TEXAS INSTRUMENTS INCORPORATED
April 13, 2000
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Dear Mr. Katz:
Re: File S7-03-00
Texas Instruments appreciates the opportunity to comment on this proposal. The proposed rule would require detailed information regarding activity in long-lived asset balances (Item 302(d)). It would also require detailed information regarding activity in loss accrual and/or valuation accounts (Item 302 (c)), which we will refer to in this letter as "accounting reserves."
We do not object to providing annual activity for the long-lived assets, i.e., property, plant and equipment and intangible assets, so long as it is to be provided on a basis consistent with how our records are kept, i.e., by class of asset. We agree such information could potentially be useful for analytical purposes.
We do, however, strongly object to providing activity information for accounting reserves, including those for litigation and tax issues. We believe such disclosures could prejudice our legal and negotiating positions and result in significant economic cost to our shareholders.
It is not appropriate to require disclosures which could impair our ability to manage, negotiate and resolve litigation, business disputes, and regulatory issues. Disclosure of a reserve addition could result in knowledge by a third party of such action and be interpreted as an admission of liability. Ongoing estimate changes to a reserve could similarly disclose negotiating strategies.
Existing disclosures for accounting reserves, including those contained in SFAS No. 5 for contingencies, Regulation S-X for financial statement captions, and Regulation S-K for MD&A and material litigation, ensures that shareholders and analysts are adequately informed, without causing significant economic harm.
In summary, we support the proposed disclosure of annual activity in long-lived asset classes. For the reasons noted, we object to the proposal for disclosure of activity in accounting reserves, with one exception. Given past perceptions of abuse by some companies, we support the disclosure of activity in restructuring reserves.
Attached are responses to specific questions raised in the proposal. If you have any questions regarding our comments, please feel free to contact me at (214) 480-6200.
M. Samuel Self
Sr. Vice President & Controller
Specific Questions and Answers
1. Are there other specific loss accrual or valuation accounts that should be added to the list of accounts identified within proposed Item 302(c)?
As we explained, to avoid risk of significant economic harm, except for restructuring reserves, the proposed disclosures should be deleted.
2. Should specific percentage tests be used to trigger specific account disclosures within the proposed rules? For example, should disclosure of loss accrual account activity be required only when the balance sheet item and change during the period exceeds a certain pre-established numerical threshold (for example, 5% of total assets or 3% of pretax income)? If so, what is an appropriate threshold?
As noted in question 1, these disclosures should be deleted. If contrary to our suggestion of deletion, the disclosures remain, they should have a high threshold to trigger disclosure. That is, disclosure of activity should only be required when a specific reserve change exceeds 5% of total assets.
3. Should the placement of the proposed data be moved within MD&A or to some other section of the filing to enhance the prominence of the disclosures?
The data should be outside of the MD&A to avoid adding further complexity to that discussion.
4. Should presentation of the proposed data be limited to the Form 10-K?
Yes, the data will have adequate visibility by inclusion in the Form 10-K.
5. Should the disclosure requirements be restricted to those registrants that exceed a certain size or meet some other threshold? If so, what would be the appropriate threshold?
No, the requirements should apply to all registrants.
6. Are there circumstances where registrants may appropriately exclude disclosure about loss accruals related to litigation because of concerns about confidentiality while still conforming with GAAP? If so, please describe such circumstances in detail?
As previously discussed, activity information for accounting reserves, including that for litigation, should not be required. Existing GAAP and SEC disclosure requirements are adequate.
7. Should the disclosures concerning valuation and loss accrual account activity be required when interim financial statements are presented?
As noted in question 6, activity information for accounting reserves should not be required, either annually, or on an interim basis.
8. Should the disclosures concerning changes in property, plant, equipment, and intangible assets and related accumulated depreciation, depletion, and amortization be required when interim financial statements are presented?
No, annual disclosure of activity, by asset class, of long-lived assets is adequate.