Capital management strategy

 
Over the past several years, TI has undergone a strategic transformation, which has focused the company on better opportunities and markets, namely Analog and Embedded Processing. Today, more than 80 percent of our revenue comes from these businesses, and they continue to be some of the best opportunities inside of the semiconductor market, 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.

These technologies have the added benefit of having low capital requirements because their manufacturing equipment and process technologies are long lived. In recent years, we’ve also acquired manufacturing assets opportunistically, typically at very low prices, thereby reducing our capital spending levels to historically low levels. As a result, we’ve been able to buy the assets well ahead of demand, with low carrying costs. Because of this, we expect to be able to maintain our capital expenditures at about 4 percent of revenue.

Long term, we believe the ability to generate cash is what matters to any business, and in 2013, we introduced investors to our capital management strategy. The strategy codified some past practices, while reaffirming our belief that these practices are sustainable well into the future given our business model consistently generates significant amounts of cash – more than we need to grow the business.

At the core of our capital management strategy is our business model, firmly rooted in Analog and Embedded Processing. Our capital management strategy reflects our belief that free cash flow growth, especially on a per share basis, is most important to maximizing shareholder value over the long term, and that free cash flow will be valued only if it is productively reinvested in the business or returned to shareholders.

Specifically, our business model enables TI to consistently convert 20-30 percent of our revenue to free cash flow. And importantly, we are employing a capital management strategy designed to return 100 percent of our free cash flow – less debt repayments plus the proceeds from exercises – to our shareholders in the form of dividends and share buybacks. This strategy reflects management’s confidence in our business model, and importantly, our commitment to shareholder returns.

Because of our strong balance sheet, we have access to low-cost debt. With interest rates at historical lows, we plan to continue to hold debt as long as it makes economic sense. In addition, our tax strategy allows us to have more than 80 percent of our cash owned by U.S. subsidiaries, and this means that it is available to return to our shareholders.

TI is one of the few companies that is both a top cash generator and returner. In fact, we are in the top 4 percent of S&P 500 companies for cash generation and return.

More details about the 2015 update to our capital management strategy are listed here:

Capital management strategy conference call
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