2012 Annual
Notice of 2013 Annual Meeting & Proxy Statement
Report
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Richard K. Templeton
Chairman, President and
Chief Executive Officer
To our shareholders
We performed well in 2012, despite strong headwinds from a weak
and uncertain economy. It was also the year we completed our
strategic journey to make Texas Instruments an Analog and Embedded
Processing company.
capacity we have on hand without making additional large capital
outlays. Today, these investments are benefiting the company, its cash
flow, its returns – and TI’s shareholders – and will continue to benefit
us for many years to come.
In 2012, 70 percent of our revenue came from Analog and Embedded
Processing; just five years ago, less than half our revenue originated
here. With no major impediments diverting our resources and energies,
this trajectory should continue in the years ahead, and with it, the
benefits that accrue to TI and its shareholders.
Analog and Embedded Processing share some characteristics that
make our business model one that generates sustainably high cash
flows against a backdrop of growth and stability. Both are large
markets with lots of players, none of which is dominant. This translates
into ample opportunity to grow and gain share. Both serve a broad
customer base that numbers in the tens of thousands with target-rich
opportunities across a range of applications. This means we can
participate in the most exciting opportunities without becoming overly
dependent on any single one. Both have product life cycles typically
measured in years, if not decades, which boost returns on investment
and enable a stable base of revenue. And, both have low capital
requirements because their manufacturing equipment and process
technologies are long lived.
Manufacturing is a big part of what allows Analog and Embedded
Processing to generate high financial returns. The associated
manufacturing process technologies allow our designers to create
innovative chips that are highly differentiated, but the factories
themselves last for decades. That dramatically increases our flexibility
around when we buy these assets and when we put them into
production. For example, during the past few years, we have had
the opportunity to significantly expand our manufacturing footprint
by acquiring capacity for pennies on the dollar. As a result, we can
now support more than $5 billion of additional revenue with the
So where are we now?
In Analog, we are the market leader with about 18 percent share.
We have gained share in four of the past five years, even without
the contribution that resulted from our acquisition of National
Semiconductor, which broadened our product lines and gave us a
stronger presence in the important industrial markets. In Embedded
Processing, we hold the No. 2 position with about 12 percent share.
For the past few years, we have focused on new product development
to ensure a broad portfolio that can serve many customer needs,
ranging from the industry’s lowest power-consuming microcontroller
to multi-core DSPs for the next wave of the communications
infrastructure build-out.
2012 showed what our Analog and Embedded Processing business
model can deliver, even in a weak economy. We generated almost
$3 billion in free cash flow and returned 90 percent of it to shareholders
through dividends and share repurchases. We raised our quarterly
dividend 24 percent, our tenth increase in the last nine years. And,
we repurchased $1.8 billion worth of shares, further contributing to
a 36 percent reduction in shares outstanding since the beginning
of 2005.
Now that we’ve completed our strategic transition, we’re further honing
our execution so we can deliver on the promise of TI: revenue growth
and market share gains in Analog and Embedded Processing, cash flows
at historic levels, and strong returns to our shareholders. Analog and
Embedded Processing are where we are investing our resources. This
is where we are committed to succeed.
Note: Free cash flow (non-GAAP) = Cash flow from operations minus capital expenditures. See page 48 for details.
244816_TI_AR_CVR_R3.indd 2
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2 0 1 2 A N N U A L R E P O R T • 1
