stock options constitute TI’s primary long-term incentive vehicle. Stock options granted in 2001 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 executive officers from option grants
depends completely upon increases in the price of TI common stock. As a result, the grants focus the executive officers on building value for stockholders.
The
Committee made long-term compensation determinations in January and November 2001 and, for one executive officer, also in June 2001. In connection with its determinations, the Committee reviewed the officers’ continuing contributions to
achieving the strategic objectives of the company and followed the guidelines for stock options. Considering Mr. Engibous’ continuing contribution to execution of the strategic plan for the company, the Committee granted Mr. Engibous options
for a total of 842,000 shares, resulting in a total long-term compensation opportunity comparable to those of CEOs of 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 |
Gerald W. Fronterhouse | |
| James B. Busey IV |
Wayne R. Sanders |
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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, 1996, and ending December 31, 2001. The total shareholder return assumes $100 invested at the beginning of the period in TI common stock, the S&P 500 Index and the
S&P Technology Sector Index. It also assumes reinvestment of all dividends.
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The consolidated financial statements and auditors’ 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, 2001 and other information are attached as Exhibit C to this proxy statement.
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 2001
annual audit and review of interim financial statements were $2,986,000.
Financial Information Systems Design and Implementation
Fees. Ernst & Young did not render any professional services to us in 2001 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 2001 were $4,509,000, including audit related services of $1,329,000 and non-audit services
of $3,180,000. Audit related services included fees for statutory audits, employee benefit plans audits and accounting consultations. Non-audit services included fees for expatriate administration and tax preparation, preparation of non-U.S. tax
returns and tax consultations.
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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.
The board has determined that each member of the Committee is “independent,” as defined in the listing standards of the New York Stock Exchange.
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 non-audit 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 2001 for filing with the Securities and Exchange Commission.
| James R. Adams, Chair |
David R. Goode | |
| David L. Boren |
Ruth J. Simmons |
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EXECUTIVE OFFICER PERFORMANCE PLAN
Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the amount of compensation that may be deducted by the company in any tax year with respect to the company’s five most highly paid executives.
However, certain performance-based compensation that has been approved by stockholders is not subject to the deduction limit. In order to maximize the company’s deduction for compensation paid to its executive officers, the board of directors
has adopted, subject to stockholder approval, the Texas Instruments Executive Officer Performance Plan. If approved by stockholders, the new plan will replace the current Executive Officer Performance Plan approved in 1997. The proposed Plan is
substantially the same as the current plan.
Texas Instruments Executive Officer Performance Plan
The full text of the proposed Texas Instruments Executive Officer Performance Plan is shown on Exhibit A to this proxy statement. The principal features of the Plan are summarized below.
The purpose of the Texas Instruments Executive Officer Performance Plan is to provide performance-based compensation for the company’s executive officers, and the Plan is intended to
provide such compensation in accordance with Section 162(m) of the Internal Revenue Code.
Employees covered under the Plan are the executive officers of the
company, as defined in Rule 3b-7 under the Securities Exchange Act of 1934. The Plan will be administered by the Compensation Committee, and, subject to the Committee’s discretion to reduce the awards, each executive officer of the company will
be entitled to an annual award for each performance year under the Plan equal to 0.5% of the company’s consolidated income from continuing operations before (i) provision for income taxes, (ii) awards under the Plan, (iii) any pretax gain or
loss exceeding $25 million recognized for the year related to divestiture of a business, and (iv) any write-off of in-process research and development expenses exceeding $25 million associated with an acquisition.
After the end of each performance year, the company’s independent auditors will determine and report to the Compensation Committee, and the Compensation Committee will certify, the
amount of each award for that year under the Plan. The Compensation Committee, based on such factors as it deems appropriate, may reduce (including a reduction to zero), but may not increase, the amount of any award under the Plan for that year.
All awards under the Plan will be paid in cash. The Compensation Committee may, however, direct that any such award be paid in equal or varying installments and
may prescribe any other terms and conditions of payment as it deems appropriate, including completion of specific periods of employment with the company.
The
awards that would be received by executive officers under the proposed Plan are not determinable at this time. Had the Plan been in effect for the year 2001, executive officers would not have received any amounts under the Plan. No awards were
received for the year 2001 by executive officers under the current plan.
The board of directors recommends a vote “FOR” the Texas Instruments Executive
Officer Performance Plan.
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2002 STOCK PURCHASE PLAN
In
order to enable the company to continue to provide flexible and competitive employee benefits, the board proposes that the TI Employees 2002 Stock Purchase Plan replace the TI Employees 1997 Stock Purchase Plan, which will expire by its terms on
April 19, 2002. The new Plan is substantially the same as the 1997 plan.
TI Employees 2002 Stock Purchase Plan
The full text of the proposed TI Employees 2002 Stock Purchase Plan is shown on Exhibit B to this proxy statement. The principal features of the Plan are summarized below.
Plan Provisions. Each year during the term of the TI Employees 2002 Stock Purchase Plan, unless the Compensation Committee determines otherwise,
TI will make one or more offers to each eligible employee of options to purchase TI common stock through voluntary payroll deductions. Each eligible employee will be entitled to purchase up to that number of shares which could be purchased at the
option price (for this purpose, the price determined by the Compensation Committee as of the date of grant, without regard to any lower price that may become applicable at exercise) with an amount equal to such percentage of the employee’s
compensation as the Compensation Committee may determine (but not exceeding the amount specified in Section 423(b) of the Internal Revenue Code) for any offering.
The option price for each offering will be determined by the Compensation Committee and will not be less than 85% of fair market value on the date of grant; provided that the Compensation Committee may also provide for an alternative, lower
option price which may not be less than 85% of fair market value on the date the option is exercised.
The expiration date of the options will be determined for
each offering by the Compensation Committee but will not in any event be later than 27 months from the date the option was granted. The term of an option will consist of an Enrollment Period, a Payroll Deduction Period and an Exercise Day. The
beginning and ending dates of each Enrollment Period and Payroll Deduction Period and the date of each Exercise Day will be determined by the Compensation Committee. Each eligible employee who wishes to participate will elect to do so by the end of
the Enrollment Period. Generally, the election to participate will automatically renew for each subsequent offering until cancelled by the employee. The employee’s election will indicate the number of shares for which such employee wishes to
participate and will authorize payroll deductions, to be made over the Payroll Deduction Period, which will aggregate to no more than the amount required to purchase the maximum number of shares covered by the employee’s option. At any time
during the Payroll Deduction Period, a participant may cancel but not reduce his or her payroll deduction and withdraw all, but not a part, of the amount credited to his or her account. After completion of the Payroll Deduction Period the option
will be automatically exercised on the Exercise Day.
No more than 20,000,000 shares of TI common stock may be sold pursuant to the TI Employees 2002 Stock
Purchase Plan, subject to adjustments as described below. In the event that the Compensation Committee determines that an adjustment is appropriate by reason of any dividend or other distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the company, issuance of warrants or other rights to purchase shares or other securities of the company, or other similar
corporate transaction or event, it shall adjust any or all of (i) the number and type of shares that
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may be made subject to options, (ii) the number and type of shares subject to outstanding options, and (iii) the grant, purchase or exercise price with respect to any option.
Either authorized and unissued shares or issued shares reacquired by the company may be made subject to options under the Plan. Any shares not purchased prior to the
termination of an option may be again subjected to an option under the Plan. An employee will not be granted an option under the Plan if the employee, immediately after the option is granted, owns stock having 5% or more of the total combined voting
power or value of all classes of stock of the company. No employee will be granted an option that permits the employee to accrue rights to purchase stock under all employee stock purchase plans of the company at a rate that exceeds $25,000 (or such
other maximum as may be prescribed from time to time under the Internal Revenue Code) of fair market value of such stock (determined at the time such option is granted) for each calendar year in which the option is outstanding at any time in
accordance with the provisions of Section 423(b)(8) of the Internal Revenue Code. No offering may be made under the Plan after April 19, 2012.
On or prior to the
date of each offering, the Compensation Committee will determine the effect of an employee’s termination of employment during the term of any option granted to him or her in the offering. No option will be exercisable under any conditions after
the expiration of 27 months from the Exercise Day. Options are exercisable only by the employee to whom they were granted during his or her lifetime or, in the case of incompetency, by the employee’s duly appointed representative, and they are
not transferable otherwise than by will or the laws of descent and distribution.
All shares purchased under an option will be paid for in full at the time the
option is exercised by transfer of the purchase price from the employee’s payroll deduction account.
Plan Benefits. Each
executive officer qualifies for participation under the Plan and is eligible to annually purchase up to $25,000 worth of the company’s stock at a discount below the market price. However, participation in the Plan is voluntary and is dependent
upon each executive officer’s election to participate, his or her determination as to the level of payroll deductions and the fair market value of the stock on the Exercise Day. Accordingly, future benefits that would be received by the
executive officers and other eligible employees under the proposed Plan are not determinable at this time.
Tax Consequences. The
Plan is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.
The board of directors is advised by
counsel for the company that an employee will not be deemed to have received any compensation for federal income tax purposes at the time of either the grant or the exercise of an option under the Plan. If an employee exercises an option under the
Plan and does not dispose of the shares thus acquired until more than two years after the date the option was granted, nor until more than one year after the transfer of the shares to him or her, any profit realized upon the disposition will be
treated as a long-term capital gain, provided the option price determined by the Compensation Committee as of the date of grant (without regard to any lower price that may become applicable at exercise) was at least 100% of the fair market value of
the shares at the time granted. If, however, the option price determined by the Compensation Committee as of the date of grant (without regard to any lower price that may become applicable at exercise) was less than 100% of the fair market value of
the shares on the date of grant, then upon a disposition of the shares after satisfaction of the required holding period or upon the employee’s death while owning such shares, there must be reported as ordinary income (regardless of whether the
option was exercised at an alternative, lower price) an amount that equals the lesser of (1) the amount by which the fair market value of the shares at the time the option was granted exceeds the option price determined by the Compensation Committee
at the date of grant (without regard to any lower price that may become applicable at exercise) or (2) the amount by which the fair market value of the shares at the time of such disposition
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or death exceeds such option price. In the case of the disposition of such shares after satisfaction of the required holding period, the remainder of any profit realized will be treated as a
long-term capital gain. If the stock is disposed of after the required holding period, the company will not be entitled to a deduction for federal income tax purposes in connection with either the grant or the exercise of the option. However, if the
optionee disposes of such shares other than as described above, the company will be entitled to a deduction for federal income tax purposes in an amount equal to the ordinary income, if any, realized by the optionee.
The board of directors recommends a vote “FOR” the TI Employees 2002 Stock Purchase Plan.
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As of February 20, 2002, 1,734,071,179 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, 2002 may
vote at the meeting or any adjournment of the meeting.
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.
| Name and Address |
Shares Owned at December 31, 2001 |
Percent of Class |
||||
| Capital Research and Management Company 333 South Hope Street Los Angeles, CA 90071 |
103,387,520 |
(1) |
6.0 |
% | ||
| Thomas J. Engibous |
3,441,457 |
(2) |
* |
| ||
| Richard K. Templeton |
2,642,083 |
(2) |
* |
| ||
| William A. Aylesworth |
1,038,662 |
(2) |
* |
| ||
| Michael J. Hames |
709,933 |
(2) |
* |
| ||
| Syrus P. Madavi |
818,000 |
(2) |
* |
| ||
| All executive officers and directors as a group |
12,183,168 |
(2)(3) |
* |
|
* Less |
than 1% |
(1) |
The company understands that, as of December 31, 2001, Capital Research and Management Company had sole dispositive power with respect to all of the above shares.
|
(2) |
Includes (a) shares subject to acquisition within 60 days by Messrs. Engibous, Templeton, Aylesworth, Hames and Madavi for 3,305,000, 2,511,250, 822,500, 652,500 and 766,000 shares,
respectively, (b) shares credited to profit sharing stock accounts for Messrs. Engibous, Templeton, Aylesworth and Hames, in the amounts of 17,714, 10,832, 23,538 and 6,803 shares, respectively, and (c) shares subject to restricted stock unit awards
for Messrs. Engibous and Templeton, in the amounts of 57,600 and 120,000 shares, respectively. Excludes shares held by a family member if a director or officer has disclaimed beneficial ownership. |
(3) |
Includes (a) 11,049,000 shares subject to acquisition within 60 days, (b) 171,907 shares credited to profit sharing stock accounts, and (c) 400,648 shares subject to restricted stock
unit awards. |
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 2001.
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.
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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.
If you wish to submit a proposal for possible inclusion in the company’s 2003 proxy material, we must
receive your notice, in accordance with rules of the Securities and Exchange Commission, on or before November 1, 2002.
If you wish to submit a proposal at the
2003 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 18, 2003.
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.
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.
The nine nominees receiving the greatest number of votes cast by those entitled to vote will be elected.
For all other matters submitted at the meeting (including the proposals to approve the Texas Instruments Executive Officer Performance Plan and the TI Employees 2002 Stock
Purchase Plan), an affirmative vote of the majority of the shares present in person or by proxy is necessary for approval.
We do not expect any matters to be
presented for a vote at the annual meeting other than (1) the election of directors, (2) the proposal to approve the Texas Instruments Executive Officer Performance Plan, and (3) the proposal to approve the TI Employees 2002 Stock Purchase Plan. 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.
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 or AGAINST or abstain from voting, 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.
If you are a participant in the TI Contribution and 401(k) Savings Plan, the TI 401(k) Savings Plan or the
Burr-Brown Corporation Future Investment Plan, you are entitled to direct the voting of shares allocable to your accounts under these plans. The trustee administering your plan will vote your shares in accordance with your instructions. If you wish
to instruct the trustee on the voting of shares held for your accounts, you should vote by April 15, 2002.
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Additionally, participants under the plans are designated as “named fiduciaries” for the purpose of voting TI stock held
under the plans for which no voting direction is received. TI shares held by the TI Contribution and 401(k) Savings Plan or the TI 401(k) Savings Plan for which no voting instructions are received by April 15, 2002 will be voted in the same
proportions as the shares in the plans for which voting instructions have been received by that date. TI shares held under the Burr-Brown Corporation Future Investment Plan for which no instructions are received by April 15, 2002 will not be voted.
Registered Stockholders and Benefit Plan Participants. Stockholders with
shares registered directly with Computershare and participants who beneficially own shares in a company benefit plan may vote telephonically by calling (800) 690-6903 (within the U.S. and Canada only, toll-free) or via the Internet at the following
address on the World Wide Web:
www.proxyvote.com
Stockholders with 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 may differ from the program
provided to registered stockholders and benefit plan participants. 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 ADP Investor Communication Services are consistent with the requirements of applicable law.
Stockholders voting via the Internet 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.
To reduce the expenses of delivering duplicate proxy materials, we are taking
advantage of the SEC’s new “householding” rules that permit us to deliver only one set of proxy materials to stockholders who share an address unless otherwise requested. If you share an address with another stockholder and have
received only one set of proxy materials, you may request a separate copy of these materials at no cost to you by calling Investor Relations at (972) 995-3773 or by writing to Texas Instruments Incorporated, P.O. Box 660199, MS 8657, Dallas, TX
75266-0199, Attn: Investor Relations. For future annual meetings, you may request separate voting materials, or request that we send only one set of proxy materials to you if you are receiving multiple copies, by calling (800) 542-1061 or writing to
Investor Relations at the address given above.
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As an alternative to receiving printed copies of these materials in future years, we are
pleased to offer stockholders the opportunity to receive proxy mailings electronically. To request electronic delivery, please vote via the Internet at www.proxyvote.com and, when prompted, enroll to receive or access proxy materials electronically
in future years.
After the meeting date, stockholders holding shares through a broker or bank may request electronic delivery by visiting www.icsdelivery.com/ti
and entering information for each account held by a bank or broker. If you are a registered stockholder or a participant in a TI benefit plan and would like to enroll, please visit www.ti.com/IR or call Investor Relations at (972) 995-3773 for more
information.
By |
Order of the Board of Directors, |
|
Joseph F. Hubach |
Senior Vice President, |
Secretary and |
General Counsel |
Dallas, Texas
March 1, 2002
24
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EXHIBIT A
Dated April 18, 2002
The purpose of the Plan is to promote the success of the Company by providing performance-based compensation for executive officers.
For purposes of the Plan, unless otherwise indicated, the term “TI” shall mean Texas Instruments Incorporated, “Company” shall mean TI and its subsidiaries, and “Board” shall mean the
Board of Directors of TI.
The Plan is intended to provide qualified performance-based compensation in accordance with Section 162(m) of the Internal Revenue Code
of 1986, as amended, and regulations thereunder (“Code”) and will be so interpreted.
Covered Employees
The executive officers of TI (within the meaning of Rule 3b-7 under the Securities Exchange Act of 1934 as amended from time to time) as of March 30 of each calendar year
(“performance year”) shall receive awards under the Plan for such performance year. An individual who becomes an executive officer after March 30 and on or before October 1 of a performance year shall receive an award as provided below.
Administration of Plan
The Plan shall be administered by a Committee
of the Board which shall be known as the Compensation Committee (the “Committee”). The Committee shall be appointed by a majority of the whole Board and shall consist of not less than three directors. The Board may designate one or more
directors as alternate members of the Committee, who may replace any absent or disqualified member at any meeting of the Committee. A director may serve as a member or alternate member of the Committee only during periods in which the director is an
“outside director” as described in Section 162(m) of the Code. The Committee shall have full power and authority to construe, interpret and administer the Plan. It may issue rules and regulations for administration of the Plan. It shall
meet at such times and places as it may determine. A majority of the members of the Committee shall constitute a quorum and all decisions of the Committee shall be final, conclusive and binding upon all parties, including the Company, the
stockholders and the employees.
The Committee shall have the full and exclusive right to make reductions in awards under the Plan. In determining whether to
reduce any award and the amount of any reduction, the Committee shall take into consideration such factors as the Committee shall determine.
Expenses of
Administration
The expenses of the administration of this Plan, including the interest provided in the Plan, shall be borne by the Company.
Amendments
The Board may, at any time and from time to time, alter, amend, suspend
or terminate the Plan or any part thereof as it may deem proper and in the best interests of the Company, provided, however, that no such action shall (i) affect or impair the rights under any award theretofore granted under the Plan, except that in
the case of a covered employee employed outside the United States the Committee may vary the provisions of the Plan as it may deem appropriate to conform with local laws, practices and procedures or (ii) increase the maximum amount of any award
above the amount described below.
