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Date:Wed, 24 Oct 2001 12:23:34 -0700 (PDT)


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requested, your News Alert for TXN follows from EquityAlert.com. 10-Q=
: TEXAS INSTRUMENTS INC (EDGAR Online via COMTEX) -- ITEM 2. Management's=
Discussion and Analysis of Financial Condition and Results of Operations =
The Registrant (the "company" or "TI") announced third-quarter financial r=
esults that show the company's third-quarter revenue was $1849 million, dow=
n 9 percent from the second quarter and slightly better than the company's =
outlook issued in July for a decline of 10 to 15 percent. Orders, which had=
fallen 10 percent sequentially in the second quarter, declined 4 percent s=
equentially in the third quarter to $1638 million. Semiconductor orders wer=
e about even with the second-quarter level. TI's overall book-to-bill for=
semiconductors continued to rise sequentially, and TI's DSP book-to-bill e=
xceeded one for the second consecutive quarter. DSP revenue was up 10 perce=
nt sequentially and orders were up 11 percent sequentially. Orders for high=
-performance Analog turned the corner and increased 10 percent sequentially=
. Inventory was reduced by $182 million from the end of the second quarte=
r. Despite the decline in revenue, days of inventory were reduced to 58 fro=
m 72 at the end of the second quarter. Cash flow from operations was $334 m=
illion, and free cash flow was $22 million. The company also repurchased $1=
52 million of company stock. SUMMARY OF FINANCIAL RESULTS For the thi=
rd quarter of 2001, TI reported the following: - Total revenue for TI was=
$1849 million, down 41 percent from $3149 million in the year-ago quarter =
and down 9 percent sequentially due to weakness in Semiconductor. - Cost =
of revenues in the third quarter was $1424 million, compared with $1637 mil=
lion in the year-ago quarter. Cost of revenues decreased primarily due to d=
ecreased Semiconductor revenue. - Research and development (R&D) totaled =
$358 million, down from $533 million in the third quarter of 2000 primarily=
due to acquisition- related charges for in-process R?in the third quarter =
of 2000. - Selling, general and administrative expense in the quarter was=
$312 million, down from $453 million in the year-ago quarter due to saving=
s resulting from restructuring activities and tight spending controls. - =
Other income (expense) net decreased from $565 million in the third quarter=
of 2000 to $37 million in the third quarter of 2001, primarily due to a ga=
in on the sale of Micron stock in the third quarter of 2000. - The income=
tax rate for the quarter was 47 percent. - TI orders in the third quarte=
r were $1638 million, compared with $3250 million in the year-ago quarter a=
nd $1704 million in the second quarter. Results for the third quarter of =
2001 include net special charges of $37 million, of which $19 million is se=
verance cost for a worldwide cost- reduction program and $16 million relate=
s to the restructuring charges for the closing of three Semiconductor facil=
ities (Santa Cruz, California; Merrimack, New Hampshire; and Tustin, Califo=
rnia). Of the $16 million, $15 million is for the acceleration of depreciat=
ion over the remaining service life of the facilities. Also included is amo=
rtization of goodwill and other acquisition-related intangibles of $56 mill=
ion. For the second quarter of 2001, results include net special charges =
of $252 million, of which $214 million is severance cost for a worldwide co=
st-reduction program and $35 million relates to the restructuring charges f=
or the closing of three Semiconductor facilities (Merrimack, New Hampshire;=
Tustin, California; and Santa Cruz, California). In addition, TI recorded =
a $68 million increase to the income tax provision to adjust to the expecte=
d tax rate for the year. Also included is amortization of goodwill and othe=
r acquisition-related intangibles of $58 million. For the first quarter o=
f 2001, results include net special charges of $50 million, of which $11 mi=
llion is severance cost for first-quarter employee acceptances under the U.=
S. voluntary retirement program, $16 million is severance cost for restruct=
uring actions in international Semiconductor locations, and $25 million rel=