TEXAS INSTRUMENTSANNUAL REPORTFinancial statements table of contents Consolidated statements of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Consolidated statements of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Consolidated balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Consolidated statements of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Consolidated statements of stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Notes to financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Description of business and significant accounting policies and practices Acquisition-related charges Restructuring charges/other Losses associated with the 2011 earthquake in Japan Stock-based compensation Profit sharing plans Income taxes Financial instruments and risk concentrationReport of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Report by management on internal control over financial reporting . . . . . . . . . . . . . . . . . . . . . . . . 37Report of independent registered public accounting firm on internal control over financial reporting . . . . . . . . 38Summary of selected financial data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Management’s discussion and analysis of financial condition and results of operations . . . . . . . . . . . . . . 40 Overview Results of operations Prior results of operations - 2011 compared with 2010 Financial condition Liquidity and capital resources Long-term contractual obligationsQuarterly financial data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Common stock prices and dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Comparison of total shareholder return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53Safe Harbor statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Notice of 2013 annual meeting of stockholders and proxy statementNotice of annual meeting of stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Proxy statement table of contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Valuation of debt and equity investments and certain liabilitiesGoodwill and acquisition-related intangiblesPostretirement benefit plansDebt and lines of creditCommitments and contingenciesStockholders’ equitySupplemental financial informationSegment and geographic area dataCritical accounting policiesChanges in accounting standardsOff-balance sheet arrangements Commitments and contingenciesQuantitative and qualitative disclosures about market risk Consolidated statements of income
[Millions of dollars, except share and per-share amounts]
For Years Ended
December 31,
2012
2011
2010
Revenue
Cost of revenue (COR)
Gross profit
Research and development (R&D)
Selling, general and administrative (SG&A)
Acquisition charges
Restructuring charges/other
Operating profit
Other income (expense) net (OI&E)
Interest and debt expense
Income before income taxes
Provision for income taxes
Net income
$12,825
6,457
6,368
1,877
1,804
450
264
1,973
47
85
1,935
176
$ 1,759
$13,735
6,963
6,772
1,715
1,638
315
112
2,992
5
42
2,955
719
$ 2,236
$13,966
6,474
7,492
1,570
1,519
—
(111)
4,514
37
—
4,551
1,323
$ 3,228
Earnings per common share:
Basic
Diluted
$
$
1.53
1.51
$
$
1 91
1 88
$
$
2 66
2 62
Average shares outstanding (millions):
Basic
Diluted
1,132
1,146
1,151
1,171
1,199
1,213
Cash dividends declared per share of common stock
$
0.72
$
0 56
$
0 49
See accompanying notes
2 • 2 0 1 2 A N N U A L R E P O R T
TEXAS INSTRUMENTSANNUAL REPORT Consolidated statements of comprehensive income
[Millions of dollars]
Net income
Other comprehensive income (loss):
Available-for-sale investments:
Unrealized gains (losses), net of tax benefit (expense) of ($1), $1 and ($3)
Reclassification of recognized transactions, net of tax benefit (expense)
of $0, ($7) and $0
Net actuarial gains (losses) of defined benefit plans:
Adjustment, net of tax benefit (expense) of $29, $65 and $61
Reclassification of recognized transactions, net of tax benefit (expense)
of ($104), ($28) and ($36)
Prior service cost of defined benefit plans:
Adjustment, net of tax benefit (expense) of $1, $5 and ($1)
Reclassification of recognized transactions, net of tax benefit (expense)
of $0, ($1) and $0
Change in fair value of derivative instrument, net of tax benefit (expense) of $1, $1 and $0
Other comprehensive income (loss), net of taxes
Total comprehensive income
See accompanying notes
For Years Ended
December 31,
2012
2011
2010
$ 1,759
$ 2,236
$ 3,228
3
—
(2)
12
7
—
(81)
(124)
(154)
160
(2)
48
(9)
65
2
—
(3)
77
$ 1,836
2
(2)
(75)
$ 2,161
—
—
(80)
$ 3,148
2 0 1 2 A N N U A L R E P O R T • 3
TEXAS INSTRUMENTSANNUAL REPORT Consolidated balance sheets
[Millions of dollars, except share amounts]
Assets
Current assets:
December 31,
2012
2011
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowances of ($31) and ($19)
Raw materials
Work in process
Finished goods
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment at cost
Less accumulated depreciation
Property, plant and equipment, net
Long-term investments
Goodwill
Acquisition-related intangibles, net
Deferred income taxes
Capitalized software licenses, net
Overfunded retirement plans
Other assets
Total assets
$ 1,416
2,549
1,230
116
935
706
1,757
1,044
234
8,230
6,891
(2,979)
3,912
215
4,362
2,558
280
142
68
254
$ 20,021
$
992
1,943
1,545
115
1,004
669
1,788
1,174
386
7,828
7,133
(2,705)
4,428
265
4,452
2,900
321
206
40
57
$ 20,497
Liabilities and stockholders’ equity
Current liabilities:
Commercial paper borrowings
Current portion of long-term debt
Accounts payable
Accrued compensation
Income taxes payable
Deferred income taxes
Accrued expenses and other liabilities
Total current liabilities
Long-term debt
Underfunded retirement plans
Deferred income taxes
