What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-22 compared with 2021-04-28 · 59 added, 26 removed, 103 unchanged (45% of the section changed)

31 unchanged sentences

• All dollar amounts in the tables are stated in millions of U.S.

The coronavirus (COVID-19) pandemic and its follow-on effects are impacting and will likely continue to impact business activity across industries worldwide, including TI.

The coronavirus (COVID-19) pandemic and its effects are impacting and will likely continue to impact market conditions and business operations across industries worldwide, including at TI.

Therefore, we remain cautious about how the economy might behave for the next few years and continue to monitor potential impact on our operations.

Performance summary

Our first quarter revenue was $4.29 billion, net income was $1.75 billion and earnings per share (EPS) were $1.87.

Revenue increased 5% sequentially.

In addition, revenue increased 29% from the same quarter a year ago due to strong demand in industrial, automotive and personal electronics.

Our second quarter revenue was $4.58 billion, net income was $1.93 billion and earnings per share (EPS) were $2.05.

Revenue increased 7% sequentially and increased 41% from the same quarter a year ago due to strong demand in industrial, automotive and personal electronics.

In our core businesses, Analog revenue grew 6% and Embedded Processing grew 2% sequentially.

5 unchanged sentences

Over the same period, our dividend represented 56% of free cash flow, underscoring its sustainability.

Results of operations – first quarter 2021 compared with first quarter 2020

Revenue of $4.29 billion increased $960 million, or 29%, due to higher revenue from Analog and, to a lesser extent, Embedded Processing.

Results of operations – second quarter 2021 compared with second quarter 2020

Revenue of $4.58 billion increased $1.34 billion, or 41%, due to higher revenue from Analog and, to a lesser extent, Embedded Processing.

Gross profit of $3.08 billion was up $995 million, or 48%, due to higher revenue.

4 unchanged sentences

OI&E was $73 million of income compared with $99 million of income.

Our provision for income taxes was $186 million compared with $50 million, which increased primarily due to higher income before income taxes.

Our annual operating tax rate, which does not include discrete tax items, was 14% in both periods.

We use “annual operating tax rate” to describe the estimated annual effective tax rate.

The 2021 rate differs from the 21% U.S.

Our provision for income taxes was an expense of $311 million compared with a benefit of $101 million.

This change was due to lower discrete tax benefits compared to the year-ago quarter, which included a $249 million benefit from the settlement of a depreciation-related uncertain tax position, as well as higher income before income taxes in the current period.

Our annual operating tax rate, which does not include discrete tax items, is 14% compared with 13% in 2020.

We use “annual operating tax rate” to describe the estimated annual effective tax rate, which differs from the 21% U.S.

statutory corporate tax rate due to the effect of U.S.

2 unchanged sentences

EPS was $2.05 compared with $1.48.

First quarter 2021 segment results

Second quarter 2021 segment results

Our segment results compared with the year-ago quarter are as follows:

5 unchanged sentences

Analog revenue increased in both product lines about equally.

Operating profit increased primarily due to higher revenue and associated gross profit.

Operating profit increased due to higher revenue and associated gross profit.

Embedded Processing (includes microcontrollers and processors)

11 unchanged sentences

* Includes acquisition charges and restructuring charges/other

Other revenue increased $26 million.

Operating profit decreased $31 million due to about $50 million of utility costs related to the February winter storm in Texas.

Other revenue increased $77 million, and operating profit increased $73 million.

Results of operations – first six months of 2021 compared with first six months of 2020

Revenue of $8.87 billion increased $2.30 billion, or 35%, due to higher revenue from Analog and, to a lesser extent, Embedded Processing.

Gross profit of $5.87 billion was up $1.70 billion, or 41%, due to higher revenue.

As a percentage of revenue, gross profit increased to 66.2% from 63.5%.

Operating expenses were $1.63 billion compared with $1.57 billion.

Acquisition charges were $95 million compared with $100 million and were non-cash.

Operating profit was $4.15 billion, or 46.8% of revenue, compared with $2.47 billion, or 37.6% of revenue.

OI&E was $119 million of income compared with $124 million of income.

Our provision for income taxes was an expense of $497 million compared with a benefit of $51 million.

This change was due to higher income before income taxes and lower discrete tax benefits compared to the year-ago period, which included a $249 million benefit from the settlement of a depreciation-related uncertain tax position.

Net income was $3.68 billion compared with $2.55 billion.

EPS was $3.92 compared with $2.72.

Year-to-date segment results

Our segment results compared with the year-ago period are as follows:

YTD 2021 YTD 2020 Change

Revenue $ 6,744 $ 4,894 38 %

Operating profit 3,424 2,078 65 %

Operating profit % of revenue 50.8 % 42.5 %

Analog revenue increased in both product lines about equally.