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Awards
Subject to the
Committee’s discretion to reduce such awards, each covered employee shall be entitled to an award for each performance year equal to 0.5% of the Company’s consolidated income from continuing operations before (i) provision for income
taxes, (ii) awards under the Plan, (iii) any pretax gain or loss exceeding $25 million recognized for the year related to divestiture of a business and (iv) any write-off of in process research and development expenses exceeding $25 million
associated with an acquisition, as determined and reported to the Committee by TI’s independent auditors (“Consolidated Income”).
An individual who
becomes an executive officer after March 30 and on or before October 1 of a performance year shall be entitled to a prorated award for that performance year which shall be 0.5% of the Company’s Consolidated Income, as defined above, for such
performance year multiplied by a fraction, the numerator of which is the number of complete calendar quarters of such year following the date on which the individual becomes an executive officer and the denominator of which is 4. Such prorated award
shall be subject to the Committee’s discretion to reduce awards.
Scope of the Plan
Nothing in this Plan shall be construed as precluding or prohibiting the Company from establishing or maintaining other bonus or compensation arrangements, which may be generally applicable or applicable only to selected
employees or officers.
Report of Awards; Committee Discretion to Reduce
As soon as practicable after the end of each performance year, TI’s independent auditors shall determine and report to the Committee and the Committee shall certify the amount of each award for that year under the provisions of this
Plan.
The Committee, in its sole discretion, based on any factors the Committee deems appropriate, may reduce the award to any covered employee in any year
(including reduction to zero if the Committee so determines). The Committee shall make a determination of whether and to what extent to reduce awards under the Plan for each year at such time or times following the close of the performance year as
the Committee shall deem appropriate. The reduction in the amount of an award to any covered employee for a performance year shall have no effect on the amount of the award to any other covered employee for such year.
Payment of Awards
Awards and any installments thereof shall be paid in cash as of a date or
dates determined by the Committee or, if the Committee makes no determination, then as soon as practicable after the amount of the awards has been determined.
The
Committee may direct the awards to the covered employees or any of them for any year to be paid in a single amount or in installments of equal or varying amounts or may defer payment of any awards and may prescribe such terms and conditions
concerning payment of awards as it deems appropriate, including completion of specific periods of employment with the Company, provided that such terms and conditions are not more favorable to a covered employee than those expressly set forth in the
Plan. The Committee may determine that interest will be payable with respect to any payment of any award. The Committee may at any time amend any such direction and may amend or delete any such terms and conditions if the Committee deems it
appropriate. The Committee’s actions under this paragraph shall be subject to and in accordance with the rules governing qualified performance based compensation in Section 162(m) of the Code.
Payments of awards to covered employees who are employees of subsidiaries of the Company shall be paid directly by such subsidiaries.
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EXHIBIT B
Dated April 18, 2002
The
TI Employees 2002 Stock Purchase Plan (the “Plan”) is designed to encourage in all Employees a proprietary interest in the Company. The Plan provides for all eligible Employees the option to purchase shares of the common stock of the
Company through voluntary systematic payroll deductions. The options provided to participants under the Plan shall be in addition to regular salaries, profit sharing, pension, life insurance, special payments or other benefits related to a
participant’s employment with the Company. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” pursuant to Section 423 of the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder (the “Code”). The provisions of the Plan shall be construed so as to extend and limit participation in a uniform and nondiscriminatory basis consistent with the requirements of section 423 of the Code.
For the purposes of the Plan unless otherwise indicated, the term “TI” shall mean Texas Instruments Incorporated, “Company” shall mean TI and its
subsidiaries where substantially all of their voting stock is owned directly or indirectly by TI, “Employee” shall mean an individual who is a full-time or part-time employee of the Company, and “Board” shall mean the
Board of Directors of TI.
Eligibility
All Employees of TI, and such
of its subsidiaries as the Committee described below shall from time to time designate, who are Employees on the date of grant of the option shall be eligible to participate in offerings of options under the Plan. Directors who are not full-time or
part-time officers or Employees are not eligible to participate in the Plan.
Administration of Plan
The Plan shall be administered by a Committee of the Board which shall be known as the Compensation Committee (the “Committee”). The Committee shall be appointed by a majority of the whole Board and shall
consist of not less than three directors. The Board may designate one or more directors as alternate members of the Committee, who may replace any absent or disqualified member at any meeting of the Committee. A director may serve as a member or
alternate member of the Committee only during periods in which the director is an “outside director” as described in Section 162(m) of the Code. The Committee shall have full power and authority to construe, interpret and administer this
Plan. It may issue rules and regulations for administration of the Plan. It shall meet at such times and places as it may determine. A majority of the members of the Committee shall constitute a quorum and all decisions of the Committee shall be
final, conclusive and binding upon all parties, including the Company, the stockholders and the Employees.
The Committee shall have the full and exclusive right
to establish the terms of each offering of common stock of TI under the Plan except as otherwise expressly provided in this Plan. The Committee may delegate such power, authority and rights with respect to the administration of the Plan as it deems
appropriate to one or more members of the management of TI (including, without limitation, a committee of one or more members of management appointed by the Committee); provided, however, that any delegation to management shall conform with the
requirements of the General Corporation Law of Delaware and Rule 16b-3 under the Securities Exchange Act of 1934, as in effect from time to time. The Committee may also recommend to the Board revisions in this Plan.
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Expenses of Administration
Except as otherwise determined by the Committee,
any broker commissions, fees or other expenses incurred in connection with the exercise of an option hereunder or as a result of the opening or maintenance of accounts for Employees and the purchase and sale of common stock of TI on behalf of
Employees shall be paid by the Employee who incurs the expenses and any other expenses of the administration of this Plan shall be borne by TI and charged against net income.
Amendments
The Committee may, at any time and from time to time, alter, amend, suspend or terminate the Plan or any part thereof as
it may deem proper and in the best interests of the Company, provided, however, that no such action shall affect or impair the rights under any option theretofore granted under the Plan, except that in the case of an Employee employed outside the
United States (or such Employee’s beneficiary) the Committee may vary the provisions of the Plan as it may deem appropriate to conform with local laws, practices and procedures. Further, unless the stockholders of TI shall have first approved
thereof, the total number of shares for which options may be exercised under the Plan shall not be increased or decreased, except as adjusted below under “Adjustments,” and no amendment shall be made which shall allow an option price for
offerings under the Plan to be less than 85% of the fair market value of the common stock of TI on the date of grant of the options or 85% of the fair market value of the common stock of TI on the date on which an option is exercised, if lower.
Notwithstanding the foregoing, the board of directors of any subsidiary of TI with approval of the Committee may adopt separate stock purchase plans with respect
to Employees employed outside the United States with such provisions as the Committee may deem appropriate to conform with local laws, practices and procedures, and to permit exclusion of certain Employees from participation. All such plans shall be
subject to the limitations on the amount of stock that may be issued under the Plan and, except to the extent otherwise provided in such plans, shall be subject to all of the provisions set forth herein.
Offerings
Each year during the term of the Plan, unless the Committee determines otherwise,
TI will make one or more offerings in which options to purchase TI common stock will be granted to all Employees then eligible to participate in the Plan.
Limitations on Grants
No more than 20,000,000 shares may be sold pursuant to options granted under the Plan, subject to adjustments as described
below. Either authorized and unissued shares or issued shares heretofore or hereafter acquired by TI may be made subject to option under the Plan. If for any reason any option under the Plan terminates in whole or in part, shares subject to such
terminated option may be again subjected to an option under the Plan.
Adjustments
In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of TI, issuance of warrants or other rights to purchase shares or other securities of TI, or other similar corporate
transaction or event affects the shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of shares which may be made the subject of options, (ii) the number and type of shares subject to outstanding options, and (iii) the grant,
purchase or exercise price with respect to any option or, if deemed appropriate, make provision for a cash payment to the holder of an option, provided, however, that no such adjustment shall be authorized to the extent that such authority would
cause the Plan to violate Section 423 of the Code.
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Table of Contents
Terms and Conditions of Options
(1) All of the
options in each offering shall be granted on the date specified by the Committee.
(2) An option price per share for each offering shall be
determined by the Committee on or prior to the date of grant of the option which shall in no instance be less than 85% of fair market value of TI common stock on the date the option is granted; provided that the Committee may also provide for an
alternative, lower option price which may not be less than 85% of fair market value of TI common stock on the date the option is exercised. The fair market value on the date on which an option is granted or exercised shall be determined by such
methods or procedures as shall be established by the Committee prior to or on the date of grant of the option.
(3) The expiration date of
the options granted in each offering shall be determined by the Committee prior to or on the date of grant of the options but in any event shall not be more than 27 months after the date of grant of the options.
(4) All Employees to whom options are granted shall have the same rights and privileges. Each option shall entitle the Employee to purchase up to that number of
shares which could be purchased at the option price (for this purpose, the price determined by the Committee as of the date of grant, without regard to any lower price that may become applicable at exercise) with an amount equal to such percentage
of the Employee’s Compensation (as defined by the Committee from time to time) as the Committee shall determine for each offering (but not to exceed the amount specified in Section 423(b) of the Code). Each Employee may elect to participate for
less than the maximum number of shares which the Employee is entitled to purchase under the Employee’s option. The Committee shall determine prior to or on the date of grant of the options the consequences of an Employee’s election to
participate for less than the maximum number of shares which the Employee is entitled to purchase.
(5) The term of each option shall
consist of the following three periods:
(a) an Enrollment Period during which each eligible Employee shall determine
whether or not and to what extent to participate by authorizing payroll deductions, provided that such authorization shall apply to the current and all subsequent offerings under the Plan until the Employee provides a cancellation described in
paragraph (6) or paragraph (10) below;
(b) a Payroll Deduction Period during which payroll deductions shall be made and credited to each Employee’s
payroll deduction account; and
(c) an Exercise Day on which options of participating Employees will be automatically exercised in full.
The beginning and ending dates of each Enrollment Period and Payroll Deduction Period and the date of each Exercise Day shall be determined by the Committee.
(6) Each eligible Employee who desires to participate in an offering shall elect to do so by completing and delivering by the end of the Enrollment
Period to a person or firm designated by the Treasurer of TI a payroll deduction authorization in the form (including without limitation, telephonic and electronic transmission, utilization of voice response systems and computer entry) prescribed by
the Committee authorizing payroll deductions during the Payroll Deduction Period which shall aggregate no more than the amount required to purchase at the option price (for this purpose, the price determined by the Committee as of the date of grant,
without regard to any lower price that may become applicable at exercise) the maximum number of full or fractional shares covered by the Employee’s option. Such election and payroll deduction authorization shall constitute an election and
payroll deduction authorization to participate in the current offering and all subsequent offerings under the Plan until the Employee provides a cancellation of such authorization during a subsequent Enrollment Period or the cancellation described
in paragraph (10) below. A cancellation shall be provided in the manner prescribed in this paragraph for providing elections.
(7) TI shall
maintain or arrange for the maintenance of payroll deduction accounts for all participating Employees.
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(8) On the Exercise Day, the options of each participating Employee to which such Exercise Day relates
shall be automatically exercised in full without the need for the participating employee to take any action.
(9) Upon exercise of an
option, the shares shall be paid for in full by transfer of the purchase price from the Employee’s payroll deduction account to the account of TI, and any balance in the Employee’s payroll deduction account shall be paid to the Employee in
cash.
(10) A participating Employee may at any time up to 20 days prior to the expiration of the Payroll Deduction Period (or such other
date as the Committee shall determine) cancel but not reduce his or her payroll deduction authorization and simultaneously request that all but not a part of the balance in the Employee’s account allocable to such Payroll Deduction Period be
paid to him or her. Such cancellation and withdrawal during the Payroll Deduction Period shall constitute withdrawal from the offering and the Employee’s option shall thereupon terminate and become void. Such cancellation shall operate as an
election not to participate in subsequent offerings under the Plan until the Employee provides a new election to participate in accordance with paragraph (6).
(11) The Committee shall determine on or prior to the date of grant of options the consequences of the termination of employment of a participating Employee for any reason, including death, during the term of an
option.
(12) An Employee will have none of the rights and privileges of a stockholder of TI with respect to the shares of common stock
subject to an option under the Plan until such shares of common stock have been transferred or issued to the Employee or to a designated broker for the Employee’s account on the books of TI.
(13) An option granted under the Plan may not be transferred except by will or the laws of descent and distribution and, during the lifetime of the Employee to whom granted, may be exercised
only for the benefit of the Employee.
(14) Each option granted shall be evidenced by an instrument in such form (including without
limitation, telephonic and electronic transmission, utilization of voice response systems and computer entry) as the Committee shall approve which shall be dated the date of grant and shall comply with and be subject to the terms and conditions of
the Plan.
(15) No Employee shall be granted an option hereunder if such Employee, immediately after the option is granted, owns stock
possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of TI, computed in accordance with Section 423(b)(3) of the Code. No Employee shall be granted an option which permits the Employee’s
rights to purchase common stock under all employee stock purchase plans of TI to accrue at a rate which exceeds $25,000 (or such other maximum as may be prescribed from time to time by the Code) of fair market value of such common stock (determined
at the time such option is granted) for each calendar year in which such option is outstanding at any time in accordance with the provisions of Section 423(b)(8) of the Code.
Plan Funds
All amounts held by TI in payroll deduction accounts under the Plan may be used for any corporate purpose of TI.
Governmental Regulations
The obligation of TI to sell and deliver
common stock under the Plan is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale or delivery of such common stock.
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Termination of Plan
No offering
shall be made hereunder after April 19, 2012. Further, no offering hereunder shall be made after any day upon which participating Employees elect to participate for a number of shares equal to or greater than the number of shares remaining available
for purchase. If the number of shares for which Employees elect to participate shall be greater than the shares remaining available, the available shares shall at the end of the Enrollment Period be allocated among such participating Employees pro
rata on the basis of the number of shares for which each has elected to participate.
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Table of Contents
EXHIBIT C
Consolidated Financial Statements
(Millions of Dollars, Except Per-share Amounts)
| For the years ended December 31, | |||||||||||
| OPERATIONS |
2001 |
2000 |
1999 | ||||||||
| Net revenues |
$ |
8,201 |
|
$ |
11,875 |
|
$ |
9,759 | |||
| |
|
|
|
|
|
|
| ||||
| Operating costs and expenses: |
|||||||||||
| Cost of revenues |
|
5,824 |
|
|
6,120 |
|
|
5,069 | |||
| Research and development |
|
1,598 |
|
|
1,747 |
|
|
1,379 | |||
| Selling, general and administrative |
|
1,361 |
|
|
1,669 |
|
|
1,556 | |||
| |
|
|
|
|
|
|
| ||||
| Total |
|
8,783 |
|
|
9,536 |
|
|
8,004 | |||
| |
|
|
|
|
|
|
| ||||
| Profit (loss) from operations |
|
(582 |
) |
|
2,339 |
|
|
1,755 | |||
| Other income (expense) net |
|
217 |
|
|
2,314 |
|
|
403 | |||
| Interest on loans |
|
61 |
|
|
75 |
|
|
76 | |||
| |
|
|
|
|
|
|
| ||||
| Income (loss) before income taxes and cumulative effect of an accounting change |
|
(426 |
) |
|
4,578 |
|
|
2,082 | |||
| Provision (benefit) for income taxes |
|
(225 |
) |
|
1,491 |
|
|
631 | |||
| |
|
|
|
|
|
|
| ||||
| Income (loss) before cumulative effect of an accounting change |
|
(201 |
) |
|
3,087 |
|
|
1,451 | |||
| Cumulative effect of an accounting change |
|
— |
|
|
(29 |
) |
|
— | |||
| |
|
|
|
|
|
|
| ||||
| Net income (loss) |
$ |
(201 |
) |
$ |
3,058 |
|
$ |
1,451 | |||
| |
|
|
|
|
|
|
| ||||
| Diluted earnings (loss) per common share: |
|||||||||||
| Income (loss) before cumulative effect of an accounting change |
$ |
(.12) |
|
$ |
1.73 |
|
$ |
.83 | |||
| Cumulative effect of an accounting change |
|
— |
|
|
(.02 |
) |
|
— | |||
| |
|
|
|
|
|
|
| ||||
| Net income (loss) |
$ |
(.12) |
|
$ |
1.71 |
|
$ |
.83 | |||
| |
|
|
|
|
|
|
| ||||
| Basic earnings (loss) per common share: |
|||||||||||
| Income (loss) before cumulative effect of an accounting change |
$ |
(.12) |
|
$ |
1.80 |
|
$ |
.86 | |||
| Cumulative effect of an accounting change |
|
— |
|
|
(.02 |
) |
|
— | |||
| |
|
|
|
|
|
|
| ||||
| Net income (loss) |
$ |
(.12) |
|
$ |
1.78 |
|
$ |
.86 | |||
| |
|
|
|
|
|
|
| ||||
See accompanying notes.