Deferred credits and other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock, $25 par value Authorized – 10,000,000 shares
$
— $
1,500
444
524
79
2
881
3,430
4,186
269
572
603
9,060
999
382
625
597
101
—
795
3,499
4,211
701
607
527
9,545
Participating cumulative preferred None issued
—
—
Common stock, $1 par value Authorized – 2,400,000,000 shares
Shares issued: 2012 – 1,740,815,939; 2011 – 1,740,630,391
Paid-in capital
Retained earnings
Less treasury common stock at cost
Shares: 2012 – 632,636,970; 2011 – 601,131,631
Accumulated other comprehensive income (loss), net of taxes
Total stockholders’ equity
Total liabilities and stockholders’ equity
1,741
1,176
27,205
1,741
1,194
26,278
(18,462)
(699)
10,961
$ 20,021
(17,485)
(776)
10,952
$ 20,497
See accompanying notes
4 • 2 0 1 2 A N N U A L R E P O R T
TEXAS INSTRUMENTSANNUAL REPORT Consolidated statements of cash flows
[Millions of dollars]
For Years Ended
December 31,
2012
2011
2010
Cash flows from operating activities:
Net income
$ 1,759
$ 2,236
$ 3,228
Adjustments to net income:
Depreciation
Amortization of acquisition-related intangibles
Stock-based compensation
Gain on sales of assets and divestiture
Deferred income taxes
Gain on transfer of Japan substitutional pension
Increase (decrease) from changes in:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Accrued compensation
Income taxes payable
Changes in funded status of retirement plans
Other
Cash flows from operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Proceeds from insurance recovery, asset sales and divestiture
Purchases of short-term investments
Proceeds from short-term investments
Purchases of long-term investments
Proceeds from long-term investments
Business acquisitions, net of cash acquired
Cash flows from investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt and commercial paper borrowings
Repayment of debt and commercial paper borrowings
Dividends paid
Stock repurchases
Proceeds from common stock transactions
Excess tax benefit from share-based payments
Other
Cash flows from financing activities
957
342
263
—
65
(144)
311
5
227
99
(82)
(229)
(198)
39
3,414
904
111
269
(5)
(119)
—
112
(17)
(29)
2
(77)
(85)
(7)
(39)
3,256
(816)
(495)
16
—
(3,653)
(2,802)
3,555
2,198
(6)
(1)
157
61
— (5,425)
(6,172)
(1,039)
1,492
(1,375)
(819)
(1,800)
523
38
(10)
(1,951)
4,697
(200)
(644)
(1,973)
690
31
(12)
2,589
865
48
190
(144)
(188)
—
(231)
(304)
(8)
57
246
(19)
26
54
3,820
(1,199)
148
(2,510)
2,564
(8)
147
(199)
(1,057)
—
—
(592)
(2,454)
407
13
—
(2,626)
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
424
992
$ 1,416
(327)
1,319
992
$
137
1,182
$ 1,319
See accompanying notes
2 0 1 2 A N N U A L R E P O R T • 5
TEXAS INSTRUMENTSANNUAL REPORT Consolidated statements of stockholders’ equity
[Millions of dollars, except per-share amounts]
Common
Stock
Paid-in
Capital
Retained
Earnings
Treasury
Common
Stock
Accumulated Other
Comprehensive
Income (Loss)
Balance, December 31, 2009
$1,740
$1,086
$ 22,066
$(14,549)
$ (621)
2010
Net income
Dividends declared and paid ($ 49 per share)
Common stock issued for stock-based awards
Stock repurchases
Stock-based compensation
Tax impact from exercise of options
Other comprehensive income (loss), net of taxes
Other
Balance, December 31, 2010
2011
Net income
Dividends declared and paid ($ 56 per share)
Common stock issued for stock-based awards
Stock repurchases
Stock-based compensation
Tax impact from exercise of options
Other comprehensive income (loss), net of taxes
Other
Balance, December 31, 2011
—
—
—
—
—
—
—
—
1,740
—
—
1
—
—
—
—
—
1,741
—
—
(182)
—
190
21
—
(1)
1,114
—
—
(252)
—
269
45
—
18
1,194
3,228
(592)
—
—
—
—
—
(7)
24,695
2,236
(644)
—
—
—
—
—
(9)
26,278
—
—
588
(2,450)
—
—
—
—
(16,411)
—
—
898
(1,973)
—
—
—
1
(17,485)
2012
Net income
Dividends declared and paid ($.72 per share)
Common stock issued for stock-based awards
Stock repurchases
Stock-based compensation
Tax impact from exercise of options
Other comprehensive income (loss), net of taxes
Other
Balance, December 31, 2012
—
—
—
—
—
—
—
—
$1,741
—
—
(337)
—
263
56
—
—
$1,176
1,759
(819)
—
—
—
—
—
(13)
$ 27,205
—
—
823
(1,800)
—
—
—
—
$(18,462)
See accompanying notes
—
—
—
—
—
—
(80)
—
(701)
—
—
—
—
—
—
(75)
—
(776)
—
—
—
—
—
—
77
—
$ (699)
6 • 2 0 1 2 A N N U A L R E P O R T
TEXAS INSTRUMENTSANNUAL REPORT Notes to financial statements
1. Description of business and significant accounting policies and practices
Business
At Texas Instruments (TI), we design and make semiconductors that we sell to electronics designers and manufacturers all over the
world. As of December 31, 2012, we have three reportable segments, which are established along major categories of products
as follows:
• Analog – consists of the following major product lines: High Volume Analog & Logic (HVAL), Power Management (Power), High
Performance Analog (HPA) and Silicon Valley Analog (SVA). SVA consists of products that we acquired through our purchase of
National Semiconductor Corporation (National) in 2011.
