Texas Instruments 2015 Annual Report Download - page 98

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PROXY STATEMENT
Assessment of 2014 performance
The committee spent extensive time in December and January assessing TI’s results and strategic progress for 2014. The committee
considered both quantitative and qualitative measures and applied judgment in its assessment. The company’s performance
improved from the prior year on both an absolute and relative basis (see list of competitor companies above), putting it in a stronger
position for the near and long terms. Commensurate with this improvement, the committee set bonuses 15 percent higher than last
year for the named executive officers, with two exceptions for promotions. The assessments for each measure are below.
Revenue and margin
•฀ Annual performance
○TI revenue grew 6.9 percent, consistent with the median growth rate as compared with competitor companies. However,
this included a $445 million revenue decline in legacy wireless products, for which the company has had publicly stated
exit plans under way for a number of years. Excluding legacy wireless products, TI’s revenue grew 11 percent, which
was better than the median comparison with competitors.3
Revenues for the company’s core businesses of Analog and Embedded Processing were up 12.6 percent and 11.8 percent,
respectively, resulting in share gains for each. These core businesses have gained share in each of the last five years.
○Operating profit margin was 30.3 percent, above the median comparison with competitors.
•฀ Three-year performance
○Compound annual revenue growth for 2012-2014 was -1.7 percent, which was below the median competitor
comparison. Excluding the decline in legacy wireless products, compound annual revenue growth was 4.7 percent,
which was above the median competitor comparison.
○Average operating profit for 2012-2014 was 23 percent, which was above the median competitor comparison.
Total shareholder return (TSR)
•฀ TSR was 25.1 percent, which was better than the median comparison with competitors.
•฀ The company again generated strong cash, with free cash flow at 26.9 percent of revenue.4 More than 100 percent of free
cash flow was returned to shareholders in 2014 through share repurchases and dividends. Share repurchases of $2.8 billion
reduced outstanding shares by 3.3 percent (net of stock issuances during the year). The quarterly dividend rate increased
13.3 percent (the 13th increase in eleven years). Share repurchases and dividend increases are important elements of TI’s
capital management strategy.
•฀ The balance sheet remained robust, ending the year with cash and short-term investments of $3.5 billion.
•฀ The three-year compound annual growth rate for TSR was 25.8 percent, which was above the median competitor comparison.
Strategic progress
•฀ The company’s strategic focus on Analog and Embedded Processing semiconductors continues to provide the foundation
for strong results. These core businesses serve highly diverse markets with thousands of applications and have dependable
long-term growth opportunities. In 2014, 83 percent of TI’s revenue came from Analog and Embedded Processing
semiconductors, up 4 percentage points from the prior year.
•฀ TI again improved the diversity of its customer base in 2014 by increasing the percent of revenue from industrial and
automotive applications by one point each, and by increasing the percentage of revenue that comes from small- to mid-
sized customers. This was the third consecutive year of similar improvement. Diversity provides better stability because
success does not depend on a single market or customer.
3 Revenue excluding legacy wireless products (baseband products, and OMAP™ applications processors and connectivity products
sold into smartphone and consumer tablet applications) is a non-GAAP financial measure. For a reconciliation to GAAP, see the
Appendix to this proxy statement.
4 Free cash flow was calculated by subtracting Capital expenditures from the GAAP-based Cash flows from operating activities.
Free cash flow and the ratios based on it are non-GAAP financial measures. For a reconciliation to GAAP, see the Appendix to this
proxy statement.