ates to the closing of a Semiconductor manufacturing facility in Santa Cruz=
, California. Also included is amortization of goodwill and other acquisiti=
on-related intangibles of $59 million. For the third quarter of 2000, res=
ults include investment gains of $425 million, included in other income, fr=
om the sale of 5.6 million shares of Micron Technology, Inc. (Micron) commo=
n stock, and net special charges of $163 million, of which $112 million is =
for purchased in-process R?costs from the Dot Wireless, Inc. and Alantro Co=
mmunications, Inc. acquisitions, $41 million is for pooling of interests tr=
ansaction costs from the Burr- Brown Corporation acquisition, and $10 milli=
on, net, is for several Semiconductor and Sensors & Controls restructuring =
and other actions in the U.S., Japan and Europe. Also included is amortizat=
ion of goodwill and other acquisition-related intangibles of $41 million. =
For the second quarter of 2000, results include an investment gain of $121=
1 million, included in other income, from the sale of 20 million shares of =
Micron common stock. Also included is amortization of goodwill and other ac=
quisition-related intangibles of $25 million. For the first quarter of 20=
00, results included net special charges of $29 million for actions includi=
ng the closing of a Sensors & Controls manufacturing facility in Versailles=
, Kentucky, and TI's acquisition of Toccata Technology ApS. Also included i=
s amortization of goodwill and other acquisition-related intangibles of $25=
million. Additional information relating to these items appears below un=
der the heading "Special Charges and Gains." OUTLOOK It appears that thi=
rd quarter of 2001 will mark the bottom for semiconductor orders, and the f=
loor for revenue should be set in the fourth quarter. Fourth-quarter TI rev=
enue is expected to decline about 10 percent sequentially, mostly due to no=
rmal seasonal declines in Educational & Productivity Solutions (E&PS) as we=
ll as continued weakness in Semiconductor. Specifically, TI expects the f=
ollowing for the fourth quarter compared to the third quarter: - In Semic=
onductor, revenue will decline about 5 percent as continued growth in DSP i=
s more than offset by declines in other products. - Sensors & Controls re=
venue will be about even. - E&PS revenue will decline by about $110 milli=
on, or 60 percent, as the back-to-school season for educational products en=
ds. - Operating margin will decline about 9 percentage points before the =
effect of special charges and amortization of goodwill and other acquisitio=
n-related intangibles, reflecting the lower revenue level and further reduc=
tions in inventory. - Non-operating income will decline about $10 million=
reflecting lower interest rates. - Loss per share will be about 6 cents =
more in the fourth quarter, compared with the third quarter, before the eff=
ect of special charges and amortization of goodwill and other acquisition-r=
elated intangibles. For 2001, TI expects the following: - R?of $1.5 bil=
lion, excluding acquisition-related amortization and purchased in-process R=
&D, compared with the company's prior estimate of $1.6 billion and last yea=
r's $1.6 billion. - Capital expenditures of $1.8 billion, unchanged from =
the prior estimate and down about 35 percent from last year. - Depreciati=
on of $1.6 billion, compared with the prior estimate of $1.5 billion and up=
about 30 percent from last year. SEMICONDUCTOR Semiconductor revenue in=
the third quarter was $1453 million, down from $2692 million in the year-a=
go period. Revenue was down from $1657 million in the second quarter due to=
continued weakness across most Semiconductor products, excluding DSP. As=
a result of lower revenue, Semiconductor had a $219 million operating loss=
, compared with an operating profit of $681 million in the year-ago period =
and an operating loss of $37 million in the second quarter. Analog revenu=
e was down 45 percent from the year-ago period and 16 percent sequentially =
due to broad based weakness in demand. In the first nine months of the year=
, about 40 percent of total Semiconductor revenue came from Analog. DSP r=
evenue decreased 37 percent from the year-ago quarter due to broad based we=
akness in demand but increased 10 percent sequentially due to strength in w=
ireless. In the first nine months of the year, about 25 percent of total Se=