• Embedded Processing – consists of digital signal processors (DSPs) and microcontrollers used in catalog, communications
infrastructure and automotive applications; and
• Wireless – consists of OMAP™ applications processors, connectivity products and baseband products.
We report the results of our remaining business activities in Other. As previously announced, the Wireless segment will be eliminated
due to the decision to wind down certain of its product lines. As a result, we will restructure our reportable segments beginning
January 1, 2013, and we will report our first quarter of 2013 financial results accordingly. See Note 16 for additional information on our
business segments.
Basis of presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States (U.S. GAAP). The basis of these financial statements is comparable for all periods presented herein.
The consolidated financial statements include the accounts of all subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation. All dollar amounts in the financial statements and tables in these notes, except per-share amounts,
are stated in millions of U.S. dollars unless otherwise indicated. We have reclassified certain amounts in the prior periods’ financial
statements to conform to the 2012 presentation. The preparation of financial statements requires the use of estimates from which final
results may vary.
On September 23, 2011, we completed the acquisition of National. We accounted for this transaction under Accounting Standards
Codification (ASC) 805 – Business Combinations, and the consolidated financial statements include the balances and results of
operations of National from the date of acquisition. See Note 2 for more detailed information.
Revenue recognition
We recognize revenue from direct sales of our products to our customers, including shipping fees, when title and risk of loss pass to
the customer, which usually occurs upon shipment or delivery, depending upon the terms of the sales order; when persuasive evidence
of an arrangement exists; when sales amounts are fixed or determinable; and when collectability is reasonably assured. Revenue from
sales of our products that are subject to inventory consignment agreements is recognized consistent with the principles discussed
above, but delivery occurs when the customer pulls product from consignment inventory that we store at designated locations.
Estimates of product returns for quality reasons and of price allowances (based on historical experience, product shipment analysis and
customer contractual arrangements) are recorded when revenue is recognized. Allowances include volume-based incentives and special
pricing arrangements. In addition, we record allowances for accounts receivable that we estimate may not be collected.
We recognize revenue from direct sales of our products to our distributors, net of allowances, consistent with the principles
discussed above. Title transfers to the distributors at delivery or when the products are pulled from consignment inventory, and payment
is due on our standard commercial terms; payment terms are not contingent upon resale of the products. We calculate credit allowances
based on historical data, current economic conditions and contractual terms. For instance, we sell to distributors at standard published
prices, but we may grant them price adjustment credits in response to individual competitive opportunities they may have. To estimate
allowances, we use statistical percentages of revenue, determined quarterly, based upon recent historical adjustment trends. We also
provide allowances for certain growth-based incentives.
We provide distributors an allowance to scrap certain slow-selling or obsolete products in their inventory, estimated as a negotiated
fixed percentage of each distributor’s purchases from us. In addition, if we publish a new price for a product that is lower than that
paid by distributors for the same product still remaining in each distributor’s on-hand inventory, we may credit them for the difference
between those prices. The allowance for this type of credit is based on the identified product price difference applied to our estimate
of each distributor’s on-hand inventory of that product. We believe we can reasonably and reliably estimate allowances for credits to
distributors in a timely manner.
2 0 1 2 A N N U A L R E P O R T • 7
ANNUAL REPORTTEXAS INSTRUMENTS We determine the amount and timing of royalty revenue based on our contractual agreements with intellectual property licensees.
We recognize royalty revenue when earned under the terms of the agreements and when we consider realization of payment to be
probable. Where royalties are based on a percentage of licensee sales of royalty-bearing products, we recognize royalty revenue by
applying this percentage to our estimate of applicable licensee sales. We base this estimate on historical experience and an analysis of
each licensee’s sales results. Where royalties are based on fixed payment amounts, we recognize royalty revenue ratably over the term
of the royalty agreement. Where warranted, revenue from licensees may be recognized on a cash basis.
We include shipping and handling costs in COR.
Advertising costs
We expense advertising and other promotional costs as incurred. This expense was $46 million in 2012, $43 million in 2011 and
$44 million in 2010.
Income taxes
We account for income taxes using an asset and liability approach. We record the amount of taxes payable or refundable for the
current year and the deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial
statements or tax returns. We record a valuation allowance when it is more likely than not that some or all of the deferred tax assets will
not be realized.
Other assessed taxes
Some transactions require us to collect taxes such as sales, value-added and excise taxes from our customers. These transactions are
presented in our statements of income on a net (excluded from revenue) basis.
Earnings per share (EPS)
Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock units
(RSUs), are considered to be participating securities and the two-class method is used for purposes of calculating EPS. Under the
two-class method, a portion of net income is allocated to these participating securities and, therefore, is excluded from the calculation
of EPS allocated to common stock, as shown in the table below.