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Consolidated Financial Statements
(Millions of Dollars, Except Share
Amounts)
| December 31, |
||||||||
| BALANCE SHEET |
2001 |
2000 |
||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
431 |
|
$ |
745 |
| ||
| Short-term investments |
|
2,513 |
|
|
3,258 |
| ||
| Accounts receivable, less allowance for losses of $61 million in 2001 and $54 million in 2000 |
|
1,198 |
|
|
2,204 |
| ||
| Inventories |
|
751 |
|
|
1,233 |
| ||
| Deferred income taxes |
|
554 |
|
|
595 |
| ||
| Prepaid expenses and other current assets |
|
328 |
|
|
80 |
| ||
| |
|
|
|
|
| |||
| Total current assets |
|
5,775 |
|
|
8,115 |
| ||
| |
|
|
|
|
| |||
| Property, plant and equipment at cost |
|
9,683 |
|
|
9,099 |
| ||
| Less accumulated depreciation |
|
(4,094 |
) |
|
(3,652 |
) | ||
| |
|
|
|
|
| |||
| Property, plant and equipment (net) |
|
5,589 |
|
|
5,447 |
| ||
| |
|
|
|
|
| |||
| Long-term cash investments |
|
407 |
|
|
— |
| ||
| Equity investments |
|
2,214 |
|
|
2,400 |
| ||
| Goodwill and other acquisition-related intangibles |
|
748 |
|
|
961 |
| ||
| Deferred income taxes |
|
421 |
|
|
106 |
| ||
| Other assets |
|
625 |
|
|
691 |
| ||
| |
|
|
|
|
| |||
| Total assets |
$ |
15,779 |
|
$ |
17,720 |
| ||
| |
|
|
|
|
| |||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities: |
||||||||
| Loans payable and current portion long-term debt |
$ |
38 |
|
$ |
148 |
| ||
| Accounts payable and accrued expenses |
|
1,205 |
|
|
1,921 |
| ||
| Income taxes payable |
|
327 |
|
|
323 |
| ||
| Accrued retirement and profit sharing contributions |
|
10 |
|
|
421 |
| ||
| |
|
|
|
|
| |||
| Total current liabilities |
|
1,580 |
|
|
2,813 |
| ||
| |
|
|
|
|
| |||
| Long-term debt |
|
1,211 |
|
|
1,216 |
| ||
| Accrued retirement costs |
|
485 |
|
|
378 |
| ||
| Deferred income taxes |
|
331 |
|
|
469 |
| ||
| Deferred credits and other liabilities |
|
293 |
|
|
256 |
| ||
| 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: 2001 – 1,740,329,364; 2000 – 1,733,237,248 |
|
1,740 |
|
|
1,733 |
| ||
| Paid-in capital |
|
1,216 |
|
|
1,185 |
| ||
| Retained earnings |
|
8,975 |
|
|
9,323 |
| ||
| Less treasury common stock at cost. |
||||||||
| Shares: 2001 – 6,395,488; 2000 – 1,184,880 |
|
(235 |
) |
|
(93 |
) | ||
| Accumulated other comprehensive income |
|
269 |
|
|
574 |
| ||
| Deferred compensation |
|
(86 |
) |
|
(134 |
) | ||
| |
|
|
|
|
| |||
| Total stockholders’ equity |
|
11,879 |
|
|
12,588 |
| ||
| |
|
|
|
|
| |||
| Total liabilities and stockholders’ equity |
$ |
15,779 |
|
$ |
17,720 |
| ||
| |
|
|
|
|
| |||
See accompanying notes.
C-2
Table of Contents
Consolidated Financial Statements
(Millions of Dollars)
| For the years ended December 31, |
||||||||||||
| CASH FLOWS |
2001 |
2000 |
1999 |
|||||||||
| Cash flows from operating activities: |
||||||||||||
| Income (loss) before cumulative effect of an accounting change |
$ |
(201 |
) |
$ |
3,087 |
|
$ |
1,451 |
| |||
| Depreciation |
|
1,599 |
|
|
1,216 |
|
|
1,005 |
| |||
| Amortization of acquisition-related costs |
|
229 |
|
|
160 |
|
|
69 |
| |||
| Purchased in-process research and development |
|
— |
|
|
112 |
|
|
79 |
| |||
| Deferred income taxes |
|
19 |
|
|
1 |
|
|
(11 |
) | |||
| Net currency exchange losses |
|
4 |
|
|
11 |
|
|
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 |
|
977 |
|
|
(348 |
) |
|
(444 |
) | |||
| Inventories |
|
482 |
|
|
(372 |
) |
|
(207 |
) | |||
| Prepaid expenses and other current assets |
|
(254 |
) |
|
27 |
|
|
(20 |
) | |||
| Accounts payable and accrued expenses |
|
(687 |
) |
|
246 |
|
|
96 |
| |||
| Income taxes payable |
|
112 |
|
|
(55 |
) |
|
64 |
| |||
| Accrued retirement and profit sharing contributions |
|
(389 |
) |
|
51 |
|
|
244 |
| |||
| Gains on sale of Micron stock |
|
— |
|
|
(1,636 |
) |
|
— |
| |||
| Increase (decrease) in noncurrent accrued retirement costs |
|
(24 |
) |
|
(369 |
) |
|
11 |
| |||
| Other |
|
(48 |
) |
|
54 |
|
|
11 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash provided by operating activities |
|
1,819 |
|
|
2,185 |
|
|
2,357 |
| |||
| Cash flows from investing activities: |
||||||||||||
| Additions to property, plant and equipment |
|
(1,790 |
) |
|
(2,762 |
) |
|
(1,398 |
) | |||
| Purchases of short-term investments |
|
(3,247 |
) |
|
(5,409 |
) |
|
(2,529 |
) | |||
| Sales and maturities of short-term investments |
|
4,040 |
|
|
4,178 |
|
|
2,237 |
| |||
| Purchases of long-term cash investments |
|
(488 |
) |
|
— |
|
|
— |
| |||
| Sales of long-term cash investments |
|
10 |
|
|
— |
|
|
— |
| |||
| Purchases of equity investments |
|
(254 |
) |
|
(133 |
) |
|
(87 |
) | |||
| Sales of equity investments |
|
103 |
|
|
2,198 |
|
|
272 |
| |||
| Acquisition of businesses, net of cash acquired . |
|
— |
|
|
(3 |
) |
|
(469 |
) | |||
| Proceeds from sale of businesses |
|
— |
|
|
107 |
|
|
— |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash used in investing activities |
|
(1,626 |
) |
|
(1,824 |
) |
|
(1,974 |
) | |||
| Cash flows from financing activities: |
||||||||||||
| Additions to loans payable |
|
— |
|
|
23 |
|
|
11 |
| |||
| Payments on loans payable |
|
(3 |
) |
|
(19 |
) |
|
(13 |
) | |||
| Additions to long-term debt |
|
3 |
|
|
250 |
|
|
400 |
| |||
| Payments on long-term debt |
|
(132 |
) |
|
(307 |
) |
|
(262 |
) | |||
| Dividends paid on common stock |
|
(147 |
) |
|
(141 |
) |
|
(134 |
) | |||
| Sales and other common stock transactions |
|
183 |
|
|
242 |
|
|
225 |
| |||
| Common stock repurchase program |
|
(395 |
) |
|
(155 |
) |
|
(473 |
) | |||
| Increase in noncurrent assets for restricted cash |
|
— |
|
|
(261 |
) |
|
— |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Net cash used in financing activities |
|
(491 |
) |
|
(368 |
) |
|
(246 |
) | |||
| Effect of exchange rate changes on cash |
|
(16 |
) |
|
(29 |
) |
|
(61 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
| Net increase (decrease) in cash and cash equivalents |
|
(314 |
) |
|
(36 |
) |
|
76 |
| |||
| Cash and cash equivalents at beginning of year |
|
745 |
|
|
781 |
|
|
705 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Cash and cash equivalents at end of year |
$ |
431 |
|
$ |
745 |
|
$ |
781 |
| |||
| |
|
|
|
|
|
|
|
| ||||
See accompanying notes.
C-3
Table of Contents
Consolidated Financial Statements
(Millions of Dollars, Except Per-share
Amounts)
| STOCKHOLDERS’ EQUITY |
Common Stock |
Paid-In Capital |
Retained Earnings |
Treasury Common Stock |
Accumulated Other Comprehensive Income* |
Deferred Compensation |
|||||||||||||||||
| Balance, December 31, 1998 |
$ |
419 |
$ |
1,317 |
|
$ |
5,113 |
|
$ |
(134 |
) |
$ |
295 |
|
|||||||||
| 1999 |
|||||||||||||||||||||||
| Net income |
|
— |
|
— |
|
|
1,451 |
|
|
— |
|
|
— |
|
|||||||||
| Dividends declared on common stock ($.085 per share) |
|
— |
|
— |
|
|
(134 |
) |
|
— |
|
|
— |
|
|||||||||
| Two-for-one common stock split |
|
420 |
|
(420 |
) |
|
— |
|
|
— |
|
|
— |
|
|||||||||
| Common stock issued on exercise of stock options |
|
4 |
|
(247 |
) |
|
— |
|
|
451 |
|
|
— |
|
|||||||||
| Stock repurchase program |
|
— |
|
— |
|
|
— |
|
|
(426 |
) |
|
— |
|
|||||||||
| Other stock transactions, net |
|
— |
|
195 |
|
|
— |
|
|
— |
|
|
— |
|
|||||||||
| Pension liability adjustment |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
132 |
|
|||||||||
| Change in unrealized gain (loss) on available-for-sale investments, net of tax |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
1,126 |
|
|||||||||
| Pooling of interests acquisitions |
|
8 |
|
32 |
|
|
(15 |
) |
|
— |
|
|
— |
|
|||||||||
| Adjustment to conform fiscal year end of pooled acquisition |
|
— |
|
— |
|
|
(9 |
) |
|
— |
|
|
— |
|
|||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
| Balance, December 31, 1999 |
|
851 |
|
877 |
|
|
6,406 |
|
|
(109 |
) |
|
1,553 |
|
|||||||||
| 2000 |
|||||||||||||||||||||||
| Net income |
|
— |
|
— |
|
|
3,058 |
|
|
— |
|
|
— |
|
|
— |
| ||||||
| Dividends declared on common stock ($.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 |
|
|
— |
| ||||||
| Change in unrealized gain (loss) on available-for-sale investments, net of tax |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(1,021 |
) |
|
— |
| ||||||
| Deferred compensation adjustment |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
17 |
| ||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| Balance, December 31, 2000 |
|
1,733 |
|
1,185 |
|
|
9,323 |
|
|
(93 |
) |
|
574 |
|
|
(134 |
) | ||||||
| 2001 |
|||||||||||||||||||||||
| Net income (loss) |
|
— |
|
— |
|
|
(201 |
) |
|
— |
|
|
— |
|
|
— |
| ||||||
| Dividends declared on common stock ($.085 per share) |
|
— |
|
— |
|
|
(147 |
) |
|
— |
|
|
— |
|
|
— |
| ||||||
| Common stock issued on exercise of stock options |
|
7 |
|
(87 |
) |
|
— |
|
|
253 |
|
|
— |
|
|
— |
| ||||||
| Stock repurchase program |
|
— |
|
— |
|
|
— |
|
|
(395 |
) |
|
— |
|
|
— |
| ||||||
| Other stock transactions, net |
|
— |
|
118 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| ||||||
| Pension liability adjustment |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(87 |
) |
|
— |
| ||||||
| Change in unrealized gain (loss) on available-for-sale investments, net of tax |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(218 |
) |
|
— |
| ||||||
| Deferred compensation adjustment |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
48 |
| ||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| Balance, December 31, 2001 |
$ |
1,740 |
$ |
1,216 |
|
$ |
8,975 |
|
$ |
(235 |
) |
$ |
269 |
|
$ |
(86 |
) | ||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
* |
Comprehensive income (loss), i.e., net income (loss) plus other comprehensive income (loss), totaled $(506) million in 2001, $2079 million in 2000 and $2709 million in 1999.
|
See accompanying notes.
C-4
Table of Contents
Notes to Financial Statements
ACCOUNTING POLICIES AND PRACTICES
The consolidated financial statements include the accounts of all subsidiaries. Intercompany balances and transactions have been eliminated. The preparation
of financial statements requires the use of estimates from which final results may vary. 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.
Revenue from sales to the company’s electronics distributors is recognized,
net of allowances, upon delivery of product to the distributors. In some cases, if product remains unsold in distributor inventory for an extended period of time, the distributor can return it to the company up to a maximum amount with the placement
of new orders for an equivalent amount of product at the same time. In addition, the company has agreements with the distributors under which it may grant credits to them in response to specific competitive situations encountered by the distributor.
Allowances, which are recorded as a liability, are calculated based on historical data and current economic conditions.
Royalty revenue
is recognized upon sale by the licensee of royalty-bearing products, as estimated by the company, and when realization is considered probable by management.
Inventories are stated at the lower of cost or estimated realizable value. Cost is generally computed on a currently adjusted standard basis. Standards are based on normal factory capacity utilization, and costs associated with
underutilization of capacity are expensed as incurred. The company conducts quarterly inventory reviews for salability and obsolescence. A specific allowance is provided for inventory considered unlikely to be sold. Remaining inventory has a
salability and obsolescence allowance based upon the historical disposal percentage. Inventory is written off in the period in which disposal occurs.
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.
Investments are stated at fair value, which is based on market quotes where available, or estimates by management or its investment advisor, as appropriate. The company conducts quarterly
impairment reviews of the public and private equity investments in its portfolio. Investments are written down to a new cost basis when a decline is judged to be other-than-temporary by management or its investment advisor.
C-5
Table of Contents
Statement of Financial Accounting Standards (SFAS) No. 133 requires that all derivatives be marked-to-market on an ongoing basis. Along with the
derivatives, underlying hedged items are also to be marked-to-market on an ongoing basis. The standard, which did not have a material impact on the company, was adopted effective January 1, 2001, on a cumulative basis. The cumulative effect of the
accounting change was insignificant and is not separately presented.
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 revenue 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 the company now recognizes revenue for product sales
when transfer of title occurs. The cumulative effect of the change on prior years resulted in a charge to year 2000 net income of $29 million (after income taxes of $16 million).
The company adopted Financial Accounting Standards Board (FASB) Interpretation No. 44 in 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 purchase business combination 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 2000. This standard requires the income tax benefit realized by the company from the exercise of
nonqualified stock options to be classified, currently and retroactively, in the cash flows statement as an operating cash flow. Previously, this amount was classified as a financing cash flow. The benefit was $106 million, $313 million and $183
million for the years 2001, 2000 and 1999.
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangibles, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in
accordance with the Statements. Accordingly, the company’s trained workforce intangible asset will be reclassified to goodwill. Other intangible assets will continue to be amortized over their useful lives. The company will apply the new rules
on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of SFAS No. 142 is expected to result in an annual increase in net income of approximately $100 million
($0.06 per share). During 2002, the company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. Preliminary tests indicate no impairment of goodwill or indefinite lived
intangible assets.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a
Segment of a Business. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The company will adopt SFAS No. 144 as of January 1, 2002, and does not expect that the adoption of the Statement will have a material impact on the
company’s financial position or results of operations.
Advertising costs are expensed as incurred. Advertising expense was $74
million in 2001, $118 million in 2000 and $149 million in 1999.
C-6
Table of Contents
Computation of earnings (loss) per common share (EPS) amounts for income (loss) before cumulative effect of an accounting change is as follows
(millions, except per-share amounts):
| 2001 |
2000 |
1999 | ||||||||||||||||||||||||
| Loss |
Shares |
EPS |
Income |
Shares |
EPS |
Income |
Shares |
EPS | ||||||||||||||||||
| Basic EPS |
$ |
(201 |
) |
1,734.5 |
$ |
(.12 |
) |
$ |
3,087 |
1,717.5 |
$ |
1.80 |
$ |
1,451 |
1,680.3 |
$ |
.86 | |||||||||
| Dilutives: |
||||||||||||||||||||||||||
| Stock options/compensation plans |
|
— |
|
— |
|
— |
69.3 |
|
— |
69.4 |
||||||||||||||||
| Convertible debentures |
|
— |
|
— |
|
6 |
4.8 |
|
— |
— |
||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Diluted EPS |
$ |
(201 |
) |
1,734.5 |
$ |
(.12 |
) |
$ |
3,093 |
1,791.6 |
$ |
1.73 |
$ |
1,451 |
1,749.7 |
$ |
.83 | |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
The EPS computations for 2001 and 2000 exclude 45.8 million shares and 2.0 million shares
for stock options because their effect would have been antidilutive.
POOLING OF INTERESTS ACQUISITION
The company acquired Burr-Brown Corporation (Burr-Brown) in 2000 for approximately 88 million shares of common stock. 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 Ended June 30, 2000 |
Year Ended Dec. 31, 1999 | |||||
| Net revenues: |
||||||
| TI |
$ |
5,497 |
$ |
9,468 | ||
| Burr-Brown |
|
194 |
|
291 | ||
| |
|
|
| |||
| $ |
5,691 |
$ |
9,759 | |||
| |
|
|
| |||
| Net income: |
||||||
| TI |
$ |
1,705 |
$ |
1,406 | ||
| Burr-Brown |
|
42 |
|
45 | ||
| |
|
|
| |||
| $ |
1,747 |
$ |
1,451 | |||
| |
|
|
| |||
C-7
Table of Contents
CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND LONG-TERM CASH INVESTMENTS
Debt securities with original maturities within three months are considered cash equivalents. Debt securities with original maturities beyond three months that have remaining maturities
within 13 months are considered short-term investments. Debt securities with remaining maturities between 13 months and 24 months are considered long-term cash investments. These cash equivalent, short-term investment and long-term cash investment
debt securities are available for sale and stated at fair value, which approximates their specific amortized cost. As of December 31, 2001, these debt securities consisted primarily of the following types: corporate ($2654 million) and asset-backed
fixed-income securities ($489 million). At December 31, 2000, these debt securities consisted primarily of the following types: corporate ($2619 million) and asset-backed fixed-income securities ($953 million). Gross realized and
unrealized gains, as well as realized losses, for each of these security types were immaterial in 2001, 2000 and 1999. Gross unrealized losses were immaterial for each of these security types in 2001 and 1999 and $20 million in 2000. Proceeds from
sales of these cash equivalent, short-term investment and long-term cash investment debt securities in 2001, 2000 and 1999 were $2959 million, $2025 million and $1185 million.
INVENTORIES
| Millions of Dollars | ||||||
| 2001 |
2000 | |||||
| Raw materials and purchased parts |
$ |
133 |
$ |
245 | ||
| Work in process |
|
407 |
|
681 | ||
| Finished goods |
|
211 |
|
307 | ||
| |
|
|
| |||
| Total |
$ |
751 |
$ |
1,233 | ||
| |
|
|
| |||
PROPERTY, PLANT AND EQUIPMENT AT COST
| Millions of Dollars | ||||||||
| Depreciable Lives |
2001 |
2000 | ||||||
| Land |
$ |
95 |
$ |
95 | ||||
| Buildings and improvements |
5-40 years |
|
2,908 |
|
2,759 | |||
| Machinery and equipment |
3-10 years |
|
6,680 |
|
6,245 | |||
| |
|
|
| |||||
| Total |
$ |
9,683 |
$ |
9,099 | ||||
| |
|
|
| |||||
Authorizations for property, plant and equipment expenditures in future years were
approximately $304 million at December 31, 2001, and $2236 million at December 31, 2000.
C-8
Table of Contents
EQUITY INVESTMENTS
Equity
investments primarily consisted of 57 million Micron Technology, Inc. (Micron) common shares and other publicly traded and private investments. The Micron securities were received in connection with TI’s sale of its memory business to Micron in
1998.
TI Ventures is a venture fund that invests in companies involved in the development of new markets. As of year-end 2001,
investments were held in 22 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.
Following is information on the investments (millions of dollars):
| Cost |
Unrealized |
Fair Value | ||||||||||||||
| Gains |
(Losses) |
Net |
||||||||||||||
| 2001 |
||||||||||||||||
| Equity investments |
$ |
1,486 |
$ |
586 |
$ |
(32 |
) |
$ |
554 |
$ |
2,040 | |||||
| TI Ventures |
|
59 |
|
3 |
|
— |
|
|
3 |
|
62 | |||||
| Other investments |
|
112 |
|
— |
|
— |
|
|
— |
|
112 | |||||
| |
|
|
|
|
|
|
|
|
|
| ||||||
| Total |
$ |
1,657 |
$ |
589 |
$ |
(32 |
) |
$ |
557 |
$ |
2,214 | |||||
| |
|
|
|
|
|
|
|
|
|
| ||||||
| 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 | |||||
| |
|
|
|
|
|
|
|
|
|
| ||||||
Investments are stated at fair value, which is based on market quotes where available, or
estimates by management or its investment advisor, as appropriate. Adjustments to fair value of the equity and TI Ventures investments, which are all classified as available-for-sale, are recorded as an increase or decrease in stockholders’
equity except where losses are considered to be other-than-temporary, in which case the losses are recorded through the Statement of Operations. 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 and TI Ventures investments were $103 million in 2001, $2232 million in 2000 and $150 million in 1999. Proceeds from the sale of a debt investment in 1999 were $159 million. There were $91 million, $1816 million and $125 million of gross
realized gains and zero gross realized losses from sales of these investments in 2001, 2000 and 1999.
C-9
Table of Contents
GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLES
| Millions of Dollars | |||||||
| Amortization Lives |
2001 |
2000 | |||||
| Goodwill |
5-8 years |
$1,523 |
$ |
1,659 | |||
| Developed technology |
3-10 years |
115 |
|
140 | |||
| Other intangibles |
2-10 years |
110 |
|
162 | |||
| |
|
| |||||
| Total |
$1,748 |
$ |
961 | ||||
| |
|
| |||||
Other intangibles include items such as trained workforce and customer base. The balances
shown are net of total accumulated amortization of $514 million and $308 million at year-end 2001 and 2000.
Amortization of goodwill and
other acquisition-related costs (including deferred compensation, a contra-stockholders’ equity account) was $229 million, $160 million and $69 million for 2001, 2000 and 1999. Of the total amortization, goodwill amortization was $97 million,
$71 million and $25 million, with the remainder primarily related to developed technology.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| Millions of Dollars | ||||||
| 2001 |
2000 | |||||
| Accounts payable |
$ |
452 |
$ |
997 | ||
| Accrued salaries, wages and vacation pay |
|
246 |
|
365 | ||
| Other accrued expenses and liabilities |
|
507 |
|
559 | ||
| |
|
|
| |||
| Total |
$ |
1,205 |
$ |
1,921 | ||
| |
|
|
| |||
DEBT AND LINES OF CREDIT
| Millions of Dollars | ||||
| Long-Term Debt |
2001 |
2000 | ||
| 9.0% notes due 2001 |
$ — |
$ 55 | ||
| 6.65% notes, due in installments through 2001 |
— |
50 | ||
| 9.25% notes due 2003 |
103 |
103 | ||
| 7.0% notes due 2004 |
400 |
400 | ||
| 3.80% to 5.56% euro notes, due in installments through 2005 |
66 |
91 | ||
| 6.125% notes due 2006 |
300 |
300 | ||
| 8.75% notes due 2007 |
43 |
43 | ||
| 4.25% convertible subordinated notes due 2007 |
250 |
250 | ||
| Other |
70 |
51 | ||
| |
| |||
| 1,232 |
1,343 | |||
| Less current portion long-term debt |
21 |
127 | ||
| |
| |||
| Total |
$1,211 |
$1,216 | ||
| |
| |||
C-10
Table of Contents
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 1.59% and 6.07% as of December 31, 2001 and 2000. In 2001, the coupon rates for the notes due 2007 were swapped for LIBOR-based variable rates through 2007, for an effective interest rate of
approximately 5.62% as of December 31, 2001. Also in 2001, the coupon rates for $50 million of the notes due 2004 were swapped for LIBOR-based variable rates through 2004, for an effective interest rate of approximately 4.29% as of December 31,
2001.
In connection with its 2000 pooling of interests acquisition of Burr-Brown, TI guaranteed payment of the principal and interest for
the $250 million principal amount of 4.25% convertible subordinated notes issued February 24, 2000, by Burr-Brown and due 2007. Such guarantee is subordinated to TI’s existing and future senior indebtedness. In addition, irrevocable letters of
credit were obtained by TI that 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 2001 and 2000, as a noncurrent asset. The notes 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.
TI has guaranteed the payment obligations of a supplier under a $210 million lease financing facility maturing in 2003. Obligations under this facility were $99
million and $172 million at year-end 2001 and 2000.
Interest incurred on loans in 2001, 2000 and 1999 was $74 million, $98 million and
$84 million. Of these amounts, $13 million in 2001, $23 million in 2000 and $8 million in 1999 were capitalized as a component of capital asset construction costs. Interest paid on loans (net of amounts capitalized) was $61 million in 2001, $75
million in 2000 and $76 million in 1999.
Aggregate maturities of long-term debt due during the four years subsequent to December 31,
2002, are as follows:
| Millions of Dollars | |||
| 2003 |
$ |
155 | |
| 2004 |
|
421 | |
| 2005 |
|
7 | |
| 2006 |
|
323 | |
The company maintains lines of credit to support commercial paper borrowings and to provide
additional liquidity. These lines of credit totaled $681 million at December 31, 2001, and $733 million at December 31, 2000. Of these amounts, at December 31, 2001 and 2000, $600 million existed to support commercial paper borrowings or short-term
bank loans.
C-11
Table of Contents
FINANCIAL INSTRUMENTS AND RISK CONCENTRATION
Financial Instruments: In addition to the interest swaps discussed in the preceding note, as of December 31, 2001, the company had forward currency exchange contracts outstanding of $350 million to hedge net
balance sheet exposures (including $222 million to buy euros, $50 million to sell yen and $24 million to buy Singapore dollars). At 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). As of December 31, 2001 and 2000, 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 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 $8 million, $1 million and $4 million in 2001, 2000 and 1999.
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, 2001 and 2000, the fair value of long-term debt, based on current interest rates, was approximately $1298 million and $1450 million, compared
with the historical cost amount of $1232 million and $1343 million.
Risk Concentration: Financial instruments that potentially
subject the company to concentrations of credit risk are primarily cash investments, accounts receivable and equity investments. The company places its cash investments in investment-grade debt securities and limits the amount of credit exposure to
any one commercial issuer.
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.
Italian government auditors have substantially completed a review, conducted in the ordinary course, of approximately $250 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. As part of a government reorganization
with respect to program contracts, responsibility for review of the auditors’ findings was transferred from the Ministry of the Treasury to the Ministry of Economics and Finance. Depending on the Ministry of Economics and Finance’s
decision, the review may result in a demand from the Italian government that TI repay a portion of the grants. The company believes that the grants were obtained and used in compliance with applicable law and contractual obligations.
The company’s equity investments at year-end 2001 have an aggregate fair value of $2214 million ($2400 million at year-end 2000). The investments
are in high-technology companies and are subject to price volatility and other uncertainties. They include a significant concentration of Micron common stock with a fair value of $1766 million at year-end 2001. In June 2001, TI purchased $100
million of Hynix Semiconductor Inc. (Hynix) Global Depositary Shares as part of Hynix’s total offering of $1.25 billion. The company adjusts the carrying amounts of the investments to fair value each quarter.
C-12
Table of Contents
In addition to the interest rate swaps and forward currency exchange contracts discussed above, the
company had the following derivatives at December 31, 2001:
The company has a call option embedded in a convertible note. The call option
had a value of $17 million at December 31, 2001.
The company uses a forward purchase contract for shares of the company’s common
stock to minimize the adverse earnings impact from the effect of stock market value fluctuations on a portion of the company’s deferred compensation obligations denominated in TI stock. The forward purchase contract had a fair value of
approximately $(1) million at December 31, 2001.
The company has several stock investment warrants considered derivatives. At December
31, 2001, their aggregate value was approximately $1 million.
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):
| Pension Liability Adjustment |
Changes in Available-for-Sale Investments |
Total |
||||||||||
| 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 |
| |||
| Annual adjustments |
|
(138 |
) |
|
(350 |
) |
|
(488 |
) | |||
| Tax effect of above |
|
51 |
|
|
122 |
|
|
173 |
| |||
| Reclassification of realized transactions, net of tax benefit of $6 million |
|
— |
|
|
10 |
|
|
10 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Balance, December 31, 2001 |
$ |
(93 |
) |
$ |
362 |
|
$ |
269 |
| |||
| |
|
|
|
|
|
|
|
| ||||
C-13
Table of Contents
RESEARCH AND DEVELOPMENT
Research
and development (R&D) expense totaled $1598 million in 2001, $1747 million in 2000 and $1379 million in 1999.
Acquisition-related
purchased in-process R&D charges were zero in 2001, $112 million in 2000 and $79 million in 1999. These charges were for R&D from business purchase acquisitions. Values for acquired in-process R&D (purchased R&D) were determined at
the acquisition date based upon the appraised value of the related developmental projects. Purchased R&D projects were assessed, analyzed and valued using the Exclusion Approach within the context and framework articulated by the Securities and
Exchange Commission.
Major assumptions, detailed in the table below, used in determining the value of significant 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 purchased 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 | ||||||||||||||||||||||||||||
| Cost/time to complete R&D projects |
||||||||||||||||||||||||||||
| Entity acquired |
Acquisition date |
Consideration |
Goodwill |
Other intan-gibles |
Deferred compensation |
Purchased in-process R&D charge |
R&D focus |
Discount rate |
At acquisition |
At Dec. 2001 |
Year cash flows projected to begin | |||||||||||||||||
| Alantro Communications, Inc. |
Third quarter 2000 |
$ |
277 |
$ |
148 |
$ |
81 |
$ |
32 |
$ |
52 |
Wireless networking technology for home and office |
24 |
% |
$4/256 engineer months |
$1/55 engineer months |
2002 | |||||||||||
| Dot Wireless, Inc. |
Third quarter 2000 |
$ |
467 |
$ |
302 |
$ |
46 |
$ |
119 |
$ |
60 |
Architecture for third generation (3G) wireless devices for delivering voice and high-speed data to mobile users |
20 |
% |
$3/172 engineer months |
Project completed |
2003 | |||||||||||
| Butterfly VLSI, Ltd. |
First quarter 1999 |
$ |
52 |
$ |
33 |
$ |
5 |
|
— |
$ |
10 |
Short distance wireless technology for voice- plus-data transmission products |
25 |
% |
$5/264 engineer months |
Project completed |
2000 | |||||||||||
| Libit Signal Processing Ltd. |
Second quarter 1999 |
$ |
365 |
$ |
207 |
$ |
106 |
|
— |
$ |
52 |
Silicon solutions and Internet telephony software for cable modems, etc. for Internet access |
22 |
% |
$5/492 engineer months |
Project completed |
2000 | |||||||||||
| Integrated Sensor Solutions, Inc. |
Third quarter 1999 |
$ |
67 |
$ |
32 |
$ |
11 |
|
— |
$ |
16 |
Intelligent sensors for auto/ind. markets |
25 |
% |
$4/233 engineer months |
Project completed |
2000 | |||||||||||
C-14
Table of Contents
OTHER INCOME (EXPENSE) NET
| Millions of Dollars | |||||||||
| 2001 |
2000 |
1999 | |||||||
| Interest income |
$ |
184 |
$ |
296 |
$ |
182 | |||
| Other income (expense) net |
|
33 |
|
2,018 |
|
221 | |||
| |
|
|
|
|
| ||||
| Total |
$ |
217 |
$ |
2,314 |
$ |
403 | |||
| |
|
|
|
|
| ||||
Other income in 2001 included gains of $91 million from the sale of several equity
investments partially offset by investment write-downs of $80 million for declines in value judged to be other-than-temporary. Also included are gains of $9 million from the sale of two facilities.
Other income in 2000 included investment gains of $1636 million from the sale of Micron common stock. Other income in 2000 also included $88 million from
recognition of a gain on the 1998 sale of the memory business to Micron. Gain recognition had been deferred pending repayment of the remaining TI-provided financing to Micron, which occurred in 2000.
Other income in 1999 included gains of $125 million from the sale of several equity investments.
STOCK OPTIONS
The company has stock options outstanding to participants under the Texas Instruments 2000 Long-Term Incentive Plan,
approved by stockholders in 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.
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 2001, 2000 and 1999, 307,000, 215,500 and 636,000
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 $37.69, $54.44 and $27.87 per share). Compensation expense for restricted stock units totaled
$12 million, $5 million and $11 million in 2001, 2000 and 1999.
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 is 85 percent of the
fair market value on the date of grant or on the exercise date, whichever is lower. If the optionee authorizes and does not cancel payroll deductions, options granted are automatically exercised seven months after the date of grant.
C-15
Table of Contents
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.
Stock option transactions during 2001, 2000 and 1999 were as follows:
| Long-Term Incentive and Stock Option Plans |
Weighted- Average Exercise Price |
Employee Stock Purchase Plan |
Weighted- Average Exercise Price | |||||||||
| 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 | ||||
| Granted |
35,259,646 |
|
|
41.53 |
4,509,074 |
* |
|
28.71 | ||||
| Forfeited |
(5,471,203 |
) |
|
36.86 |
(770,142 |
) |
|
46.36 | ||||
| Expired |
— |
|
|
— |
— |
|
|
— | ||||
| Exercised** |
(10,210,661 |
) |
|
9.63 |
(3,182,703 |
) |
|
35.47 | ||||
| |
|
|
|
|
|
|
| |||||
| Balance, Dec. 31, 2001 |
164,430,601 |
|
$ |
25.30 |
1,659,665 |
|
$ |
28.14 | ||||
| |
|
|
|
|
|
|
| |||||
* Excludes |
options offered but not accepted. |
** Includes |
previously unissued shares and treasury shares of 7,049,648 and 6,343,716; 18,448,817 and 1,672,927; and 24,296,441 and 4,687,625; for 2001, 2000 and 1999.
|
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 2001, 2000 and 1999 was estimated to be $23.32, $30.50 and
$12.77 under the 2000 Long-Term Incentive Plan and the 1996 Long-Term Incentive Plan (Long-Term Plans) and $10.72, $21.01 and $7.04 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 2001, 2000 and 1999: expected dividend yields of .20%, .16% and .32% (Long-Term Plans) and .26%, .11% and .30% (Employee Plan); expected volatility of 55%, 51% and 43%;
risk-free interest rates of 5.20%, 6.66% and 5.33% (Long-Term Plans) and 3.30%, 6.30% and 5.07% (Employee Plan); and expected lives of 6 years (Long-Term Plans) and .58 years (Employee Plan). Had compensation expense been recorded based on these
hypothetical values, the company’s 2001 net loss would have been $510 million, or loss per share of $0.29. A similar computation for 2000 and 1999 would have resulted in net income of $2796 million and $1303 million, or diluted earnings per
share of $1.57 and $0.74. 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.
C-16
Table of Contents
Summarized information about stock options outstanding under the Long-Term Plans at December 31, 2001, is
as follows:
| OPTIONS OUTSTANDING |
OPTIONS EXERCISABLE | |||||||||||||||
| Range of Exercise Prices |
Number Outstanding At Dec. 31, 2001 |
Weighted- Average Remaining Contractual Life |
Weighted- Average Exercise Price |
Number Exercisable At Dec. 31, 2001 |
Weighted- Average Exercise Price | |||||||||||
| $ .01 to 8.43 |
27,794,770 |
3.4 years |
$ |
4.23 |
25,050,350 |
$ |
4.57 | |||||||||
| 8.44 to 25.29 |
73,677,227 |
6.2 |
|
15.45 |
51,591,476 |
|
13.62 | |||||||||
| 25.30 to 50.59 |
41,278,685 |
9.1 |
|
40.41 |
3,032,474 |
|
34.49 | |||||||||
| 50.60 to 84.32 |
21,679,919 |
8.0 |
|
57.04 |
5,455,206 |
|
57.17 | |||||||||
| |
|
|
|
|
|
|
| |||||||||
| $ .01 to 84.32 |
164,430,601 |
6.7 years |
$ |
25.30 |
85,129,506 |
$ |
14.49 | |||||||||
| |
|
|
|
|
|
|
| |||||||||
At December 31, 2001, the stock options outstanding under the Employee Plan have an
exercise price of $28.14 or 85% of the fair market value of the company’s common stock on April 1, 2002 (the date of automatic exercise), whichever is lower. Of the total outstanding options, none are exercisable at year-end 2001.
At year-end 2001, 124,846,188 shares were available for future grants under the 2000 Long-Term Incentive Plan and 20,745,223 shares under the Employees
Stock Purchase Plan. As of year-end 2001, 289,276,784 shares were reserved for issuance under the company’s stock option and incentive plans and 22,404,888 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. In 2001, the TI board of directors approved the repurchase of up to 17
million additional shares of the company’s common stock. The repurchases are intended to neutralize the potential dilutive effect of shares expected to be issued upon the exercise of stock options under the company’s long-term incentive
plans and Employee Stock Purchase Plan. Treasury shares acquired in connection with the repurchase program and other stock transactions in 2001, 2000 and 1999 were 11,554,324 shares, 1,880,220 shares and 3,905,177 shares. Previously unissued common
shares issued for restricted stock units under the 1996 Long-Term Incentive Plan and predecessor long-term incentive plans in 2001, 2000 and 1999 were 100,000 shares, 404,000 shares and 41,060 shares. Treasury shares issued upon exercise of
restricted stock units issued under the Texas Instruments Restricted Stock Unit Plan for Directors in 2001, 2000 and 1999 were 22,880 shares, 11,440 shares, and zero shares. Treasury shares issued upon exercise of stock options issued under the
Texas Instruments Stock Option Plan for Non-employee Directors in 2001, 2000 and 1999 were 10,000 shares, 9,000 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 in cash at a dollar-per-dollar rate.
