TI reports 4Q13 and 2013 financial results and shareholder returns
Conference call on TI website at 4:30 p.m. Central time today
Regarding the company's performance and returns to shareholders,
- "Our fourth quarter capped a year in which each quarter's performance increasingly reflected the impact of structural changes we've made to focus TI on Analog and Embedded Processing, where the diversity and longevity of our positions are assets.
- "The combined revenue from Analog and Embedded Processing grew 12 percent over last year's fourth quarter and comprised 82 percent of total revenue. Individually, Analog was up 12 percent and Embedded Processing was up 11 percent from a year ago.
- "Earnings in the quarter benefited from revenue that was in the upper half of our guidance range and excellent fall through to gross profit. Gross margin of 54.2 percent remained near its record high, reflecting the quality of our Analog and Embedded Processing portfolio and the efficiency of our manufacturing strategy.
"Our business model continues to generate strong cash flow from operations. Free cash flow for the full year of 2013 was
$3 billion, or 24 percent of revenue, consistent with our target of 20-25 percent.
$4 billion, or 136 percent of free cash flow, to shareholders in 2013 through dividends and stock repurchases. Our strategy to return to shareholders all free cash flow not needed for debt repayment reflects our confidence in the long-term sustainability of our business model.
"Our balance sheet remains strong, with
$3.8 billionof cash and short-term investments at the end of the year, 82 percent of which was owned by the company's U.S. entities. Inventory days were 112, consistent with our model of 105-115 days.
"TI's outlook for the first quarter of 2014 is for revenue in the range of
$2.83 billionto $3.07 billionand earnings per share between $0.36and $0.44, including charges. The annual effective tax rate for 2014 is expected to be about 27 percent, which reflects the expiration of the R&D tax credit."
TI's fourth-quarter results and first-quarter outlook include restructuring charges for cost-saving actions in Embedded Processing and in Japan. The company is not exiting any markets or discontinuing any existing products but will reduce investments in markets that do not offer sustainable growth and returns. The savings will reflect the elimination of about 1,100 jobs worldwide. The charges are expected to be about
Free cash flow (Cash flow from operations less Capital expenditures) is a non-GAAP financial measure.
Analog: (includes High Volume Analog & Logic, Power Management, High Performance Analog and Silicon Valley Analog)
- Compared with a year ago, revenue increased in all product lines. Power Management grew the most, followed by Silicon Valley Analog, High Performance Analog and High Volume Analog & Logic.
- Compared with the prior quarter, revenue declined in all product lines. High Performance Analog declined the most, followed by High Volume Analog & Logic, Power Management and Silicon Valley Analog.
- Operating profit increased from a year ago primarily due to higher revenue and associated gross profit. Compared with the prior quarter, operating profit decreased due to lower revenue and associated gross profit, which was partially offset by lower operating expenses.
Embedded Processing: (includes Processors, Microcontrollers and Connectivity)
- Compared with the year-ago quarter, revenue increased due to Microcontrollers. Connectivity also grew, while revenue from Processors was about even.
- Compared with the prior quarter, revenue declined primarily due to Processors. Microcontrollers and Connectivity also declined.
- Operating profit increased from a year ago primarily due to higher revenue and associated gross profit. Compared with the prior quarter, operating profit decreased primarily due to lower revenue and associated gross profit.
Other: (includes DLP® products, custom ASIC products, calculators, royalties and legacy wireless products)
- Compared with the year-ago quarter, revenue declined due to legacy wireless products.
- Compared with the prior quarter, revenue declined due to seasonally lower calculator revenue.
- Operating profit increased from a year ago due to lower restructuring charges as well as lower operating expenses. Operating profit decreased from the prior quarter primarily due to lower revenue and associated gross profit, as well as higher restructuring charges.
- Analog revenue increased primarily due to Power Management. Silicon Valley Analog and High Performance Analog also increased while High Volume Analog & Logic declined. Operating profit increased primarily due to higher gross profit, which benefited from higher revenue and lower manufacturing costs. This higher gross profit was partially offset by higher operating expenses.
- Embedded Processing revenue increased primarily due to Microcontrollers. Processors and Connectivity also increased. Operating profit increased due to higher revenue and associated gross profit, which was partially offset by higher operating expenses.
- Other revenue declined primarily due to legacy wireless products. Operating profit increased due to lower operating expenses and Restructuring charges/other, partially offset by lower revenue and associated gross profit.
Non-GAAP financial information
This release 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 flow 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.
Safe Harbor Statement
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:
This release 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, statements herein that describe TI'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 TI or its management:
- Market demand for semiconductors, particularly in markets such as industrial, automotive, personal electronics, communications equipment and enterprise systems;
- TI's ability to maintain or improve profit margins, including its ability to utilize its manufacturing facilities at sufficient levels to cover its fixed operating costs, in an intensely competitive and cyclical industry;
- 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;
- Expiration of license agreements between TI and its patent licensees, and market conditions reducing royalty payments to TI;
- Economic, social and political conditions in the countries in which TI, its customers or its suppliers operate, including security risks, health conditions, possible disruptions in transportation, communications and information technology networks and fluctuations in foreign currency exchange rates;
- Natural events such as severe weather and earthquakes in the locations in which TI, its customers or its suppliers operate;
- Availability and cost of raw materials, utilities, manufacturing equipment, third-party manufacturing services and manufacturing technology;
- Changes in the tax rate applicable to TI as the result of changes in tax law, the jurisdictions in which profits are determined to be earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets;
- Changes in laws and regulations to which TI or its suppliers are or may become subject, such as those imposing fees or reporting or substitution costs relating to the discharge of emissions into the environment or the use of certain raw materials in our manufacturing processes;
- Losses or curtailments of purchases from key customers and the timing and amount of distributor and other customer inventory adjustments;
- Customer demand that differs from our forecasts;
- The financial impact of inadequate or excess TI inventory that results from demand that differs from projections;
- Impairments of our non-financial assets;
- Product liability or warranty claims, claims based on epidemic or delivery failure or recalls by TI customers for a product containing a TI part;
- TI's ability to recruit and retain skilled personnel;
- Timely implementation of new manufacturing technologies and installation of manufacturing equipment, and the ability to obtain needed third-party foundry and assembly/test subcontract services;
- TI's obligation to make principal and interest payments on its debt;
- TI's ability to successfully integrate and realize opportunities for growth from acquisitions, and our ability to realize our expectations regarding the amount and timing of restructuring charges and associated cost savings; and
- Breaches of our information technology systems.
For a more detailed discussion of these factors, see the Risk Factors discussion in Item 1A of TI's Form 10-K for the year ended
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