Computation and reconciliation of earnings per common share are as follows (shares in millions):
Net Income
2012
Shares
EPS
Net Income
2011
Shares
EPS
Net Income
2010
Shares
EPS
Basic EPS:
Net income . . . . . . . . . . . . . . . . . . .
Less income allocated to RSUs . . . . . . . . .
Income allocated to common stock for basic
$ 1,759
(31)
$ 2,236
(35)
$ 3,228
(44)
EPS calculation . . . . . . . . . . . . . . .
$ 1,728
1,132 $1.53
$ 2,201
1,151 $1.91
$ 3,184
1,199 $2.66
Adjustment for dilutive shares:
Stock-based compensation plans . . . . .
Diluted EPS:
Net income . . . . . . . . . . . . . . . . . . .
Less income allocated to RSUs . . . . . . . . .
Income allocated to common stock for diluted
$ 1,759
(31)
14
20
14
$ 2,236
(34)
$ 3,228
(44)
EPS calculation . . . . . . . . . . . . . . .
$ 1,728
1,146 $1.51
$ 2,202
1,171 $1.88
$ 3,184
1,213 $2.62
Potentially dilutive securities representing 52 million, 24 million and 66 million shares of common stock that were outstanding during
2012, 2011 and 2010, respectively, were excluded from the computation of diluted earnings per common share for these periods
because their effect would have been anti-dilutive.
8 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Investments
We present investments on our balance sheets as cash equivalents, short-term investments or long-term investments. Specific details
are as follows:
• Cash equivalents and short-term investments: We consider investments in debt securities with maturities of 90 days or less from
the date of our investment to be cash equivalents. We consider investments in debt securities with maturities beyond 90 days
from the date of our investment as being available for use in current operations and include these investments in short-term
investments. The primary objectives of our cash equivalent and short-term investment activities are to preserve capital and
maintain liquidity while generating appropriate returns.
• Long-term investments: Long-term investments consist of mutual funds, venture capital funds and non-marketable equity
securities. Prior to the fourth quarter of 2012, this also included auction-rate securities.
• Classification of investments: Depending on our reasons for holding the investment and our ownership percentage, we classify
investments in securities as available for sale, trading, or equity- or cost-method investments, which are more fully described in
Note 9. We determine cost or amortized cost, as appropriate, on a specific identification basis.
Inventories
Inventories are stated at the lower of cost or estimated net realizable value. Cost is generally computed on a currently adjusted
standard cost basis, which approximates cost on a first-in first-out basis. Standard cost is based on the normal utilization of installed
factory capacity. Cost associated with underutilization of capacity is expensed as incurred. Inventory held at consignment locations
is included in our finished goods inventory. Consigned inventory was $169 million and $129 million as of December 31, 2012 and
2011, respectively.
We review inventory quarterly for salability and obsolescence. A specific allowance is provided for inventory considered unlikely to
be sold. Remaining inventory includes a salability and obsolescence allowance based on an analysis of historical disposal activity. We
write off inventory in the period in which disposal occurs.
Property, plant and equipment; acquisition-related intangibles and other capitalized costs
Property, plant and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method.
Our cost basis includes certain assets acquired in business combinations that were initially recorded at fair value as of the date of
acquisition. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease term or the
estimated useful lives of the improvements. We amortize acquisition-related intangibles on a straight-line basis over the estimated
economic life of the assets. Capitalized software licenses generally are amortized on a straight-line basis over the term of the license.
Fully depreciated or amortized assets are written off against accumulated depreciation or amortization.
Impairments of long-lived assets
We regularly review whether facts or circumstances exist that indicate the carrying values of property, plant and equipment or
other long-lived assets, including intangible assets, are impaired. We assess the recoverability of assets by comparing the projected
undiscounted net cash flows associated with those assets to their respective carrying amounts. Any impairment charge is based on the
excess of the carrying amount over the fair value of those assets. Fair value is determined by available market valuations, if applicable,
or by discounted cash flows.
Goodwill and indefinite-lived intangibles
Goodwill is not amortized but is reviewed for impairment annually or more frequently if certain impairment indicators arise. We perform
our annual goodwill impairment tests as of October 1 for our reporting units. The test compares the fair value for each reporting unit to
its associated carrying value including goodwill. See Note 10 for additional information.
Foreign currency
The functional currency for our non-U.S. subsidiaries is the U.S. dollar. Accounts recorded in currencies other than the U.S. dollar are
remeasured into the functional currency. Current assets (except inventories), deferred income taxes, other assets, current liabilities
and long-term liabilities are remeasured at exchange rates in effect at the end of each reporting period. Property, plant and equipment
with associated depreciation and inventories are remeasured at historic exchange rates. Revenue and expense accounts other than
depreciation for each month are remeasured at the appropriate daily rate of exchange. Currency exchange gains and losses from
remeasurement are credited or charged to OI&E.
