Texas Instruments 2014 Annual Report Download - page 23

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FORM 10-K
corporate-level expenses allocated to those products were, therefore, proportionately lower, and the corporate-level expenses
allocated to the remaining product lines were proportionately higher. This allocation change affects the profitability of each of our
segments, but does not impact operating expense or profitability trends at the consolidated level.
Results of operations
We continued to perform well in 2014, reflecting our focus on Analog and Embedded Processing semiconductors. We believe these
products serve highly diverse markets with thousands of applications and have dependable long-term growth opportunities. In 2014,
Analog revenue grew 13 percent and Embedded Processing revenue grew 12 percent. These two segments represented 83 percent
of TI revenue for the year, up from 79 percent in 2013. Gross margin of 56.9 percent for the year reflects the diversity and longevity of
our product portfolio, as well as the efficiency of our manufacturing strategy. Our business model focused on Analog and Embedded
Processing allows us to generate strong cash flow from operations. In 2014, free cash flow was 27 percent of revenue, up 3 percentage
points from a year ago. During the year, we returned $4.2 billion of cash to investors through a combination of stock repurchases
and dividends.
Free cash flow is a non-GAAP financial measure. For a reconciliation to GAAP and an explanation of the reason for providing this non-
GAAP measure, see the Non-GAAP financial information section after the Liquidity and capital resources section.
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Revenue was $13.05 billion, up $840 million, or 7 percent, from 2013 due to higher revenue from Analog and Embedded Processing.
These increases more than offset lower revenue from legacy wireless products.
Gross profit was $7.43 billion, an increase of $1.06 billion, or 17 percent, from 2013 primarily due to higher revenue and, to a lesser
extent, a more favorable mix of products shipped. Gross profit margin was 56.9 percent of revenue compared with 52.1 percent in 2013.
Operating expenses were $1.36 billion for R&D and $1.84 billion for SG&A. R&D expense decreased $164 million, or 11 percent, from
2013 primarily due to savings from ongoing efforts across the company to align costs with growth opportunities, including the previously
announced wind-down of our legacy wireless products and restructuring actions in Embedded Processing and Japan. R&D expense
as a percent of revenue was 10.4 percent compared with 12.5 percent in 2013. SG&A expense was about even, as higher variable
compensation costs were offset by savings from our cost alignment efforts. SG&A expense as a percent of revenue was 14.1 percent
compared with 15.2 percent in 2013.
Acquisition charges were related to our 2011 acquisition of National Semiconductor and were $330 million compared with $341 million in
2013. The charges were primarily from the amortization of intangible assets. See Note 3 to the financial statements for detailed information.
Restructuring charges/other was a net credit of $51 million, which included gains on sales of assets of $75 million, partially offset
by restructuring charges and other expenses of $24 million. This compared with a net credit of $189 million in 2013, reflecting a
$315 million gain from our transfer of wireless connectivity technology to a customer, partially offset by restructuring charges of
$126 million. These amounts are included in Other for segment reporting purposes. For details on the types of costs incurred and the
amounts associated with each restructuring action, see Note 4 to the financial statements.
Operating profit was $3.95 billion, or 30.3 percent of revenue, compared with $2.83 billion, or 23.2 percent, in 2013.
The income tax provision was $1.05 billion compared with $592 million in 2013. The increase in the total tax provision was due to
higher income before income taxes and, to a lesser extent, the effect of the retroactive reinstatement of the federal research tax credit
for 2012 in 2013. Our annual effective tax rates were 27 percent in 2014 and 24 percent in 2013. The federal research tax credit
included in the annual effective tax rates for 2014 and 2013 expired at the end of 2014. See Note 7 to the financial statements for a
reconciliation of the income tax provision to the statutory federal tax.
Our annual effective tax rate benefits from lower rates (compared to the U.S. statutory rate) applicable to our operations in many of the
jurisdictions in which we operate and from U.S. tax benefits. These lower non-U.S. tax rates are generally statutory in nature, without
expiration and available to companies that operate in those taxing jurisdictions. We benefit to a lesser extent from tax holidays in non-
U.S. jurisdictions, in particular, Malaysia and the Philippines. Pre-tax income related to assembly/test manufacturing facilities in those
jurisdictions is included in the non-U.S. effective tax rates reconciling item.
Net income was $2.82 billion, an increase of $659 million, or 30 percent, from 2013. EPS was $2.57 compared with $1.91 in 2013. EPS
benefited $0.07 from 2013 due to a lower number of average shares outstanding as a result of our stock repurchase program.