miconductor revenue came from DSP. TI's remaining Semiconductor revenue d=
ecreased from the year-ago quarter and sequentially. TI's Semiconductor r=
evenue in key markets was as follows: - Wireless revenue was down 42 perc=
ent from the year-ago period but increased 16 percent sequentially. In the =
first nine months of the year, about 20 percent of total Semiconductor reve=
nue came from wireless. - Revenue from TI's catalog products, comprised o=
f high-performance Analog and DSP, declined 52 percent from the year-ago qu=
arter and 16 percent sequentially. In the first nine months of the year, ab=
out 15 percent of total Semiconductor revenue came from catalog products. =
- Broadband communications revenue, which includes digital subscriber line=
(DSL) and cable modems, was up 8 percent from the year-ago quarter but dec=
lined 53 percent sequentially. In the first nine months of the year, about =
5 percent of total Semiconductor revenue came from broadband communications=
. - Semiconductor orders were $1308 million, compared with $2884 in the y=
ear-ago period and $1321 million in the second quarter. SENSORS & CONTR=
OLS Revenue was $222 million, compared with $245 million in the year-ago p=
eriod due to overall market weakness, and down from $257 million in the sec=
ond quarter due to seasonal patterns in the heating and air conditioning in=
dustry and market weakness. Operating profit was $45 million, or 20.2 per=
cent of revenue. Operating profit in the year-ago period was $43 million, o=
r 17.5 percent of revenue. Operating profit in the second quarter was $52 m=
illion, or 20.2 percent of revenue. EDUCATIONAL & PRODUCTIVITY SOLUTIO=
NS (E&PS) E&PS revenue was $179 million, compared with $175 million in th=
e year-ago quarter. Sequentially, revenue increased by $50 million due to b=
ack-to- school sales of educational products. Operating profit was $67 mi=
llion, or 37.3 percent of revenue, compared with $64 million, or 36.3 perce=
nt of revenue in the year-ago quarter. Operating profit increased 76 percen=
t from the second quarter's $38 million due to seasonality. FIRST NINE =
MONTHS OF 2001 For the first nine months of 2001, TI reported the follow=
ing: - TI revenue was $6414 million, down from $8843 million in the first=
nine months of 2000, due to Semiconductor. The decrease in Semiconductor r=
evenue for the first nine months of 2001 was primarily due to weakness acro=
ss most Semiconductor products. The decrease in Sensors & Controls was prim=
arily due to overall market weakness. E&PS was up slightly due to strength =
of educational products. - Cost of revenues was $4452 million compared wi=
th $4544 million in the year-ago period. Cost of revenues decreased primari=
ly due to decreased Semiconductor revenue. - R?totaled $1216 million, com=
pared with $1306 million in the first nine months of 2000. The decrease was=
primarily due to acquisition-related charges for purchased in-process R?in=
the first nine months of 2000. - Selling, general and administrative exp=
ense was $1060 million, down from $1268 million in the year-ago period prim=
arily due to cost reduction actions and reduced profit sharing. - Other i=
ncome (expense) net decreased from $2039 million in the first nine months o=
f 2000 to $201 million for the first nine months of 2001, primarily due to =
the sale of Micron stock in 2000. - The income tax rate was 46 percent. =
- Orders were $5239 million, down from $9601 million for the same period a=
year ago, primarily due to weakness in Semiconductor. Semiconductor orders=
for the first nine months were down, primarily due to a combination of wea=
k electronic end-equipment markets and excess customer inventories. Sensors=
& Controls orders were down due to overall market weakness. E&PS orders we=
re up slightly due to strength of educational products. FINANCIAL CONDIT=
ION In the first nine months of 2001, cash and cash equivalents plus short=
-term investments decreased by $1011 million to $2992 million, primarily du=
e to capital expenditures. During the third quarter of 2001, cash and cash =
equivalents plus short-term investments decreased by $22 million due to the=
repurchase of the company's common stock. Cash flow from operating activ=
ities was $1039 million in the first three quarters of 2001. Capital expe=
nditures totaled $1554 million in the first nine months of 2001, compared w=