2 0 1 2 A N N U A L R E P O R T • 9
ANNUAL REPORTTEXAS INSTRUMENTS Derivatives and hedging
In connection with the issuance of variable-rate long-term debt in May 2011, as more fully described in Note 12, we entered into an
interest rate swap designated as a hedge of the variability of cash flows related to interest payments. Gains and losses from changes in
the fair value of the interest rate swap are credited or charged to Accumulated other comprehensive income (loss), net of taxes (AOCI).
We also use derivative financial instruments to manage exposure to foreign exchange risk. These instruments are primarily forward
foreign currency exchange contracts that are used as economic hedges to reduce the earnings impact exchange rate fluctuations
may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these forward
foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency
derivative instruments.
We do not use derivatives for speculative or trading purposes.
Changes in accounting standards
As of December 31, 2012, the Financial Accounting Standards Board had issued several accounting standards that we have not yet
been required to adopt. None of these standards would have a material effect on our financial condition, results of operations or
financial disclosures.
2. Acquisition-related charges
National acquisition
On September 23, 2011, we completed the acquisition of National by acquiring all issued and outstanding common shares in exchange
for total consideration of $6.56 billion. We recognized $3.528 billion of goodwill, which was applied to the Analog segment. None of the
goodwill related to the National acquisition was deductible for tax purposes.
We incurred various costs as a result of the acquisition of National that are included in Other consistent with how management
measures the performance of its segments. These total acquisition-related charges are as follows:
For Years Ended
December 31,
2011
2012
As recorded in COR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor contract termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21
Inventory related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Property, plant and equipment related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
21
325
57
17
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retention bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and other benefits:
Employment reductions announced at closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Change of control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
35
450
$471
Transaction and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As recorded in Acquisition charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
96
15
111
87
46
50
29
41
62
315
$426
In 2011, we discontinued using one of National’s distributors. We acquired the distributor’s inventory at fair value, resulting in an
incremental charge of $21 million to COR upon sale of the inventory in 2012.
At acquisition, we recognized costs associated with the adjustments to write up the value of acquired inventory and property, plant
and equipment to fair value. These costs are in addition to the normal expensing of the acquired assets based on their carrying or book
value prior to the acquisition. The total fair-value write-up of $96 million for the acquired inventory was expensed as that inventory
was sold. The total fair-value write-up for the acquired property, plant and equipment was $436 million. In the fourth quarter of 2011,
depreciation was $15 million. It continues at a declining rate and is no longer separately disclosed as an acquisition-related charge.
1 0 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS The amount of recognized amortization of acquired intangible assets resulting from the National acquisition is based on estimated
useful lives varying between two and ten years. See Note 10 for additional information.
Retention bonuses reflect amounts already or expected to be paid to former National employees who fulfill agreed-upon service
period obligations and are recognized ratably over the required service period.
Stock-based compensation was recognized for the accelerated vesting of equity awards upon the termination of employees, with
additional compensation being recognized over the applicable vesting period for the remaining grantees.
Severance and other benefits costs were for former National employees who were terminated after the closing date. These costs
totaled $70 million for the year ended December 31, 2011, with $41 million in charges related to change of control provisions under
existing employment agreements and $29 million in charges for announced employment reductions affecting about 350 jobs. All of
these jobs were eliminated by the end of 2012 as a result of redundancies and cost efficiency measures, with approximately $16 million
of additional expense recognized in 2012. Of the $86 million in cumulative charges recognized through December 31, 2012, $65 million
was paid in 2012 and $14 million was paid in 2011.
Transaction and other costs include various expenses incurred in connection with the National acquisition. In 2011, we also incurred
bridge financing costs.
In conformance with Accounting Standards Codification (ASC) 805 – Business Combinations, the following unaudited summaries
of pro forma combined results of operation for the years ended December 31, 2011 and 2010, give effect to the acquisition as if it had
been completed on January 1, 2010. These pro forma summaries do not reflect any operating efficiencies, cost savings or revenue
enhancements that may be achieved by the combined companies. In addition, certain non-recurring expenses, such as restructuring
charges and retention bonuses, are not reflected in the pro forma summaries. These pro forma summaries are presented for
informational purposes only and are not indicative of what the actual results of operations would have been had the acquisition taken
place as of that date, nor are they indicative of future consolidated results of operations.
For Years Ended
December 31,
2011
2010
(Unaudited)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share – diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,805
2,438
2.05
$
$15,529
3,218
2.61
$
Other acquisitions
In October 2010, we acquired our first semiconductor manufacturing site in China, located in the Chengdu High-tech Zone. This
acquisition, which was recorded as a business combination, used net cash of $140 million. As contractually agreed, we made an
additional payment of $35 million to the seller in October 2011.