The contributions may be invested at the employee’s discretion in several investment funds including TI common stock.
C-17
Table of Contents
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 employee’s earnings (subject to statutory limitations), is matched by the
company in cash 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 highest five consecutive years of compensation.
Certain 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 made available to employees 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, 2001. Instead, the trustees of these plans worldwide have purchased outstanding TI common shares: 16,779,770 shares in 2001, 16,199,007 shares in 2000 and 23,929,068 shares in 1999.
The company’s aggregate expense for U.S. employees under the defined contribution, deferred profit sharing and matched savings plans was $51 million in 2001,
$50 million in 2000 and $39 million in 1999.
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. Effective January 1, 2001, new employees will be responsible for the cost. Coverage eligibility 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 | |||||||||||||||||||||||
| Defined Benefit |
Retiree Health Care | ||||||||||||||||||||||
| 2001 |
2000 |
1999 |
2001 |
2000 |
1999 | ||||||||||||||||||
| Service cost |
$ |
24 |
|
$ |
27 |
|
$ |
35 |
|
$ |
3 |
|
$ |
3 |
|
$ |
3 | ||||||
| Interest cost |
|
43 |
|
|
44 |
|
|
49 |
|
|
27 |
|
|
25 |
|
|
23 | ||||||
| Expected return on plan assets |
|
(46 |
) |
|
(46 |
) |
|
(42 |
) |
|
(24 |
) |
|
(4 |
) |
|
— | ||||||
| Amortization of prior service cost |
|
2 |
|
|
2 |
|
|
1 |
|
|
— |
|
|
— |
|
|
— | ||||||
| Amortization of transition obligation |
|
(1 |
) |
|
(4 |
) |
|
(4 |
) |
|
— |
|
|
— |
|
|
— | ||||||
| Recognized net actuarial (gain) loss |
|
1 |
|
|
(3 |
) |
|
1 |
|
|
— |
|
|
— |
|
|
— | ||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| Total |
$ |
23 |
|
$ |
20 |
|
$ |
40 |
|
$ |
6 |
|
$ |
24 |
|
$ |
26 | ||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Settlement and curtailment gains (losses) of the U.S. defined benefit plan recognized in
2001, 2000 and 1999 were $2 million and $1 million; $8 million and $1 million; and zero and zero. For the retiree health care benefit plan they were zero and zero; zero and $6 million; and zero and zero. For the U.S. defined benefit plan, special
termination benefits of $33 million and $1 million were recognized in 2001 and 2000. For the retiree health care benefit plan, special termination benefits of $18 million were recognized in 2001. The special termination benefits recognized in 2001
were related to an enhanced voluntary retirement offering and the special termination benefits recognized in 2000 were related to the closing of a facility in Kentucky.
C-18
Table of Contents
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 Benefit |
Retiree Health Care |
|||||||||||||||
| 2001 |
2000 |
2001 |
2000 |
|||||||||||||
| Change in benefit obligation: |
||||||||||||||||
| Benefit obligation at beginning of year |
$ |
636 |
|
$ |
582 |
|
$ |
371 |
|
$ |
341 |
| ||||
| Service cost |
|
24 |
|
|
27 |
|
|
3 |
|
|
3 |
| ||||
| Interest cost |
|
43 |
|
|
44 |
|
|
27 |
|
|
25 |
| ||||
| Participants’ contributions |
|
— |
|
|
— |
|
|
12 |
|
|
8 |
| ||||
| Benefits paid |
|
(72 |
) |
|
(67 |
) |
|
(39 |
) |
|
(42 |
) | ||||
| Plan amendments |
|
— |
|
|
6 |
|
|
(31 |
) |
|
— |
| ||||
| Actuarial (gain) loss |
|
62 |
|
|
73 |
|
|
(47 |
) |
|
42 |
| ||||
| Settlements |
|
(128 |
) |
|
(29 |
) |
|
— |
|
|
— |
| ||||
| Curtailments |
|
15 |
|
|
(1 |
) |
|
(2 |
) |
|
(6 |
) | ||||
| Special termination benefit |
|
33 |
|
|
1 |
|
|
18 |
|
|
— |
| ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Benefit obligation at end of year |
|
613 |
|
|
636 |
|
|
312 |
|
|
371 |
| ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Change in plan assets: |
||||||||||||||||
| Fair value of plan assets at beginning of year |
|
612 |
|
|
552 |
|
|
306 |
|
|
— |
| ||||
| Actual return on plan assets |
|
(66 |
) |
|
15 |
|
|
(8 |
) |
|
(7 |
) | ||||
| Employer contribution |
|
82 |
|
|
134 |
|
|
— |
|
|
313 |
| ||||
| Benefits paid |
|
(61 |
) |
|
(63 |
) |
|
(34 |
) |
|
— |
| ||||
| Settlements |
|
(128 |
) |
|
(26 |
) |
|
— |
|
|
— |
| ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Fair value of plan assets at end of year |
|
439 |
|
|
612 |
|
|
264 |
|
|
306 |
| ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Funded status |
|
(174 |
) |
|
(24 |
) |
|
(48 |
) |
|
(65 |
) | ||||
| Unrecognized net actuarial (gain) loss |
|
121 |
|
|
(71 |
) |
|
21 |
|
|
38 |
| ||||
| Unrecognized prior service cost |
|
3 |
|
|
6 |
|
|
(32 |
) |
|
(1 |
) | ||||
| Unrecognized transition obligation |
|
— |
|
|
(1 |
) |
|
— |
|
|
— |
| ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Accrued retirement at December 31 |
|
(50 |
) |
|
(90 |
) |
|
(59 |
) |
|
(28 |
) | ||||
| Less current portion |
|
— |
|
|
(19 |
) |
|
— |
|
|
5 |
| ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
| Accrued U.S. retirement costs |
$ |
(50 |
) |
$ |
(109 |
) |
$ |
(59 |
) |
$ |
(23 |
) | ||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||
The U.S. defined benefit and retiree health care obligations were determined using assumed
discount rates of 7.50% from January 1 through April 30 and 7.25% from May 1 through December 31 for 2001, and 7.5% for 2000. The assumed average long-term pay progression rate was 4.35%. The assumed long-term rate of return on plan assets was 9.0%.
Accrued retirement at December 31, 2001, includes projected benefit obligation of $609 million and accumulated benefit obligations of $482 million, versus plan assets of $439 million for three plans whose obligations exceed their assets. The
retiree health care benefit obligation was determined using health care cost trend rates of 10.0% for 2002 decreasing by 1% each year until 2007 where the rate is 5% and then for 2008 and all future years the ultimate rate of 4.5% is used.
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, 2001, by $14 million/$(13) million and 2001 plan expense by $1 million/$(1)
million.
C-19
Table of Contents
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 zero in 2001, $13 million in 2000 and $10 million in 1999.
Expense of the non-U.S. defined benefit plans was as
follows:
| Millions of Dollars |
||||||||||||
| 2001 |
2000 |
1999 |
||||||||||
| Service cost |
$ |
58 |
|
$ |
57 |
|
$ |
56 |
| |||
| Interest cost |
|
35 |
|
|
37 |
|
|
31 |
| |||
| Expected return on plan assets |
|
(42 |
) |
|
(43 |
) |
|
(43 |
) | |||
| Amortization of prior service cost |
|
1 |
|
|
1 |
|
|
1 |
| |||
| Amortization of transition obligation |
|
2 |
|
|
2 |
|
|
2 |
| |||
| Recognized net actuarial loss |
|
8 |
|
|
10 |
|
|
18 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Total |
$ |
62 |
|
$ |
64 |
|
$ |
65 |
| |||
| |
|
|
|
|
|
|
|
| ||||
Settlement and curtailment gains (losses) of the non-U.S. defined benefit plans recognized
in 2001, 2000 and 1999 were $(11) million and zero; $(2) million and zero; and $(3) million and zero.
C-20
Table of Contents
Obligation and asset data for the non-U.S. defined benefit plans at September 30 were as follows:
| Millions of Dollars |
||||||||
| 2001 |
2000 |
|||||||
| Change in benefit obligation: |
||||||||
| Benefit obligation at beginning of year |
$ |
1,231 |
|
$ |
1,193 |
| ||
| Service cost |
|
58 |
|
|
57 |
| ||
| Interest cost |
|
35 |
|
|
37 |
| ||
| Benefits paid |
|
(45 |
) |
|
(29 |
) | ||
| Actuarial (gain) loss |
|
(74 |
) |
|
(14 |
) | ||
| Settlements |
|
(29 |
) |
|
— |
| ||
| Curtailments |
|
(18 |
) |
|
(13 |
) | ||
| |
|
|
|
|
| |||
| Benefit obligation at end of year |
|
1,158 |
|
|
1,231 |
| ||
| |
|
|
|
|
| |||
| Change in plan assets: |
||||||||
| Fair value of plan assets at beginning of year |
|
777 |
|
|
750 |
| ||
| Actual return on plan assets |
|
(71 |
) |
|
79 |
| ||
| Employer contribution |
|
44 |
|
|
37 |
| ||
| Benefits paid |
|
(44 |
) |
|
(27 |
) | ||
| Settlements |
|
(29 |
) |
|
— |
| ||
| Actuarial gain (loss) |
|
(27 |
) |
|
(62 |
) | ||
| |
|
|
|
|
| |||
| Fair value of plan assets at end of year |
|
650 |
|
|
777 |
| ||
| |
|
|
|
|
| |||
| Funded status |
|
(508 |
) |
|
(454 |
) | ||
| Unrecognized net actuarial loss |
|
295 |
|
|
233 |
| ||
| Unrecognized prior service cost |
|
5 |
|
|
6 |
| ||
| Unrecognized transition obligation |
|
5 |
|
|
6 |
| ||
| Adjustments from Sept. 30 to Dec. 31 |
|
(2 |
) |
|
6 |
| ||
| |
|
|
|
|
| |||
| Net non-U.S. amount recognized |
$ |
(205 |
) |
$ |
(203 |
) | ||
| |
|
|
|
|
| |||
| Amounts recognized in the balance sheet consist of: |
||||||||
| Accrued retirement, current |
$ |
(5 |
) |
$ |
(5 |
) | ||
| Accrued retirement, noncurrent |
|
(377 |
) |
|
(245 |
) | ||
| Prepaid benefit cost |
|
16 |
|
|
18 |
| ||
| Intangible asset |
|
4 |
|
|
6 |
| ||
| Accumulated other comprehensive income |
|
157 |
|
|
23 |
| ||
| |
|
|
|
|
| |||
| Total |
$ |
(205 |
) |
$ |
(203 |
) | ||
| |
|
|
|
|
| |||
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 September 30 using a range of assumed discount rates of 2.25% 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 5.0% to 6.0%. Accrued retirement at September 30, 2001 and 2000, includes projected benefit obligations of $970 million and $1043 million, and accumulated benefit obligations of
$795 million and $808 million, versus plan assets of $487 million and $578 million, for three plans whose obligations exceed their assets.
C-21
Table of Contents
RESTRUCTURING ACTIONS
In the first
quarter of 2001, the company recorded net pretax charges of $50 million, of which $11 million was for severance cost for 241 first-quarter employee acceptances under the U.S. voluntary retirement program, $16 million was for severance cost for
restructuring actions affecting 261 employees in international Semiconductor locations, and $25 million relates to the closing of a Semiconductor manufacturing facility in Santa Cruz, California. Of the $25 million charge, $16 million was for
severance cost for 600 employees and $5 million was for acceleration of depreciation over the remaining service life of the facility. Of the $50 million, $44 million is included in cost of revenues, $7 million is in selling, general and
administrative expense, $2 million is in research and development expense, and $3 million is in other income.
In the second quarter of
2001, the company recorded net pretax charges of $252 million, of which $214 million was severance cost for the worldwide cost-reduction program affecting 3778 employees and $35 million relates to restructuring charges for the closing of three
Semiconductor facilities (Merrimack, New Hampshire; Tustin, California; and Santa Cruz, California) affecting an additional 559 employees. Of the $35 million charge, $14 million was for severance cost and $16 million was for acceleration of
depreciation over the remaining service life of the facilities. Of the $252 million, $162 million is included in cost of revenues, $84 million is in selling, general and administrative expense and $6 million is in research and development expense.
In the third quarter of 2001, the company recorded net pretax charges of $37 million, of which $19 million was severance cost for the
worldwide cost-reduction program affecting 285 employees and $16 million relates to restructuring charges for the closing of three Semiconductor facilities (Santa Cruz, California; Merrimack, New Hampshire; and Tustin, California). Of the $16
million, $15 million was for the acceleration of depreciation over the remaining service life of the facilities. Of the $37 million, $27 million is included in cost of revenues, $8 million is in selling, general and administrative expense and $2
million is in research and development expense.
In the fourth quarter of 2001, the company recognized a gain of $9 million in other
income from the sale of two facilities and recorded net special charges of $18 million, of which $14 million is for restructuring charges primarily related to the closing of the Semiconductor manufacturing facility in Merrimack, New Hampshire, and
$4 million is severance cost for the worldwide cost reduction program. Of the $14 million, $9 million is for acceleration of depreciation over the remaining service life of the facility. Of the $18 million net special charges, $14 million is
included in cost of revenues, $3 million is in research and development expense and $1 million is in selling, general and administrative expense. As of December 31, 2001, $229 million of the $293 million aggregate severance cost obligations for the
2001 worldwide cost reduction and restructuring actions affecting a total of 5724 employees had been paid. The Tustin, California facility was sold in fourth quarter 2001, and the Santa Cruz, California and Merrimack, New Hampshire facilities are
being marketed for sale in 2002.
In the first quarter of 2000, the company recorded net 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, 2001, $10 million of severance costs had been paid. Of the $29 million charge, $20 million is included in cost of revenues, $6 million is in selling, general and administrative expense, and $3 million is in research
and development expense.
C-22
Table of Contents
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, 2001, $17 million of the severance costs had been paid. Of the $10 million net charge, $12
million is included in cost of revenues, $9 million is in other income and $7 million is in selling, general and administrative expense.
In the fourth quarter of 2000, the company recorded a net 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. At year-end 2001, this program was complete.
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 net pretax charge of $14 million, of which $13 million was for severance for the elimination of 153 jobs in Hatogaya,
Japan, and $1 million was for other related costs. Of the $14 million charge, $11 million is included in cost of revenues and $3 million is in selling, general and administrative expense. In the third quarter of 1999, additional severance actions
were taken for this program. This resulted in a net pretax charge of $7 million, included in cost of revenues, 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 net pretax charge of $12 million, of which $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. Of the $12 million charge, $10 million is included in cost of revenues and $2 million is in selling, general and
administrative expense. At year-end 2000, this program was complete. In the fourth quarter of 1999, TI acquired Unitrode Corporation (Unitrode), which was accounted for as a pooling of interests. In the third quarter of 1999, Unitrode had recorded a
$4 million charge, included in selling, general and administrative expense, primarily for severance to former executives. The amount was paid that quarter.
C-23
Table of Contents
Set forth below is a reconciliation of individual restructuring accruals (in millions of dollars).