ith $1789 million in the first nine months of 2000. Capital expenditures to=
taled $312 million in the third quarter of 2001 versus $585 million in the =
year-ago quarter. Depreciation for the first three quarters of 2001 was $=
1145 million, compared with $869 million in the same period a year ago. Dep=
reciation for the third quarter of 2001 was $414 million, versus $319 milli=
on in the year-ago quarter. Debt-to-total-capital ratio was 0.10 at the e=
nd of the third quarter, the same as at the end of 2000. In June 2001, th=
e Financial Accounting Standards Board issued Statements of Financial Accou=
nting Standards No. 141, Business Combinations, and No. 142, Goodwill and O=
ther Intangibles, effective for fiscal years beginning after December 15, 2=
001. Under the new rules, goodwill and intangible assets deemed to have ind=
efinite lives will no longer be amortized but will be subject to annual imp=
airment tests in accordance with the Statements. Other intangible assets wi=
ll continue to be amortized over their useful lives. The company will apply=
the new rules on accounting for goodwill and other intangible assets begin=
ning in the first quarter of 2002. Application of the non- amortization pro=
visions of the Statement is expected to result in an increase in net income=
of $100 million ($0.06 per share). During 2002, the company will perform t=
he first of the required impairment tests of goodwill and indefinite lived =
intangible assets as of January 1, 2002 and has not yet determined what eff=
ect, if any, these tests will have on the earnings and financial position o=
f the company. SPECIAL CHARGES AND GAINS Third Quarter of 2001 As o=
f September 30, 2001, $184 million of the $290 million aggregate severance =
cost obligations for the first, second and third quarter 2001 worldwide cos=
t reduction and restructuring actions affecting a total of 5724 employees h=
ad been paid. In total, these first, second and third quarter 2001 actions =
are expected to result in annualized savings of approximately $400 million.=
In the third quarter of 2001, pretax charges of $37 million net were taken=
, of which $19 million was severance cost for a worldwide cost- reduction p=
rogram affecting 285 employees and $16 million relates to the restructuring=
charges for the closing of three Semiconductor facilities (Santa Cruz, Cal=
ifornia; Merrimack, New Hampshire; and Tustin, California). Of the $16 mill=
ion, $15 million was for the acceleration of depreciation over the remainin=
g service life of the facilities. Of the $37 million, $27 million is includ=
ed in cost of revenues, $8 million is in selling, general and administrativ=
e expense and $2 million is in research and development expense. Second Q=
uarter of 2001 In the second quarter of 2001, pretax charges of $252 mill=
ion net were taken, of which $214 million was severance cost for a worldwid=
e cost-reduction program affecting 3778 employees and $35 million relates t=
o the restructuring charges for the closing of three Semiconductor faciliti=
es (Merrimack, New Hampshire; Tustin, California; and Santa Cruz, Californi=
a) affecting an additional 559 employees. Of the $35 million charge, $14 mi=
llion was for severance cost and $16 million was for the acceleration of de=
preciation over the remaining service life of the facilities. Of the $252 m=
illion, $162 million was included in cost of revenues, $84 million is in se=
lling, general and administrative expense and $6 million is in research and=
development expense. Also included was a $68 million increase to the incom=
e tax provision to adjust to the expected tax rate for the year. First Qu=
arter 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 e=
mployees in international Semiconductor locations, and $25 million relates =
to the closing of a Semiconductor manufacturing facility in Santa Cruz, Cal=
ifornia. 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 was=
included in cost of revenues, $7 million is in selling, general and admini=
strative expense, $2 million is in research and development expense, and $3=
million is in other income. Third Quarter of 2000 In the third quarter=
of 2000, TI recorded investment gains of $425 million from the sale of 5.6=
million shares of Micron Technology, Inc. (Micron) common stock, offset by=