In August 2010, we completed the acquisition of two wafer fabs and equipment in Aizu-Wakamatsu, Japan, for net cash of
$130 million. The acquisition of the fabs and related 200-millimeter equipment was recorded as a business combination for net cash of
$59 million. We also settled a contractual arrangement with a third party for our benefit for net cash of $12 million, which was recorded
as a charge in COR in Other. Additionally, we incurred acquisition-related costs of $1 million, which were recorded in SG&A. This
acquisition also included 300-millimeter production tools, which we recorded as a capital purchase for net cash of $58 million.
The results of operations for these acquisitions have been included in our financial statements from their respective acquisition
dates. Operating results for transitional supply agreements are included in Other. Pro forma financial information for these acquisitions
would not be materially different from amounts reported.
2 0 1 2 A N N U A L R E P O R T • 1 1
ANNUAL REPORTTEXAS INSTRUMENTS 3. Restructuring charges/other
Restructuring charges/other is comprised of the following components:
For Years Ended
December 31,
2011
2010
2012
Restructuring charges by action:
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 Wireless action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008/2009 actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 261
90
351
49
—
$ — $ —
—
—
—
33
—
—
112
—
Other:
Gain on transfer of Japan substitutional pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on divested product line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges/other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(144)
—
8
$ 264
—
—
—
$112
—
(144)
—
$ (111)
Restructuring charges/other recognized by segment are as follows:
For Years Ended
December 31,
2011
2010
2012
Analog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Embedded Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wireless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $
—
351
(87)
$ 264
—
—
112
$112
13
6
10
(140)
$ (111)
Restructuring charges
Restructuring charges may consist of voluntary or involuntary severance-related charges, asset-related charges and other costs to
exit activities. We recognize voluntary termination benefits when the employee accepts the offered benefit arrangement. We recognize
involuntary severance-related charges depending on whether the termination benefits are provided under an ongoing benefit
arrangement or under a one-time benefit arrangement. If the former, we recognize the charges once they are probable and the amounts
are estimable. If the latter, we recognize the charges once the benefits have been communicated to employees.
Restructuring activities associated with assets are recorded as an adjustment to the basis of the asset, not as a liability. When we
commit to a plan to abandon a long-lived asset before the end of its previously estimated useful life, we accelerate the recognition of
depreciation to reflect the use of the asset over its shortened useful life. When an asset is held to be sold, we write down the carrying
value to its net realizable value and cease depreciation. Restructuring actions may be viewed as an impairment indicator requiring
testing of the recoverability of intangible assets, including goodwill.
2012 Wireless action
In November 2012, we announced an action concerning our Wireless business that, when complete, is expected to reduce annualized
expenses by about $450 million and will focus our investments on embedded markets with greater potential for sustainable growth.
About 1,700 jobs worldwide are expected to be eliminated. The total restructuring charges related to this action will be about
$360 million, of which about $245 million will be for severance and related benefits. We recognized $351 million of these costs in the
fourth quarter of 2012 consisting of: $245 million for severance and benefit costs and other non-cash items of $3 million of accelerated
depreciation of the affected facilities’ assets, $13 million for other exit costs and $90 million for the non-tax deductible impairment of
goodwill. See Note 10 for additional information on the goodwill impairment charge. We estimate that this action will be substantially
complete by the end of 2013. As of December 31, 2012, $4 million has been paid to terminated employees for severance and benefits
related to this action.
1 2 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS 2011 action
Beginning in the fourth quarter of 2011, we recognized restructuring charges associated with the announced plans to close two older
semiconductor manufacturing facilities in Hiji, Japan, and Houston, Texas, in 2013. Each facility employed about 500 people. The
total charge for these closures is estimated at $215 million, of which $161 million has been recognized through December 31, 2012,
consisting of: $113 million for severance and benefit costs, $23 million of accelerated depreciation of the facilities’ assets and
$25 million for other exit costs. Of the estimated $215 million total cost, about $135 million will be for severance and related benefits,
about $30 million will be for accelerated depreciation of facility assets and about $50 million will be for other exit costs. In 2012,
$11 million was paid to terminated employees for severance and benefits related to this action.
The restructuring action related to the acquisition of National is discussed in Note 2 and is reflected in Acquisition charges in our
Consolidated statements of income.
2008/2009 actions
In October 2008, we announced actions to reduce expenses in our Wireless segment, especially our baseband operation. In
January 2009, we announced actions that included broad-based employment reductions to align our spending with weakened demand.
Combined, these actions eliminated about 3,900 jobs; they were completed in 2009.