| 1999 |
2000 |
2001 |
||||||||||||||||||||||||||||||||||||||||||
| Description* |
Total |
Balance, prior actions primarily severance and business divestiture-related |
SC operation closing in Japan |
SC cost reduction action in U.S. |
Unitrode severance action |
S&C site closing |
SC and S&C actions |
E&PS severance action |
Voluntary/ involuntary program in U.S. |
SC site closings in U.S. |
SC international restructuring actions |
|||||||||||||||||||||||||||||||||
| BALANCE, DECEMBER 31, 1998 |
$ |
165 |
|
$ |
165 |
|
||||||||||||||||||||||||||||||||||||||
| CHARGES: |
||||||||||||||||||||||||||||||||||||||||||||
| Severance |
|
33 |
|
$ |
20 |
|
$ |
9 |
|
$ |
4 |
|
||||||||||||||||||||||||||||||||
| Vendor and warranty obligations |
|
1 |
|
|
1 |
|
||||||||||||||||||||||||||||||||||||||
| Asset write-downs |
|
2 |
|
|
2 |
|
||||||||||||||||||||||||||||||||||||||
| Various charges |
|
1 |
|
|
1 |
|
||||||||||||||||||||||||||||||||||||||
| DISPOSITIONS: |
||||||||||||||||||||||||||||||||||||||||||||
| Severance payments |
|
(86 |
) |
|
(59 |
) |
|
(19 |
) |
|
(4 |
) |
|
(4 |
) |
|||||||||||||||||||||||||||||
| Vendor and warranty obligation payments |
|
(2 |
) |
|
(2 |
) |
||||||||||||||||||||||||||||||||||||||
| Grant repayment |
|
(6 |
) |
|
(6 |
) |
||||||||||||||||||||||||||||||||||||||
| Non-cash write-down of assets |
|
(2 |
) |
|
(2 |
) |
||||||||||||||||||||||||||||||||||||||
| Various payments |
|
(11 |
) |
|
(11 |
) |
||||||||||||||||||||||||||||||||||||||
| Change in estimates |
|
(19 |
) |
|
(19 |
) |
||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||
| BALANCE, DECEMBER 31, 1999 |
|
76 |
|
|
68 |
|
|
2 |
|
|
6 |
|
|
— |
|
|||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||
| CHARGES: |
||||||||||||||||||||||||||||||||||||||||||||
| Severance |
|
34 |
|
$ |
12 |
|
$ |
19 |
|
$ |
3 |
|
||||||||||||||||||||||||||||||||
| Various charges |
|
1 |
|
|
1 |
|
||||||||||||||||||||||||||||||||||||||
| DISPOSITIONS: |
||||||||||||||||||||||||||||||||||||||||||||
| Severance payments |
|
(26 |
) |
|
(13 |
) |
|
(3 |
) |
|
(1 |
) |
|
(9 |
) |
|||||||||||||||||||||||||||||
| Various payments |
|
(2 |
) |
|
(2 |
) |
||||||||||||||||||||||||||||||||||||||
| Change in estimates |
|
(13 |
) |
|
(7 |
) |
|
(2 |
) |
|
(3 |
) |
|
(1 |
) |
|||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| BALANCE, DECEMBER 31, 2000 |
|
70 |
|
|
46 |
|
|
— |
|
|
— |
|
|
— |
|
|
11 |
|
|
10 |
|
|
3 |
|
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| CHARGES: |
||||||||||||||||||||||||||||||||||||||||||||
| Severance |
|
293 |
|
$ |
149 |
|
$ |
31 |
|
$ |
113 |
| ||||||||||||||||||||||||||||||||
| Asset write-downs |
|
46 |
|
|
46 |
|
||||||||||||||||||||||||||||||||||||||
| Various charges |
|
18 |
|
|
4 |
|
|
11 |
|
|
3 |
| ||||||||||||||||||||||||||||||||
| DISPOSITIONS: |
||||||||||||||||||||||||||||||||||||||||||||
| Severance payments |
|
(258 |
) |
|
(9 |
) |
|
(9 |
) |
|
(8 |
) |
|
(3 |
) |
|
(136 |
) |
|
(16 |
) |
|
(77 |
) | ||||||||||||||||||||
| Non-cash write-down of assets |
|
(46 |
) |
|
(46 |
) |
||||||||||||||||||||||||||||||||||||||
| Various payments |
|
(3 |
) |
|
(3 |
) |
||||||||||||||||||||||||||||||||||||||
| Change in estimates |
|
(1 |
) |
|
(1 |
) |
||||||||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| BALANCE, DECEMBER 31, 2001 |
$ |
119 |
|
$ |
37 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
2 |
|
$ |
1 |
|
$ |
— |
|
$ |
17 |
|
$ |
23 |
|
$ |
39 |
| |||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
*Abbreviations |
SC |
= Semiconductor Business |
S&C =
Sensors & Controls Business
E&PS = Educational & Productivity Solutions Business
C-24
Table of Contents
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 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. Business segment operating profit amounts for 2001 and 2000 exclude this amortization, which totals $229 million and $160 million. Business segment operating profit for 1999 includes this
amortization, which totals $69 million. The results for Semiconductor include the effects of all royalty revenue 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 revenue 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 |
|||||||||||
| 2001 |
2000 |
1999 |
|||||||||
| Semiconductor |
|||||||||||
| Trade |
$ |
6,767 |
|
$ |
10,267 |
$ |
8,215 |
| |||
| Intersegment |
|
17 |
|
|
17 |
|
16 |
| |||
| |
|
|
|
|
|
|
| ||||
| |
6,784 |
|
|
10,284 |
|
8,231 |
| ||||
| |
|
|
|
|
|
|
| ||||
| Sensors & Controls |
|||||||||||
| Trade |
|
955 |
|
|
1,029 |
|
911 |
| |||
| Intersegment |
|
3 |
|
|
1 |
|
1 |
| |||
| |
|
|
|
|
|
|
| ||||
| |
958 |
|
|
1,030 |
|
912 |
| ||||
| |
|
|
|
|
|
|
| ||||
| Educational & Productivity Solutions |
|||||||||||
| Trade |
|
465 |
|
|
446 |
|
484 |
| |||
| Corporate activities |
|
(18 |
) |
|
3 |
|
(8 |
) | |||
| Divested activities |
|
12 |
|
|
112 |
|
140 |
| |||
| |
|
|
|
|
|
|
| ||||
| Total |
$ |
8,201 |
|
$ |
11,875 |
$ |
9,759 |
| |||
| |
|
|
|
|
|
|
| ||||
C-25
Table of Contents
| Business Segment Profit (Loss) |
||||||||||||
| Millions of Dollars |
||||||||||||
| 2001 |
2000 |
1999 |
||||||||||
| Semiconductor |
$ |
(155 |
) |
$ |
2,607 |
|
$ |
1,894 |
| |||
| Sensors & Controls |
|
192 |
|
|
191 |
|
|
151 |
| |||
| Educational & Productivity Solutions |
|
132 |
|
|
111 |
|
|
106 |
| |||
| Corporate activities |
|
(170 |
) |
|
(234 |
) |
|
(285 |
) | |||
| Special charges/gains and acquisition-related amortization, net of applicable profit sharing |
|
(575 |
) |
|
1,429 |
|
|
(163 |
) | |||
| Interest on loans/other income (expense) net, excluding 2001 net gains of $11, 2000 net gains of $1,791 and 1999 net losses
of $1 included above in Special charges/gains and acquisition-related amortization |
|
144 |
|
|
447 |
|
|
328 |
| |||
| Divested activities |
|
6 |
|
|
27 |
|
|
51 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Income (loss) before income taxes and cumulative effect of an accounting change |
$ |
(426 |
) |
$ |
4,578 |
|
$ |
2,082 |
| |||
| |
|
|
|
|
|
|
|
| ||||
Details of special charges and gains are as follows:
| Millions of Dollars |
||||||||||||
| 2001 |
2000 |
1999 |
||||||||||
| Voluntary/involuntary program in U.S |
$ |
(153 |
) |
$ |
— |
|
$ |
— |
| |||
| Semiconductor site closings in U.S |
|
(88 |
) |
|
— |
|
|
— |
| |||
| International restructuring actions |
|
(116 |
) |
|
— |
|
|
— |
| |||
| Semiconductor and Sensors & Controls restructuring and other actions, of which $11 was included in other income (expense)
net |
|
— |
|
|
(41 |
) |
|
— |
| |||
| Gain on sale of Micron stock |
|
— |
|
|
1,636 |
|
|
— |
| |||
| Gain on sale of the memory business |
|
— |
|
|
88 |
|
|
— |
| |||
| Gain on sale of the materials operation |
|
— |
|
|
56 |
|
|
— |
| |||
| Semiconductor restructuring |
|
— |
|
|
— |
|
|
(33 |
) | |||
| Acquisition-related amortization |
|
(229 |
) |
|
(160 |
) |
|
— |
| |||
| Purchased in-process R&D charges |
|
— |
|
|
(112 |
) |
|
(79 |
) | |||
| Pooling of interests transaction costs |
|
— |
|
|
(50 |
) |
|
(101 |
) | |||
| Other |
|
11 |
|
|
12 |
|
|
50 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Total |
$ |
(575 |
) |
$ |
1,429 |
|
$ |
(163 |
) | |||
| |
|
|
|
|
|
|
|
| ||||
C-26
Table of Contents
| Business Segment Assets |
|||||||||
| Millions of Dollars | |||||||||
| 2001 |
2000 |
1999 | |||||||
| Semiconductor |
$ |
6,934 |
$ |
8,228 |
$ |
6,534 | |||
| Sensors & Controls |
|
415 |
|
499 |
|
459 | |||
| Educational & Productivity Solutions |
|
94 |
|
124 |
|
150 | |||
| Corporate activities |
|
8,336 |
|
8,869 |
|
8,193 | |||
| Divested activities |
|
— |
|
— |
|
91 | |||
| |
|
|
|
|
| ||||
| Total |
$ |
15,779 |
$ |
17,720 |
$ |
15,427 | |||
| |
|
|
|
|
| ||||
Business Segment Property, Plant and Equipment Additions and Depreciation
| Millions of Dollars | |||||||||
| Additions |
2001 |
2000 |
1999 | ||||||
| Semiconductor |
$ |
1,699 |
$ |
2,615 |
$ |
1,308 | |||
| Sensors & Controls |
|
29 |
|
65 |
|
38 | |||
| Educational & Productivity Solutions |
|
1 |
|
1 |
|
2 | |||
| Corporate activities |
|
61 |
|
78 |
|
46 | |||
| Divested activities |
|
— |
|
3 |
|
4 | |||
| |
|
|
|
|
| ||||
| Total |
$ |
1,790 |
$ |
2,762 |
$ |
1,398 | |||
| |
|
|
|
|
| ||||
| Millions of Dollars | |||||||||
| Depreciation |
2001 |
2000 |
1999 | ||||||
| Semiconductor |
$ |
1,461 |
$ |
1,115 |
$ |
900 | |||
| Sensors & Controls |
|
43 |
|
45 |
|
41 | |||
| Educational & Productivity Solutions |
|
1 |
|
1 |
|
1 | |||
| Corporate activities |
|
94 |
|
49 |
|
56 | |||
| Divested activities |
|
— |
|
6 |
|
7 | |||
| |
|
|
|
|
| ||||
| Total |
$ |
1,599 |
$ |
1,216 |
$ |
1,005 | |||
| |
|
|
|
|
| ||||
| 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 | |||||||||
| 2001 |
2000 |
1999 | |||||||
| United States |
$ |
2,284 |
$ |
3,209 |
$ |
3,213 | |||
| Japan |
|
1,430 |
|
2,119 |
|
1,873 | |||
| Rest of world |
|
4,487 |
|
6,547 |
|
4,673 | |||
| |
|
|
|
|
| ||||
| Total |
$ |
8,201 |
$ |
11,875 |
$ |
9,759 | |||
| |
|
|
|
|
| ||||
| Geographic Area Property, Plant and Equipment (Net) |
|||||||||
| Millions of Dollars | |||||||||
| 2001 |
2000 |
1999 | |||||||
| United States |
$ |
3,940 |
$ |
3,825 |
$ |
2,918 | |||
| Japan |
|
577 |
|
634 |
|
392 | |||
| Rest of world |
|
1,072 |
|
988 |
|
623 | |||
| |
|
|
|
|
| ||||
| Total |
$ |
5,589 |
$ |
5,447 |
$ |
3,933 | |||
| |
|
|
|
|
| ||||
C-27
Table of Contents
INCOME TAXES
Income (Loss) before
Provision (Benefit) for Income Taxes and Cumulative Effect of an Accounting Change
| Millions of Dollars |
|||||||||||
| U.S. |
Non-U.S. |
Total |
|||||||||
| 2001 |
$ |
(791 |
) |
$ |
365 |
$ |
(426 |
) | |||
| 2000 |
|
3,944 |
|
|
634 |
|
4,578 |
| |||
| 1999 |
|
1,396 |
|
|
686 |
|
2,082 |
| |||
Provision (Benefit) for Income Taxes
| Millions of Dollars |
|||||||||||||||
| U.S. Federal |
Non-U.S. |
U.S. State |
Total |
||||||||||||
| 2001 |
|||||||||||||||
| Current |
$ |
(417 |
) |
$ |
173 |
|
$ |
— |
$ |
(244 |
) | ||||
| Deferred |
|
(55 |
) |
|
71 |
|
|
3 |
|
19 |
| ||||
| |
|
|
|
|
|
|
|
|
|
| |||||
| Total |
$ |
(472 |
) |
$ |
244 |
|
$ |
3 |
$ |
(225 |
) | ||||
| |
|
|
|
|
|
|
|
|
|
| |||||
| 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 |
| ||||
| |
|
|
|
|
|
|
|
|
|
| |||||
Principal reconciling items from income tax computed at the statutory federal rate follow.
| Millions of Dollars |
||||||||||||
| 2001 |
2000 |
1999 |
||||||||||
| Computed tax at statutory rate |
|
$(149) |
|
$ |
1,602 |
|
$ |
729 |
| |||
| Non-deductible acquisition-related costs |
|
54 |
|
|
74 |
|
|
28 |
| |||
| Effect of non-U.S. rates |
|
(6 |
) |
|
(102 |
) |
|
(61 |
) | |||
| Research and experimental tax credits |
|
(62 |
) |
|
(64 |
) |
|
(54 |
) | |||
| Effect of U.S. state income taxes |
|
— |
|
|
33 |
|
|
11 |
| |||
| U.S. tax benefits on foreign sales |
|
(30 |
) |
|
(2 |
) |
|
(29 |
) | |||
| Other |
|
(32 |
) |
|
(50 |
) |
|
7 |
| |||
| |
|
|
|
|
|
|
|
| ||||
| Total provision (benefit) for income taxes |
$ |
(225 |
) |
$ |
1,491 |
|
$ |
631 |
| |||
| |
|
|
|
|
|
|
|
| ||||
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 $1137 million at December 31, 2001) 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.
C-28
Table of Contents
The primary components of deferred income tax assets and liabilities at December 31 were as follows:
| Millions of Dollars |
||||||||
| 2001 |
2000 |
|||||||
| Deferred income tax assets: |
||||||||
| Accrued retirement costs (pension and retiree health care) |
$ |
218 |
|
$ |
208 |
| ||
| Inventories and related reserves |
|
269 |
|
|
301 |
| ||
| Accrued expenses |
|
353 |
|
|
332 |
| ||
| Deferred loss and tax credits |
|
260 |
|
|
29 |
| ||
| Other |
|
61 |
|
|
87 |
| ||
| |
|
|
|
|
| |||
| |
1161 |
|
|
957 |
| |||
| Less valuation allowance |
|
(13 |
) |
|
(16 |
) | ||
| |
|
|
|
|
| |||
| |
1148 |
|
|
941 |
| |||
| |
|
|
|
|
| |||
| Deferred income tax liabilities: |
||||||||
| Investments |
|
(195 |
) |
|
(313 |
) | ||
| Property, plant and equipment |
|
(213 |
) |
|
(201 |
) | ||
| Intangibles |
|
(72 |
) |
|
(117 |
) | ||
| International earnings |
|
2 |
|
|
(3 |
) | ||
| Other |
|
(26 |
) |
|
(75 |
) | ||
| |
|
|
|
|
| |||
| |
(504 |
) |
|
(709 |
) | |||
| |
|
|
|
|
| |||
| Net deferred income tax asset |
$ |
644 |
|
$ |
232 |
| ||
| |
|
|
|
|
| |||
As of December 31, 2001 and 2000, the net deferred income tax asset of $644 million and
$232 million was presented in the balance sheet, based on tax jurisdiction, as deferred income tax assets of $975 million and $701 million and deferred income tax liabilities of $(331) million and $(469) 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. While these assets are not assured of realization, the balance of the deferred income tax assets is considered
realizable based on carryback potential and existing taxable temporary differences.
The company has aggregate U.S. and non-U.S. tax loss
carryforwards of approximately $39 million. Of this amount, $37 million expires through the year 2015, and $2 million of the loss carryforwards has no expiration.
Income taxes paid were $81 million, $1222 million and $425 million for 2001, 2000 and 1999.
RENTAL EXPENSE
AND LEASE COMMITMENTS
Rental and lease expense was $162 million in 2001, $161 million in 2000 and $154 million in 1999. 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, 2001, the company was committed under noncancelable leases with minimum
rentals in succeeding years as follows:
| Millions of Dollars | ||
| 2002 |
$74 | |
| 2003 |
83 | |
| 2004 |
28 | |
| 2005 |
24 | |
| 2006 |
18 | |
| Thereafter |
98 |
C-29
Table of Contents
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, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in
the United States.
As discussed in the Accounting Policies and Procedures footnote to the financial statements, in 2000 the Company
changed its method of accounting for revenue recognition.
 |
Dallas, Texas
January 28, 2002
C-30
Table of Contents
Summary of Selected Financial Data
| Millions of Dollars, Except Per-share Amounts | ||||||||||||||||
| Years Ended December 31, |
2001 |
2000 |
1999 |
1998 |
1997 | |||||||||||
| Net revenues |
$ |
8,201 |
|
$ |
11,875 |
$ |
9,759 |
$ |
8,875 |
$ |
10,224 | |||||
| Operating costs and expenses |
|
8,783 |
|
|
9,536 |
|
8,004 |
|
8,419 |
|
9,514 | |||||
| |
|
|
|
|
|
|
|
|
|
| ||||||
| Profit (loss) from operations |
|
(582 |
) |
|
2,339 |
|
1,755 |
|
456 |
|
710 | |||||
| Other income (expense) net |
|
217 |
|
|
2,314 |
|
403 |
|
301 |
|
201 | |||||
| Interest on loans |
|
61 |
|
|
75 |
|
76 |
|
76 |
|
94 | |||||
| |
|
|
|
|
|
|
|
|
|
| ||||||
| Income (loss) before provision for income taxes and cumulative effect of an accounting change |
|
(426 |
) |
|
4,578 |
|
2,082 |
|
681 |
|
817 | |||||
| Provision (benefit) for income taxes |
|
(225 |
) |
|
1,491 |
|
631 |
|
229 |
|
446 | |||||
| |
|
|
|
|
|
|
|
|
|
| ||||||
| Income (loss) before cumulative effect of an accounting change |
$ |
(201 |
) |
$ |
3,087 |
$ |
1,451 |
$ |
452 |
$ |
371 | |||||
| |
|
|
|
|
|
|
|
|
|
| ||||||
| Diluted earnings (loss) per common share before cumulative effect of an accounting change |
$ |
(.12 |
) |
$ |
1.73 |
$ |
.83 |
$ |
.26 |
$ |
.22 | |||||
| |
|
|
|
|
|
|
|
|
|
| ||||||
| Basic earnings (loss) per common share before cumulative effect of an accounting change |
$ |
(.12 |
) |
$ |
1.80 |
$ |
.86 |
$ |
.27 |
$ |
.23 | |||||
| |
|
|
|
|
|
|
|
|
|
| ||||||
| Dividends declared per common share |
$ |
.085 |
|
$ |
.085 |
$ |
.085 |
$ |
.064 |
$ |
.085 | |||||
| Average common and dilutive potential common shares outstanding during year, in thousands* |
|
1,734,506 |
|
|
1,791,630 |
|
1,749,659 |
|
1,711,145 |
|
1,697,644 | |||||
* |
For the year ended December 31, 2001, dilutive potential common shares outstanding have been excluded due to the net loss for the period. |
| Millions of Dollars | |||||||||||||||
| December 31, |
2001 |
2000 |
1999 |
1998 |
1997 | ||||||||||
| Working capital |
$ |
4,195 |
$ |
5,302 |
$ |
3,656 |
$ |
2,914 |
$ |
3,817 | |||||
| Property, plant and equipment (net) |
|
5,589 |
|
5,447 |
|
3,933 |
|
3,543 |
|
4,343 | |||||
| Total assets |
|
15,779 |
|
17,720 |
|
15,427 |
|
11,829 |
|
11,393 | |||||
| Long-term debt |
|
1,211 |
|
1,216 |
|
1,099 |
|
1,031 |
|
1,287 | |||||
| Stockholders’ equity |
|
11,879 |
|
12,588 |
|
9,578 |
|
7,010 |
|
6,344 | |||||
| |
|
|
|
|
|
|
|
|
| ||||||
| Employees |
|
34,724 |
|
42,481 |
|
39,597 |
|
38,064 |
|
46,341 | |||||
| Stockholders of record |
|
29,985 |
|
30,043 |
|
27,706 |
|
30,659 |
|
30,935 | |||||
See Notes to Consolidated Financial Statements and Management Discussion and Analysis of Financial Condition and
Results of Operations.