Operating profit increased due to higher revenue and associated gross profit.

Embedded Processing

YTD 2021 YTD 2020 Change

Revenue $ 1,547 $ 1,199 29 %

Operating profit 599 307 95 %

Operating profit % of revenue 38.7 % 25.6 %

Embedded Processing revenue increased.

Operating profit increased primarily due to higher revenue and associated gross profit.

YTD 2021 YTD 2020 Change

Revenue $ 578 $ 475 22 %

Operating profit* 129 87 48 %

Operating profit % of revenue 22.3 % 18.3 %

* Includes acquisition charges and restructuring charges/other

Other revenue increased $103 million, and operating profit increased $42 million.

Financial condition

At the end of the first quarter of 2021, total cash (cash and cash equivalents plus short-term investments) was $6.69 billion, an increase of $118 million from the end of 2020.

At the end of the second quarter of 2021, total cash (cash and cash equivalents plus short-term investments) was $7.39 billion, an increase of $822 million from the end of 2020.

Accounts receivable were $1.59 billion, an increase of $177 million compared with the end of 2020.

Days sales outstanding at the end of the first quarter of 2021 were 33 compared with 31 at the end of 2020.

Days sales outstanding were 31 for both the second quarter of 2021 and at the end of 2020.

Inventory was $1.86 billion, a decrease of $99 million from the end of 2020.

Days of inventory at the end of the first quarter of 2021 were 114 compared with 123 at the end of 2020.

Days of inventory for the second quarter of 2021 were 111 compared with 123 at the end of 2020.

Liquidity and capital resources

1 unchanged sentence

Additional sources of liquidity are cash and cash equivalents, short-term investments and a variable-rate, revolving credit facility.

Cash flows from operating activities for the first three months of 2021 were $1.85 billion, an increase of $999 million from the year-ago period due to higher net income and lower cash used for working capital.

Cash flows from operating activities for the first six months of 2021 were $3.97 billion, an increase of $1.40 billion from the year-ago period due to higher net income and lower cash used for working capital.

Our revolving credit facility is with a consortium of investment-grade banks and allows us to borrow up to $2 billion until March 2024.

This credit facility also serves as support for the issuance of commercial paper.

As of March 31, 2021, our credit facility was undrawn, and we had no commercial paper outstanding.

Investing activities for the first three months of 2021 used $1.11 billion compared with providing cash of $826 million in the year-ago period.

As of June 30, 2021, our credit facility was undrawn, and we had no commercial paper outstanding.

Investing activities for the first six months of 2021 used $982 million compared with providing cash of $2.26 billion in the year-ago period.

Capital expenditures were $694 million compared with $291 million in the year-ago period and were primarily for semiconductor manufacturing equipment and facilities in both periods.

Short-term investments used cash of $782 million compared with providing cash of $992 million in the year-ago period.

Financing activities for the first three months of 2021 used $1.41 billion compared with $1.60 billion in the year-ago period.

Short-term investments used cash of $279 million compared with providing cash of $2.55 billion in the year-ago period.

Financing activities for the first six months of 2021 used $2.45 billion compared with $2.98 billion in the year-ago period.

In 2021, we retired maturing debt of $550 million.

In the year-ago period, we received net proceeds of $749 million from the issuance of fixed-rate, long-term debt.

Dividends paid were $940 million compared with $841 million in the year-ago period, reflecting an increase in the dividend rate.

In the year-ago period, we received net proceeds of $1.50 billion from the issuance of fixed-rate, long-term debt, and we retired maturing debt of $500 million.

Dividends paid were $1.88 billion compared with $1.66 billion in the year-ago period, reflecting an increase in the dividend rate.

We used $246 million to repurchase 1.4 million shares of our common stock compared with $2.52 billion used in the year-ago period to repurchase 23.2 million shares.

Employee exercises of stock options provided cash proceeds of $250 million compared with $233 million in the year-ago period.

We had $2.44 billion of cash and cash equivalents and $4.24 billion of short-term investments as of March 31, 2021.

We had $3.65 billion of cash and cash equivalents and $3.74 billion of short-term investments as of June 30, 2021.

We believe we have the necessary financial resources and operating plans to fund our working capital needs, capital expenditures, dividend and debt-related payments, and other business requirements for at least the next 12 months.

On June 30, 2021, we announced that we signed an agreement to acquire Micron Technology’s 300-millimeter semiconductor factory in Lehi, Utah, for cash consideration of $900 million.

We plan to complete the transaction by the end of 2021.

Non-GAAP financial information

17 unchanged sentences

Information regarding long-term contractual obligations is in Item 7 of our Form 10-K for the year ended December 31, 2020.

Additionally, we retired $550 million of maturing debt during the first quarter of 2021.

Additionally, in the first six months of 2021, we retired $550 million of maturing debt.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis