2Q13 financial results and shareholder returns reports from TI

Regarding the company’s performance and returns to shareholders, Rich Templeton, TI’s chairman, president and CEO, made the following comments:

•“Our revenue ended the quarter as expected, up 6 percent sequentially. Excluding legacy wireless, revenue grew 8 percent; our positions in industrial and automotive markets were important contributors to the sequential growth in revenue. Additionally, backlog increased, and with it, visibility into the second half improved.

•“Analog and Embedded Processing are now 78 percent of revenue, 6 points higher than a year ago. Our legacy wireless products declined to less than 5 percent of revenue and should be below 2 percent in the third quarter. Silicon Valley Analog (formerly National Semiconductor) led our Analog growth and is gaining share, one year ahead of plan.

•“Our business model continues to generate strong cash flow from operations. Free cash flow for the trailing 12 months was almost $3 billion, up 10 percent compared with a year ago. Free cash flow comprised 24 percent of revenue, which is consistent with our target of 20-25 percent.

•“We returned $1.0 billion to shareholders through dividends and stock repurchases in the second quarter. For the trailing 12 months, the return to shareholders totaled $3.6 billion, or 123 percent of free cash flow. Our strategy to return to shareholders all of our free cash flow not needed for debt repayment reflects our confidence in the long-term sustainability of our Analog and Embedded Processing business model.

•“Our balance sheet remains strong, with $3.2 billion of cash and short-term investments at the end of the quarter, 82 percent of which is owned by the company’s U.S. entities, even after reducing debt by $500 million. Inventory days were 105, up from 101 a year ago, and consistent with our model of 105-115.”





Outlook

For the third quarter of 2013, TI expects:

-Revenue: $3.09 – 3.35 billion

-Earnings per share: $0.49 – 0.57

Revenue from legacy wireless products is expected to decline about $90 million sequentially at the middle of this range as the company winds down these product lines.

TI will update its third-quarter outlook on September 10, 2013.

For the full year of 2013, TI expects approximately the following:

-R&D expense: $1.5 billion, unchanged

-Capital expenditures: $0.5 billion, unchanged

-Depreciation: $0.9 billion, unchanged

-Annual effective tax rate: 24 percent, up from the prior estimate of 22 percent



As required by accounting rule ASC 260, net income allocated to unvested restricted stock units (RSUs), on which we pay dividend equivalents, is excluded from the calculation of EPS. The amount excluded is $11 million, $8 million and $7 million for the quarters ending June 30, 2013, June 30, 2012, and March 31, 2013, respectively.









Analog:(includes High Volume Analog & Logic, Power Management, High Performance Analog and Silicon Valley Analog)

-Compared with a year ago, revenue decreased primarily due to lower Power Management revenue. High Performance Analog revenue also declined, while Silicon Valley Analog and High Volume Analog & Logic revenue were about even.

-Compared with the prior quarter, revenue grew due to higher revenue from Silicon Valley Analog, High Volume Analog & Logic and High Performance Analog. Revenue from Power Management was about even.

-Operating profit decreased from a year ago primarily due to lower revenue and associated gross profit. Operating profit increased from the prior quarter due to higher gross profit.

Embedded Processing: (includes Processors, Microcontrollers and Connectivity)

-Compared with the year-ago quarter, the increase in revenue was primarily due to higher Microcontrollers revenue. Revenue from Connectivity also increased, while Processors revenue was about even.

-Compared with the prior quarter, revenue increased primarily due to Processors. Revenue from Microcontrollers and Connectivity also increased.

-Operating profit increased from a year ago and from the prior quarter due to higher gross profit.


Other: (includes DLP® products, custom ASIC products, calculators, royalties and legacy wireless products)

Compared with the year-ago quarter, revenue declined primarily due to lower revenue from legacy wireless products. Revenue from custom ASIC products, DLP products and calculators also declined, while royalties increased.

-Compared with the prior quarter, revenue was about even. Revenue from calculators and DLP products increased. Custom ASIC revenue was about even, and revenue from legacy wireless products and royalties declined.

-Operating profit increased from both a year ago and the prior quarter due to a gain associated with the transfer of wireless connectivity technology.

Non-GAAP financial information

Revenue excluding legacy wireless

This release includes a reference to TI’s revenue excluding revenue from legacy wireless products. This measure, which was not prepared in accordance with generally accepted accounting principles in the United States (GAAP), provides investors with insight into TI’s underlying business results and is supplemental to the comparable GAAP measure.



Free cash flow

This release also includes references to free cash flow and various ratios based on that measure. These are financial measures that were not prepared in accordance with GAAP. Free cash flow was calculated by subtracting Capital expenditures from the most directly comparable GAAP measure of Cash flows from operating activities (also referred to as Cash flow from operations).

The free cash flow measures were compared to the following GAAP items to determine the various non-GAAP ratios presented below and referred to in the release: Revenue, Dividends paid and Stock repurchases. Reconciliation to the most directly comparable GAAP-based ratios is provided in the table below.

The company believes these non-GAAP measures provide insight into its liquidity, its cash-generating capability and the amount of cash available to return to investors as well as insight into its financial performance. These non-GAAP measures are supplemental to the comparable GAAP measures.



Dividends paid and Stock repurchases as a percentage of free cash flow provided in the above chart do not sum to total cash returned to shareholders as a percentage of free cash flow due to rounding.