C-31
Table of Contents
Supplemental Financial Information
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2001 RESULTS OF OPERATIONS COMPARED WITH 2000
2001 was a difficult year, but it ended on a more positive note than it started. Despite the harsh environment, TI made great strides in increasing its
customer focus and technology leadership with aggressive R&D and equipment upgrades. TI is coming out of the downturn stronger. It is the only company shipping DSPs that operate at 600 megahertz, twice that of its nearest competitor. TI began
shipping copper-based products, ramped up 130-nanometer process technology and installed its first 300-millimeter wafer production line. At the same time, TI maintained a strong balance sheet and took actions that cut about $600 million out of
TI’s costs on an annualized basis. TI decreased accounts receivable to $1198 million, resulting in a reduction of days sales outstanding to 60, compared with 65 at the end of 2000. Days of inventory were reduced to a three-year low of 50,
compared with 71 at the end of 2000.
TI’s fourth-quarter 2001 financial results were driven by the resumption of revenue growth in
its Semiconductor business after three consecutive quarters of decline.
Summary of 2001 Financial Results
For the year 2001, TI reported the following:
• |
Net revenue was $8201 million, down 31 percent from $11,875 million in 2000 due to the weak semiconductor market. |
• |
Semiconductor revenue was $6784 million, down 34 percent from $10,284 million in 2000 due to weakness across most Semiconductor product areas. |
• |
Cost of revenue was $5824 million or 71% of revenue compared to $6120 million or 52% in 2000. Cost of revenues decreased primarily due to decreased Semiconductor revenue. Cost of revenue
decreased less than revenue reflecting underutilization of Semiconductor manufacturing capacity. |
• |
Research and development (R&D) decreased to $1598 million, compared with $1747 million in 2000, primarily due to acquisition-related charges for in-process R&D in 2000.
|
• |
Selling, general and administrative expense (SG&A) was $1361 million, down from $1669 million in 2000 primarily due to savings resulting from restructuring and spending controls.
|
• |
Other income decreased $2097 million, primarily due to a gain on the sale of Micron common stock in the year 2000. |
• |
The effective tax rate was 53 percent. Various tax benefits, such as the credit for research activities, combined with the statutory corporate rate and the company’s tax net
operating loss, yielded an effective tax rate in excess of the 35 percent statutory corporate rate. |
At December 31,
2001, the company had net deferred tax assets of $644 million primarily resulting from temporary differences between the book and tax basis of assets and liabilities. While these assets are not assured of realization, the company has conducted an
assessment of the likelihood of realization and concluded that no significant valuation allowance is required. In reaching its conclusion, the company evaluated certain relevant criteria including the existence of (i) deferred tax liabilities that
can be used to absorb deferred tax assets and (ii) taxable income in prior carryback years that can be used to absorb future net operating losses.
C-32
Table of Contents
• |
Orders were $6825 million, compared with $12,372 million in 2000, due to the weak semiconductor market. |
Results for 2001 include special charges of $50 million net in the first quarter, of which $11 million was for first quarter acceptances under the U.S. voluntary retirement program, $16 million
was severance cost for restructuring in international Semiconductor locations and $25 million was for the closing of a Semiconductor manufacturing facility in Santa Cruz, California; special charges of $252 million net in the second quarter, of
which $214 million was severance cost for the worldwide cost-reduction program and $35 million relates to restructuring charges for the closing of three Semiconductor facilities (Merrimack, New Hampshire; Tustin, California; and Santa Cruz,
California); a $68 million increase to the income tax provision in the second quarter to adjust to the expected tax rate for the year; special charges of $37 million net in the third quarter, of which $19 million was severance cost for the worldwide
cost-reduction program and $16 million relates to restructuring charges for the closing of the three Semiconductor facilities named above; and in the fourth quarter, a gain of $9 million from the sale of two facilities and special charges of $18
million, of which $14 million was for restructuring charges primarily related to the closing of the Semiconductor manufacturing facility in Merrimack, New Hampshire and $4 million was severance cost for the worldwide cost-reduction program.
Also included in 2001 results was ongoing amortization of goodwill and other acquisition-related intangibles of $59 million in the first
quarter; $58 million in the second quarter; $56 million in the third quarter; and $56 million in the fourth quarter.
Results for 2000
include special charges of $29 million net 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 Technology, Inc. (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 was for pooling of interests transaction costs from
the acquisition of Burr-Brown Corporation (Burr-Brown) 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 (which occurred in the fourth quarter of 2000) of the remaining TI-provided financing for the 1998 sale of the
memory business. 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 was 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.
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 2002 will be about even with fourth quarter 2001.
Operating margin
for the first quarter, excluding acquisition-related amortization and special charges and gains, is expected to be about negative 4 percent, an improvement of about 7 points over fourth quarter 2001, reflecting lower depreciation and steady
inventory levels. As the market recovers, TI’s revenue growth should fall through to the bottom line at a high rate.
C-33
Table of Contents
Capital expenditures for 2002 are expected to be $800 million, compared with $1.8 billion in 2001. The
decline follows significant capital expenditures in 2000 and the first quarter of 2001 to install the initial production line of TI’s DMOS6 300-millimeter fabrication facility in Dallas and to upgrade three analog fabrication facilities to
200-millimeter wafers.
TI expects R&D will be $1.5 billion for 2002, the same as in 2001, excluding acquisition-related amortization
and purchased in-process R&D.
Other income not including interest expense is expected to increase to about $30 million in the first
quarter, primarily due to the absence of investment write-downs that occurred in the fourth quarter. Other income, excluding gains from the sale of two facilities, was $7 million in the fourth quarter.
Depreciation for 2002 is expected to be $1.6 billion, the same as in 2001. In 2001, depreciation expense peaked in the fourth quarter due to the initiation of
depreciation of DMOS6 equipment. Depreciation in each quarter of 2002 will be lower than the fourth-quarter peak of 2001.
Semiconductor
For the year, Semiconductor revenue was $6784 million down 34 percent from 2000, due to weakness across most Semiconductor product areas.
In 2001, Analog revenue decreased at a slightly lower percentage rate than total Semiconductor revenue. About 40 percent of total Semiconductor revenue came from
Analog. The percentage decrease in DSP revenue was also slightly less than in total Semiconductor revenue. About 25 percent of total Semiconductor revenue came from DSP. TI’s other Semiconductor revenue decreased at a slightly higher percentage
rate than total Semiconductor revenue. In each instance, the decrease was due to broad-based weakness in demand.
In 2001, Semiconductor
revenue in key markets was as follows:
• |
Wireless revenue decreased at a slightly higher percentage rate than total Semiconductor revenue. About 20 percent of total Semiconductor revenue came from wireless.
|
• |
Revenue from TI’s catalog products, composed of high-performance analog and DSP, decreased at a slightly higher percentage rate than total Semiconductor revenue. About 15 percent of
total Semiconductor revenue came from catalog products. |
• |
Broadband communications revenue, which includes DSL and cable modems, increased significantly compared to 2000. About 5 percent of total Semiconductor revenue came from broadband
communications. |
For the year, the operating loss was $155 million, compared with a profit of $2607 million in 2000,
reflecting lower manufacturing capacity utilization rates due to weak revenue and reductions in the company’s inventory.
For the
year, Semiconductor orders declined 50 percent, to $5440 million.
Sensors & Controls
For the year, Sensors & Controls revenue fell 7 percent to $958 million from $1030 million in 2000, due to weakness in control markets.
Operating profit was up 1 percent to $192 million in 2001. Operating margin for the year was 20.1 percent of revenue, up from 18.5 percent in 2000, primarily due to manufacturing cost reductions.
C-34
Table of Contents
Educational & Productivity Solutions (E&PS)
For the year, E&PS revenue increased 4 percent to $465 million from $446 million in 2000, due to increased sales of educational graphing products.
Operating profit was up 19 percent in 2001, to $132 million. Operating margin in 2001 increased 3.5 percentage points, to 28.4 percent of revenue, primarily due to improved product mix.
Financial Condition
In 2001, cash and cash equivalents plus
short-term investments and long-term cash investments decreased by $652 million to $3351 million, primarily due to capital expenditures. During the fourth quarter, investments were made in debt securities with remaining maturities beyond 13 months
and within 24 months. TI considers these investments as cash investments available for operating purposes and shows them on a new balance sheet line, “long-term cash investments,” due to their
maturities.
Cash flow from operating activities was $1819 million
for the year.
Capital expenditures totaled $1790 million in 2001, compared with $2762 million in 2000.
Depreciation for 2001 was $1599 million, compared with $1216 million in 2000.
TI maintains lines of credit to support commercial paper borrowings and to provide additional liquidity. These lines of credit totaled $681 million at December 31, 2001. Of this amount, $600
million exists to support commercial paper borrowings or short-term bank loans.
At the end of 2001, the debt-to-total-capital ratio was
0.10, unchanged from 2000.
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangibles, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance with the Statements. The trained workforce intangible asset will be reclassified to goodwill. Other intangible assets will continue to be amortized over their useful
lives. The company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of SFAS No. 142 is expected to result in an annual increase in
net income of approximately $100 million ($0.06 per share). During 2002, the company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. Preliminary tests indicate no
impairment of goodwill or indefinite lived intangibles.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations for a Disposal of a Segment of a Business. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The company will adopt SFAS No. 144 as of January 1, 2002, and does not expect that the adoption of the Statement
will have a material impact on the company’s financial position or results of operations.
C-35
Table of Contents
ACCOUNTING POLICIES: In preparing its consolidated financial statements in conformity with
accounting principles generally accepted in the United States, the company uses statistical analyses, estimates and projections that affect the reported amounts and related disclosures and may vary from actual results. The company considers the
following three accounting policies to be both those most important to the portrayal of its financial condition and that require the most subjective judgment. If actual results differ significantly from management’s estimates and projections,
there could be a material effect on the company’s financial statements.
Inventory Valuation Allowances
Inventory is valued net of allowances for unsalable or obsolete raw materials, work-in-process and finished goods. Allowances are determined quarterly by comparing inventory levels of
individual materials and parts to historical usage rates, current backlog and estimated future sales and by analyzing the age of inventory, in order to identify specific components of inventory that are judged unlikely to be sold. In addition to
this specific identification process, statistical allowances are calculated for remaining inventory based on historical write-offs of inventory for salability and obsolescence reasons. Inventory is written off in the period in which disposal occurs.
Actual future write-offs of inventory for salability and obsolescence reasons may differ from estimates and calculations used to determine valuation allowances due to changes in customer demand, customer negotiations, technology shifts and other
factors.
Investment Valuation
In connection with its valuation of
its equity investments, TI conducts a quarterly impairment review of individual public and private equity investments in its portfolio, which is made up primarily of investments in the technology sector, with Micron Technology, Inc. (Micron) common
stock accounting for 80% of the portfolio at December 31, 2001. This review considers historical and projected financial performance, public market data and recent funding events of each entity in which an investment is held. Investments are written
down to a new cost basis when management expects a decline to be other-than-temporary. Criteria used include whether the investment has had a market value below its cost basis over an extended period of time and whether the entity has experienced
consistent declines in financial performance or difficulties in raising capital to continue operations. Actual results may vary from estimates due to the uncertainties regarding the projected financial performance of investments, the severity and
expected duration of declines in value, and the available liquidity in the capital markets to support the continuing operations of the entities in which TI has investments, all of which affect the application of this investment valuation policy.
Distributor Allowances
TI recognizes revenue from sales to the
company’s electronics distributors upon delivery of product to the distributors, in accordance with Staff Accounting Bulletin 101. Distributor revenue is recognized net of allowances, which are quarterly management estimates based on analysis
of historical data in accordance with Statement of Financial Accounting Standard No. 48. In some cases, if product remains unsold in distributor inventory for an extended period of time, the distributor can return it to TI up to a maximum amount
with the placement of orders for an equivalent amount of product at the same time. In addition, the company has agreements with distributors under which it may grant credits to them in response to specific competitive situations encountered by the
distributors. Actual results may vary from the estimate for allowances due to the uncertainty in the marketplace and variability in these practices of distributor returns and credits.
C-36
Table of Contents
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 2001, the company had forward currency exchange contracts outstanding of $350 million (including $222 million to buy euros, $50 million to sell yen and $24 million to buy Singapore dollars). Similar hedging activities existed at year-end
2000. 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 2001 balances and rates, a pretax currency exchange gain or loss of $1 million.
The company has three
interest rate swaps that change the characteristics of the interest payments on the underlying notes ($50 million of 7.0% notes due 2004, $300 million of 6.125% notes due 2006 and $43 million of 8.75% notes due 2007) 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 three interest rate swaps was to decrease
interest expense by $8 million in 2001. The year-end 2001 effective interest rates for the notes, including the effect of the swaps, was approximately 4.29% for the $50 million of notes due 2004, 1.59% for the $300 million of notes due 2006 (6.07%
at year-end 2000) and 5.62% for the $43 million of notes due 2007. These swaps are sensitive to interest rate changes. For example, if short-term interest rates increase (decrease) by one percentage point from year-end 2001 rates, annual pretax
interest expense would increase (decrease) by $4 million.
The company’s long-term debt has a fair value, based on current interest
rates, of approximately $1298 million at year-end 2001 ($1450 million at year-end 2000). 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 2001:
| Millions of Dollars |
||||||||||||||||||
| Maturity Date |
U.S. Dollar Fixed-Rate Debt |
Average Interest Rate |
Euro Fixed-Rate Debt |
Average Interest Rate |
U.S. Dollar Variable-Rate Debt |
Average Interest Rate |
||||||||||||
| 2002 |
$ |
1 |
3.10 |
% |
$ |
20 |
4.73 |
% |
|
— |
— |
| ||||||
| 2003 |
|
134 |
7.73 |
% |
|
21 |
4.74 |
% |
|
— |
— |
| ||||||
| 2004 |
|
400 |
7.00 |
% |
|
21 |
4.69 |
% |
|
— |
— |
| ||||||
| 2005 |
|
— |
— |
|
|
7 |
4.01 |
% |
|
— |
— |
| ||||||
| 2006 |
|
300 |
6.12 |
% |
|
— |
— |
|
$ |
23 |
1.59 |
% | ||||||
| Thereafter |
|
305 |
4.96 |
% |
|
— |
— |
|
|
— |
— |
| ||||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||||
| Total |
$ |
1,140 |
6.30 |
% |
$ |
69 |
4.65 |
% |
$ |
23 |
1.59 |
% | ||||||
Total long-term debt historical cost amount at year-end 2001 was $1232 million.
The company’s cash equivalents, short-term investments and long-term cash investments are debt securities with remaining maturities
within three months (cash equivalents), beyond three months and within 13 months (short-term investments) and beyond 13 months and within 24 months (long-term cash investments). Their aggregate fair value and carrying amount was $3143 million at
year-end 2001 ($3572 million at year-end 2000). Fair value will vary as interest rates change. The following table presents the aggregate maturities of cash equivalents, short-term investments and long-term cash investments, and related
weighted-average interest rates by maturity dates at year-end 2001:
| Millions of Dollars |
||||||
| Maturity Date |
Cash Equivalents, Short-Term Investments and Long-Term Cash Investments |
Average Interest Rate |
||||
| 2002 |
$ |
2,633 |
3.42 |
% | ||
| 2003 |
$ |
510 |
3.15 |
% | ||
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Table of Contents
The company’s equity investments at year-end 2001 consisted of the following (items at year-end 2000
were similar):
• |
Equity investments—primarily 57 million Micron common shares and several other publicly traded and private investments. |
• |
TI Ventures—a venture fund that invests in companies involved in the development of new markets. As of year-end 2001, investments were held in 22 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 $2040 million) and venture
fund (fair value of $62 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
$133 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 $4 million. Changes in prices of the other investments
(fair value of $112 million) are expected to offset related changes in deferred compensation liabilities such that a 10% increase or decrease in investment prices would not affect operating results.
2000 RESULTS OF OPERATIONS COMPARED WITH 1999
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 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 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. |
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
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Table of Contents
$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 (which occurred in the fourth quarter of 2000) of the remaining TI-provided financing for the 1998 sale of the memory
business. 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. In addition, the third
quarter of 1999 included special charges recognized by Unitrode of $4 million.
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.
Additional information relating to these items appears below under the heading “Special Charges and Gains.”
Semiconductor: For 2000, 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 high performance analog 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.
C-39
Table of Contents
Sensors & Controls: The Sensors & Controls business 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.
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.
SPECIAL CHARGES AND GAINS
Fourth Quarter of 2001:
As of December 31, 2001, $229 million of the $293 million aggregate severance cost obligations for the 2001 worldwide cost reduction
and restructuring actions affecting a total of 5724 employees had been paid. In total, these 2001 actions are expected to result in annualized savings of approximately $600 million. The benefit began in the second quarter of 2001. In the fourth
quarter of 2001, a gain of $9 million from the sale of two facilities was recognized and pretax charges of $18 million net were taken, of which $14 million is for restructuring charges primarily related to the closing of the Semiconductor
manufacturing facility in Merrimack, New Hampshire, and $4 million is severance cost for the worldwide cost-reduction program. Of the $14 million, $9 million is for acceleration of depreciation over the remaining service life of the facility. Of the
$18 million net special charges, $14 million is included in cost of revenues, $3 million is in research and development expense and $1 million is in selling, general and administrative expense.
Third Quarter of 2001:
In the third quarter of 2001, pretax charges of $37 million net were
taken, of which $19 million was severance cost for the worldwide cost reduction program affecting 285 employees and $16 million relates to restructuring charges for the closing of three Semiconductor facilities (Santa Cruz, California; Merrimack,
New Hampshire; and Tustin, California). Of the $16 million, $15 million was for acceleration of depreciation over the remaining service life of the facilities. Of the $37 million, $27 million is included in cost of revenues, $8 million is in
selling, general and administrative expense and $2 million is in research and development expense.