special charges of $163 million net, of which $112 million was for purchas=
ed in-process R? costs from the Dot Wireless, Inc. and Alantro Communicatio=
ns, Inc. acquisitions, $41 million was for acquisition costs from the pooli=
ng of interests with Burr-Brown Corporation, and $10 million, net, was for =
several Semiconductor and Sensors & Controls restructuring and other action=
s in the U.S., Japan and Europe affecting 432 employees. Of the $163 millio=
n, $112 million was included in research and development expense, $46 milli=
on is in selling, general and administrative expense, $31 million is in cos=
t of revenues, $15 million is in net revenues and $11 million is in other i=
ncome. The primary benefit from the above actions is reduced personnel cost=
s, which are estimated to reach $31 million annually. The benefit began in =
the fourth quarter of 2000. As of September 30, 2001, $13 million of the $1=
9 million severance cost obligation had been paid. Second Quarter of 2000=
In the second quarter of 2000, an investment gain of $1211 million, incl=
uded in other income, was realized from the sale of 20 million shares of Mi=
cron common stock. First Quarter of 2000 In the first quarter of 2000, =
pretax charges of $29 million net were taken, associated with actions inclu=
ding the closing of the Sensors & Controls manufacturing facility in Versai=
lles, Kentucky, and TI's acquisition of Toccata Technology ApS. Of the $29 =
million charge, $12 million was for severance for the elimination of 480 jo=
bs in Kentucky. Of the $29 million, $20 million was included in cost of rev=
enues, $6 million is in selling, general and administrative expense and $3 =
million is in research and development expense. The primary benefit from th=
e Kentucky action is reduced personnel costs, which are estimated to reach =
$10 million annually. The benefit began in the fourth quarter of 2000. As o=
f September 30, 2001, $9 million of the severance cost obligation had been =
paid. Purchased In-Process R?Charges Year-to-date acquisition-related p=
urchased in-process research and development (R&D) charges were zero in 200=
1 and $112 million in 2000. These charges are for R?from business purchase =
acquisitions. Values for acquired in-process R?(purchased R&D) were determi=
ned at the acquisition date based upon the appraised value of the related d=
evelopmental projects. Purchased R?projects were assessed, analyzed and val=
ued within the context and framework articulated by the Securities and Exch=
ange Commission herein described as the Exclusion Approach. Major assumpt=
ions, detailed in the following table, used in determining the value of sig=
nificant purchased R?included the discount rate, the estimated beginning da=
te of projected operating cash flows, and the remaining cost and time, in e=
ngineer-months, to complete the R?projects. The term "engineer month" refer=
s to the average amount of research work expected to be performed by an eng=
ineer in a month. The relative stage of completion and projected operatin=
g cash flows of the underlying in-process projects acquired were the most s=
ignificant and uncertain assumptions utilized in the valuation analysis of =
the purchased R&D. Such uncertainties could give rise to unforeseen budget =
overruns and/or revenue shortfalls in the event that TI is unable to succes=
sfully complete and commercialize the projects. TI management is primarily =
responsible for estimating the value of the purchased R?in all acquisitions=
accounted for under the purchase method. TI expects to essentially meet it=
s original return expectations for the projects. Millions of Dollars - =
Cost/time to Pur=
chased complete R&D Year =
in-process =
projects cash flows Entity Acquisition Con=
sid- Other Deferred R&D Appraisal R&D Discount =
-------------------- projected acquired date eration Goodwill in=
tan- compen- charge method focus rate At acquisi- At =
to begin gibles sation =
tion Sept. 2001 --------- -----=
------ --------- -------- ------ -------- -------- --------- ---------=
-------- ---------- --------- -------- Alantro Third $277 =
$148 $ 81 $ 32 $ 52 Exclusion Wireless 24% $4.1/ =
$1.7/66 2002 Commun- quarter =
approach networking 256 engineer ication=
s, 2000 t=
echnology engineer months Inc. =
for home months =
=
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