Texas Instruments Incorporated (TXN)

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Texas Instruments Inc. (TXN)

Conference to Discuss Capital Management Strategy

February 22, 2013 11:00 am ET


David Pahl

Kevin P. March - Chief Financial Officer, Chief Accounting Officer and Senior Vice President


Ambrish Srivastava - BMO Capital Markets U.S.

Glen Yeung - Citigroup Inc, Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

John W. Pitzer - Crédit Suisse AG, Research Division

Kenneth Lee

Stacy A. Rasgon - Sanford C. Bernstein & Co., LLC., Research Division

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Craig A. Ellis - B. Riley & Co., LLC, Research Division

William Stein - SunTrust Robinson Humphrey, Inc., Research Division

David Schwartzman



Good day, and welcome to the Texas Instruments Conference Call. At this time, I would like to turn the conference over to Dave Pahl. Please go ahead, sir.

David Pahl

Thank you, Mara. Good morning, and thank you for joining our conference call and allowing us to share our capital management strategy with you. Kevin March, TI's CFO, is with me today to provide details and to answer your questions. For any of you who missed yesterday's release announcing our latest dividend increase, you can find it on our website at ti.com/ir.

This call is being broadcast live over the web and can be accessed through TI's website. From the website, you'll be able to see our presentation, or if you wish, you can download it from there as well. A replay will be available through the web.

This call will include forward-looking statements that involve risks and uncertainties that could cause TI's results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the press release published yesterday, as well as TI's most recent SEC filings for a more complete description.

Over the past few years, TI has undergone a strategic transformation. The consistent direction of that transformation was a focus on better opportunities and markets, namely Analog and Embedded Processing. These continue to be some of the best opportunities inside of semiconductors, offering compelling financial characteristics, growth, diversity and stability. They also offer the best exposure to the growing opportunities inside of the industrial and automotive markets. At this point, our most difficult strategic actions are complete, and we now have a company with more than 70% of our revenue coming from Analog and Embedded Processing. As a result, our business model consistently generates cash, and the sustainability of this business model gives us confidence in our ability to return more of that cash to shareholders in the form of higher dividends and additional share buybacks.

Consistent with this belief, we announced last night that we're increasing our dividend to an annualized rate of $1.12 or a dividend yield of 3.4% as of yesterday's close. This 33% in our dividend follows a 24% increase announced last September and marks our 10th consecutive year of increases.

As well, we announced that our Board has authorized us to repurchase an additional $5 billion of shares, bringing the total outstanding authorization to $8.4 billion. Our share repurchases have resulted in a 36% decrease in our shares outstanding since the end of 2004. Our track record of increasing dividends and our continual share repurchases demonstrate a foundation and consistency of returns to our shareholders.

Further, the combination of generating and returning sustainable cash to our shareholders puts TI in a unique class of companies, especially when compared to other technology companies.

We appreciate your time today to allow us to provide you a full look at our capital management strategy. With that as a backdrop, let me turn it over to Kevin and he can share the details.

Kevin P. March

Thank you, Dave, and good morning, everybody. Let me just begin by mentioning that we are pleased that after many years of very hard work, TI's transition to an Analog and Embedded Processing company is essentially complete. And as Dave mentioned, more than 70% of our revenues last year came from Analog and Embedded Processing. And with the legacy Wireless products nearing their wind down on the near-term horizon, the growth of our Analog and Embedded Processing portfolios will soon be able to shine through, benefiting both our top and bottom lines.

The transition to Analog and Embedded Processing, we believe, puts TI into a uniquely strong class of growing companies that generate and return cash to their shareholders. This business model enables TI to consistently convert 20% to 25% of our revenue to free cash flow. And importantly, we are employing a capital management strategy designed to return 100% of our free cash flow less dividend -- less debt repayments to our shareholders in the form of dividends and share buybacks. We believe that TI's capital management strategy will continue to enhance our competitiveness and maximize our shareholder returns.

Let me just take a moment to take a look at a few of the key advantages that TI enjoys that allow us to deliver on this capital management strategy. Right on the top of the list, quite frankly, is a very high margin portfolio that we enjoy as a result of our focus on Analog and Embedded Processing semiconductor technologies. Second on the list is that we employ a tax strategy that repatriates cash back to the U.S. rather than leaving it stranded overseas. The result is we have ample cash to use for our U.S. operations, and importantly, to return to our shareholders. Because we have a strong balance sheet and we maintain certain obligations as fully funded, such as our pension obligations, we maximize our access to low-cost debt. This results in the ability to leverage our balance sheet when economics makes sense or when strategic opportunities present themselves.

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