Second Quarter of 2001:
In the second quarter of 2001, pretax charges of $252 million net were taken, of which $214 million was severance cost for the worldwide cost-reduction program
affecting 3778 employees and $35 million relates to restructuring charges for the closing of three Semiconductor facilities (Merrimack, New Hampshire; Tustin, California; and Santa Cruz, California) affecting an additional 559 employees. Of the $35
million charge, $14 million was for severance cost and $16 million was for acceleration of depreciation over the remaining service life of the facilities. Of the $252 million, $162 million is included in cost of revenues, $84 million is in selling,
general and administrative expense and $6 million is in research and development expense. Also included was a $68 million increase to the income tax provision to adjust to the expected tax rate for the year.
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Table of Contents
First Quarter of 2001:
In the first quarter of 2001, pretax charges of $50 million net were taken, of which $11 million was for severance cost for 241 first-quarter employee acceptances under the U.S. voluntary retirement program, $16 million was for
severance cost for restructuring actions affecting 261 employees in international Semiconductor locations, and $25 million relates to the closing of a Semiconductor manufacturing facility in Santa Cruz, California. Of the $25 million charge, $16
million was for severance cost for 600 employees and $5 million was for acceleration of depreciation over the remaining service life of the facility. Of the $50 million, $44 million is included in cost of revenues, $7 million is in selling,
general and administrative expense, $2 million is in research and development expense, and $3 million is in other income.
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 (which occurred in the fourth quarter of 2000) of the remaining TI-provided financing for the 1998 sale of the memory business. 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, 2001, this program was complete. The primary benefit from this action is reduced personnel costs, which are estimated to reach $6 million annually. The benefit began
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 is included in selling, general and
administrative expense and $4 million is 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 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 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 included in research and development expense, $46 million
is in selling, general and administrative expense, $31 million is in cost of revenues, $15 million is in net revenues and $11 million is in other income. At year-end 2001, $17 million of the severance cost had been paid. 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.
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.
C-41
Table of Contents
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 is in selling,
general and administrative expense and $3 million is in research and development expense. As of December 31, 2001, $10 million of the severance cost had been paid. 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.
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 is included in selling, general and administrative expense, $2 million is in cost of revenues and $1 million is 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, of which $9
million was for severance, $2 million was for fixed asset write-downs for assets held for disposal, and $1 million was for vendor obligations. These fixed assets were to be sold for scrap value and were therefore written down to zero, their sales
value. Of the $12 million charge, $10 million is included in cost of revenues and $2 million is in selling, general and administrative expense. 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 revenues in the third quarter for the elimination of an additional 105 jobs in Hatogaya, Japan. At year-end 1999, this program was complete.
Also included is $15 million of transaction-related costs from the pooling acquisition of Telogy Networks, Inc. and a $4 million pretax operating charge by Unitrode for a severance action. These
charges are 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 was for other related costs. At year-end 1999, this program was complete. Of the $14
million charge, $11 million is included in cost of revenues and $3 million is 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.
Purchased In-Process R&D Charges:
See discussion in the Research and Development footnote to the consolidated financial statements.
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Table of Contents
QUARTERLY FINANCIAL DATA
| Millions of Dollars, Except Per-share Amounts |
|||||||||||||||
| 2001 |
1st |
2nd |
3rd |
4th |
|||||||||||
| Net revenues |
$ |
2,528 |
$ |
2,037 |
|
$ |
1,849 |
|
$ |
1,786 |
| ||||
| Gross profit |
|
1,023 |
|
514 |
|
|
425 |
|
|
415 |
| ||||
| Profit (loss) from operations |
|
229 |
|
(298 |
) |
|
(245 |
) |
|
(269 |
) | ||||
| Net income (loss) |
$ |
230 |
$ |
(197 |
) |
$ |
(117 |
) |
$ |
(116 |
) | ||||
| |
|
|
|
|
|
|
|
|
|
| |||||
| Diluted earnings (loss) per common share |
$ |
.13 |
$ |
(.11 |
) |
$ |
(.07 |
) |
$ |
(.07 |
) | ||||
| |
|
|
|
|
|
|
|
|
|
| |||||
| Basic earnings (loss) per common share |
$ |
.13 |
$ |
(.11 |
) |
$ |
(.07 |
) |
$ |
(.07 |
) | ||||
| |
|
|
|
|
|
|
|
|
|
| |||||
| 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 | ||||
| |
|
|
|
|
|
|
| |||||
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Table of Contents
Results for the first quarter of 2001 include a special charge of $50 million net associated with the first quarter acceptances under the U.S.
voluntary retirement program, restructuring in international Semiconductor locations and the closing of a Semiconductor manufacturing facility in Santa Cruz, California. The second quarter of 2001 includes a charge of $252 million net of which $214
million was severance cost for the worldwide cost-reduction program and $35 million relates to restructuring charges for the closing of three Semiconductor facilities (Merrimack, New Hampshire; Tustin, California; and Santa Cruz, California), and a
$68 million increase to the income tax provision to adjust to the expected tax rate for the year. Third quarter 2001 results include a charge of $37 million net, of which $19 million was severance cost for the worldwide cost reduction program and
$16 million relates to restructuring charges for the closing of the three Semiconductor facilities named above. Fourth quarter 2001 includes a gain of $9 million from the sale of two facilities and a charge of $18 million net, of which $14 million
was for restructuring charges primarily related to the closing of the Semiconductor manufacturing facility in Merrimack, New Hampshire, and $4 million was severance cost for the worldwide cost-reduction program.
Results for the first quarter of 2000 include a charge of $29 million net 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 net, of which $112 million was for purchased in-process R&D costs from two business purchase acquisitions, $41 million was for pooling of interests transaction costs, and $10 million, net, was 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.
Diluted earnings per common share are based on average common and dilutive potential common shares outstanding (1,734.4 million shares and 1,794.7 million shares for the fourth quarters of 2001
and 2000). The diluted earnings per share computation for the fourth quarters of 2001 and 2000 excludes 58.8 million shares and 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: |
||||||||||||
| 2001 High |
$ |
54.69 |
$ |
42.91 |
$ |
38.50 |
$ |
34.50 | ||||
| Low |
|
28.25 |
|
26.26 |
|
20.10 |
|
22.75 | ||||
| 2000 High |
$ |
99.78 |
$ |
90.00 |
$ |
74.50 |
$ |
53.25 | ||||
| Low |
|
45.25 |
|
60.13 |
|
46.50 |
|
35.00 | ||||
| Dividends paid: |
||||||||||||
| 2001 |
$ |
.0213 |
$ |
.0213 |
$ |
.0213 |
$ |
.0213 | ||||
| 2000 |
$ |
.0213 |
$ |
.0213 |
$ |
.0213 |
$ |
.0213 | ||||
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Table of Contents
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 and Chief Executive Officer, President and Chief Operating 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, Brown University
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 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
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Table of Contents
Ching-Shing (C.S.) Lee
Senior Vice President
Stephen H. Leven
Senior Vice President
Gregg A. Lowe
Senior
Vice President
Syrus P. Madavi
Senior Vice President
Phillip J. Ritter
Senior Vice President
Richard J. Schaar
Senior Vice President
M. Samuel Self
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 that have significantly
contributed to TI shareholder value.
TI Senior Fellow announced in 2001:
Richard K. Hester
TI Fellows announced in 2001:
Richard L. Antley
Richard K. Kornfeld
Benjamin P. McKee
Masood Murtuza
Jimmy Naylor
Donald P. Shaver
Louis Tannyeres
Thomas A. Vrotsos
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Table of Contents
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 chips in key markets, such as telecommunications and computers; |
• |
TI’s ability to develop, manufacture and market innovative products in a rapidly changing technological environment; |
• |
TI’s ability to compete in products and prices in an intensely competitive industry; |
• |
TI’s ability to maintain and enforce a strong intellectual property portfolio and obtain needed licenses from third parties; |
• |
Timely completion and successful integration of announced acquisitions; |
• |
Economic, social and political conditions in the countries in which TI, its customers or its suppliers operate, including security risks, possible disruptions in transportation networks
and fluctuations in foreign currency exchange rates; |
• |
Losses or curtailments of purchases from key customers or the timing of customer inventory adjustments; |
• |
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.
C-47
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DIRECTIONS TO THE 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.
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NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
APRIL 18, 2002
You are cordially invited to attend the 2002 annual meeting of stockholders on Thursday, April 18, 2002 at the cafeteria on our property at 12500 TI Boulevard, Dallas, Texas, at 10:00 a.m. (Dallas time). At the meeting we will
consider the election of directors, the adoption of the Texas Instruments Executive Officer Performance Plan, the adoption of the TI Employees 2002 Stock Purchase Plan and such other matters as may properly come before the meeting.
Electronic Delivery of Proxy Materials
We are pleased to offer stockholders the opportunity to receive future proxy mailings by e-mail. To request electronic delivery, please vote via the Internet at www.proxyvote.com and, when prompted, enroll to receive proxy materials
electronically in future years.
PROXY FOR ANNUAL MEETING TO BE
HELD APRIL 18, 2002
This Proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints DANIEL A. CARP, THOMAS J. ENGIBOUS, RUTH J. SIMMONS, or any one or more 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 18, 2002, at 10:00 a.m. (Dallas time) and at any or all adjournments thereof, according to the
number of shares of common stock that the undersigned would be entitled to vote if then personally present, in the election of directors, approval of board proposals and upon other matters properly coming before the meeting. In their discretion the
named proxies are authorized to vote upon such other matters as may properly come before the meeting.
If you participate in the TI
Contribution and 401(k) Savings Plan, the TI 401(k) Savings Plan or the Burr-Brown Corporation Future Investment Plan, your proxy represents the number of TI shares allocable to your plan account as well as other shares registered in your name. For
TI shares allocable to a plan account, your proxy will serve as voting instructions for The Northern Trust Company, trustee for the TI 401(k) Plans, or Fidelity Management Trust Company, trustee for the Burr-Brown Plan, or their designees, as
applicable. The plans provide that the trustee will vote your shares in accordance with your instructions. If the trustee for the TI 401(k) Plans does not receive voting instructions for TI shares allocable to your plan account by April 15, 2002,
those shares, and any unallocated TI shares under those plans, will be voted, in accordance with the terms of the plans, in the same proportion as the shares for which voting instructions have been received. In their discretion the trustees are
authorized to vote upon such other matters as may properly come before the meeting. If the trustee for the Burr-Brown Plan does not receive voting instructions for TI shares allocable to your plan account by April 15, 2002, those shares will not be
voted.
IMPORTANT—On the reverse side of this card are procedures on how to vote your shares.
Please consider voting by Internet or telephone.
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| For registered shares, your proxy must be received by 11:59 P.M. Eastern Time on April 17, 2002. For shares allocable to a benefit plan account, your proxy must be received by 11:59 P.M. Eastern Time on April 15, 2002. VOTE BY
INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions. Please have your proxy card in hand when you
access the web site. You will be prompted to enter your 12-digit Control Number, which is located below, to obtain your records and to create an electronic voting instruction form. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions. Please
have your proxy card in hand when you call. You will be prompted to enter your 12-digit Control Number, which is located below, and then follow the simple instructions the Vote Voice provides you. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it
to Texas Instruments Incorporated, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. |
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
TXINST |
KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION
ONLY |
THIS PROXY CARD
IS VALID ONLY WHEN SIGNED AND DATED.
TEXAS INSTRUMENTS INCORPORATED
| The board of directors of Texas Instruments Incorporated recommends a vote FOR the election of directors and the two board proposals. |
For All |
Withhold All |
For All Except |
|||||||
| To withhold authority to vote, mark “For All Except” and write the nominee’s number on the line below | ||||||||||
| Election of Directors |
||||||||||
| 1. Election of Directors—Nominees: 01) J.R. Adams, 02) D.L.
Boren, 03) J.B. Busey IV, 04) D.A. Carp, |
0 |
0 |
0 |
| ||||||
| 05) T.J. Engibous, 06) G.W. Fronterhouse, |
If no contrary indication is made, this proxy will be voted FOR
the election of each board nominee and FOR the board proposals. | |||||||||
| 07) D.R. Goode, 08) W.R. Sanders, 09) R.J. Simmons |
||||||||||
| Vote on Proposals |
For |
Against |
Abstain | |||
| 2. Proposal to approve the Texas Instruments Executive Officer Performance Plan. |
0 |
0 |
0 | |||
| 3. Proposal to approve the TI Employees 2002 Stock Purchase Plan. |
0 |
0 |
0 | |||
| NOTE: Please sign exactly as your name appears above. When signing as executor, administrator, attorney, trustee or guardian, etc., please give your full title. |
| |
|
|||||||||||
| Signature [PLEASE SIGN
Date WITHIN BOX] |
Signature (Joint Owners)
Date |
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TEXAS INSTRUMENTS INCORPORATED
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
MEETING DATE: APRIL 18, 2002
You are cordially invited to attend the 2002 annual meeting of stockholders on Thursday, April 18, 2002 at the cafeteria on our property at 12500 TI Boulevard, Dallas, Texas, at 10:00 a.m.
(Dallas time). At the meeting we will consider the election of directors, the adoption of the Texas Instruments Executive Officer Performance Plan, the adoption of the TI Employees 2002 Stock Purchase Plan and such other matters as may properly come
before the meeting.
You are enrolled to receive stockholder communications on the Internet. This e-mail contains instructions for
accessing TI’s 2002 Proxy Statement and Summary Annual Report for 2001 and for voting your shares. Please read the instructions carefully before proceeding.
VOTING YOUR SHARES AND VIEWING THE PROXY MATERIALS
Please review the Proxy Statement before voting. The Proxy Statement
discusses the proposals to be voted on. You can enter your voting instructions and view the proxy materials at the following Internet site:
http://www.proxyvote.com
Registered shares must be voted by 11:59 p.m. Eastern Time on April 17, 2002. Shares allocable to a TI
benefit plan must be voted by 11:59 P.M. Eastern Time on April 15, 2002.
To enter your vote you will need the following:
CONTROL NUMBER: 012345678901
YOUR PIN NUMBER: (last 4 digits of your Social Security Number)
This e-mail covers TI shares
registered directly in your name and TI shares allocable to employee benefit plan(s). If you receive more than one e-mail or a proxy card in addition to this email, it generally means that your holdings include other names or different spellings of
your name, and you must vote under all e-mails and any proxy cards to vote all shares.
PAPER COPIES—You may receive paper copies of
the Proxy Statement and Summary Annual Report by calling Investor Relations at (972) 995-3773 or by writing to Texas Instruments Incorporated, P.O. Box 660199, MS 8657, Dallas, TX 75266-0199, Attn: Investor Relations.
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Texas Instruments Incorporated
2002 Annual
Meeting of Stockholders
Thursday, April 18, 2002
10:00 a.m.
(Dallas Time)
Texas Instruments Incorporated
12500 TI Boulevard
Dallas, Texas
Scroll
down for proxy
information and to vote
Texas Instruments Incorporated 2002 Annual
Meeting of Stockholders
You are cordially invited to attend the 2002 annual meeting of stockholders on Thursday, April 18, 2002 at the cafeteria on our
property at 12500 TI Boulevard, Dallas, Texas, at 10:00 a.m. (Dallas time). At the meeting we will consider the election of directors, the adoption of the Texas Instruments Executive Officer Performance Plan, the adoption of the TI Employees 2002
Stock Purchase Plan and such other matters as may properly come before the meeting.
PROXY FOR ANNUAL MEETING TO BE HELD APRIL 18, 2002
This proxy is solicited on behalf of the board of directors.
The stockholder submitting this proxy ("Stockholder") hereby appoints DANIEL A. CARP, THOMAS J. ENGIBOUS, RUTH J. SIMMONS, or any one or more of them, the
true and lawful attorneys of the Stockholder with power of substitution, to vote as proxies for the Stockholder at the annual meeting of stockholders of Texas Instruments Incorporated to be held in Dallas, Texas, on April 18, 2002, at 10:00
a.m. (Dallas time) and at any or all adjournments thereof, according to the number of shares of common stock that the Stockholder would be entitled to vote if then personally present, in the election of directors, approval of board proposals and
upon other matters properly coming before the meeting. In their discretion the named proxies are authorized to vote upon such other matters as may properly come before the meeting.
If you participate in the TI Contribution and 401(k) Savings Plan, the TI 401(k) Savings Plan or the Burr-Brown Corporation Future Investment Plan, your proxy represents the number of TI shares allocable to your plan account as
well as other shares registered in your name. For TI shares allocable to a plan account, your proxy will serve as voting instructions for The Northern Trust Company, trustee for the TI 401(k) Plans, or Fidelity Management Trust Company, trustee for
the Burr-Brown Plan, or their designees, as applicable. The plans provide that the trustee will vote your shares in accordance with your instructions. If the trustee for the TI 401(k) Plans does not receive voting instructions for TI shares
allocable to your plan account by April 15, 2002, those shares, and any unallocated TI shares under those plans, will be voted, in accordance with the terms of the plans, in the same proportion as
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the shares for which voting instructions have been received. In their discretion the trustees are authorized to vote upon such other matters as may properly come before the meeting. If the
trustee for the Burr-Brown Plan does not receive voting instructions for TI shares allocable to your plan account by April 15, 2002, those shares will not be voted.
IMPORTANT – Below are procedures on how to vote your shares.
Texas Instruments Incorporated
12500 TI Boulevard
Dallas, Texas
Board of Directors' Recommendations:
The board of
directors of Texas Instruments Incorporated recommends a vote FOR the election of directors and the two board proposals.
Choose this option if you would like
to vote your shares with the board of directors' recommendations. Please refer to the proxy statement for the detailed recommendations. Please read them carefully.
¨ Vote my shares in accordance with the
Board of Directors’ Recommendations
Proposal 1: Election of Directors.
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, 09) R.J. Simmons
| ¨ For all nominees |
¨ Withhold all nominees | |
| ¨ For all EXCEPT those selected below: | ||
| 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 |
09) ¨ R.J. Simmons |
Proposal 2: Proposal to approve the Texas Instruments Executive Officer Performance Plan.
| ¨ For |
¨ Against |
¨ Abstain |
Proposal 3: Proposal to approve
the TI Employees 2002 Stock Purchase Plan.
| ¨ For |
¨ Against |
¨ Abstain |
If no contrary indication is
made, this proxy will be voted FOR the election of each board nominee and FOR the board proposals.
Stockholder Preferences:
¨ |
Electronic Delivery of Proxy Materials: We are pleased to offer stockholders the opportunity to receive future proxy mailings by e-mail. To request electronic delivery, please
check the box on the left. |
¨ |
I plan to attend the Annual Meeting. |