The table below reflects the changes in accrued restructuring balances associated with these actions:
2012 Action
2011 Action
2008/2009 Actions
Severance
and Benefits
Other
Charges
Severance
and Benefits
Other
Charges
Severance
and Benefits
Other
Charges
Accrual at December 31, 2009 . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . .
Non-cash items (a) . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . .
Remaining accrual at December 31, 2010 . . . . .
Restructuring charges . . . . . . . . . . . . . . .
Non-cash items (a) . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . .
Remaining accrual at December 31, 2011 . . . . .
Restructuring charges . . . . . . . . . . . . . .
Non-cash items (a) . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . .
Remaining accrual at December 31, 2012 . . . .
$ —
—
—
—
—
—
—
—
—
245
—
(4)
$241
$ —
—
—
—
—
—
—
—
—
106
(106)
—
$ —
$ —
—
—
—
—
107
(11)
—
96
6
3
(11)
$ 94
$ —
—
—
—
—
5
(5)
—
—
43
(18)
(22)
$ 3
$ 84
33
(33)
(62)
22
—
—
(9)
13
—
—
(8)
$ 5
$ 10
—
—
(2)
8
—
—
(1)
7
—
—
(1)
$ 6
Total
$ 94
33
(33)
(64)
30
112
(16)
(10)
116
400
(121)
(46)
$ 349
(a) Reflects charges for goodwill impairment, stock-based compensation, impacts of postretirement benefit plans and
accelerated depreciation.
The accrual balances above are a component of Accrued expenses and other liabilities or Deferred credits and other liabilities on our
Consolidated balance sheets, depending on the expected timing of payment.
Other
Gain on transfer of Japan substitutional pension
During the third quarter of 2012, we transferred the obligations and assets of the substitutional portion of our Japan pension program
from the pension trust to the government of Japan, resulting in a net gain of $144 million. See Note 11 for additional details.
Gain on divested product line
In November 2010, we divested a product line previously included in Other for $148 million and recognized a gain in operating profit of
$144 million.
2 0 1 2 A N N U A L R E P O R T • 1 3
ANNUAL REPORTTEXAS INSTRUMENTS 4. Losses associated with the 2011 earthquake in Japan
On March 11, 2011, a magnitude 9.0 earthquake struck near two of our three semiconductor manufacturing facilities in Japan. Our
manufacturing site in Miho suffered substantial damage during the earthquake, our facility in Aizu experienced significantly less damage
and our site in Hiji was undamaged. We maintain earthquake insurance policies in Japan for limited coverage for property damage and
business interruption losses.
In 2011, we incurred cumulative gross operating losses of $101 million related to the earthquake and associated events in Japan.
These losses related to property damage, the underutilization expense we incurred from having our manufacturing assets only partially
loaded and costs associated with recovery teams assembled from across the world. Gross operating losses do not comprehend any
lost revenue.
These losses have been offset by $36 million in cumulative insurance proceeds related to property damage claims ($23 million
received in 2011 and $13 million for 2012). Almost all of these costs and proceeds are included in COR in our Consolidated statements
of income and are recorded in Other.
In addition, we recognized $172 million in cumulative insurance proceeds through December 31, 2012, ($135 million received
in 2012 and $37 million received in 2011) related to business interruption claims. These proceeds are recorded as revenue in our
Consolidated statements of income and in Other.
In the third quarter of 2012, we completed discussions with our insurers and their advisors, settling all associated claims against our
policies. All claims related to these events have been settled and the proceeds received.
5. Stock-based compensation
We have stock options outstanding to participants under various long-term incentive plans. We also have assumed stock options that
were granted by companies that we later acquired. Unless the options are acquisition-related replacement options, the option price
per share may not be less than 100 percent of the fair market value of our common stock on the date of the grant. Substantially all the
options have a ten-year term and vest ratably over four years. Our options generally continue to vest after the option recipient retires.
We also have RSUs outstanding under the long-term incentive plans. Each RSU represents the right to receive one share of TI
common stock on the vesting date, which is generally four years after the date of grant. Upon vesting, the shares are issued without
payment by the grantee. RSUs generally do not continue to vest after the recipient’s retirement date. Holders of most RSUs receive an
annual cash payment equal to the dividends paid on our common stock.
We have options and RSUs outstanding to non-employee directors under various director compensation plans. The plans generally
provide for annual grants of stock options and RSUs, a one-time grant of RSUs to each new non-employee director and the issuance of
TI common stock upon the distribution of stock units credited to deferred compensation accounts established for such directors.
We also have an employee stock purchase plan under which options are offered to all eligible employees in amounts based on a
percentage of the employee’s compensation, subject to a cap. Under the plan, the option price per share is 85 percent of the fair market
value on the exercise date, and options have a three-month term.
Total stock-based compensation expense recognized was as follows:
For Years Ended
December 31,
2011
2010
2012
Stock-based compensation expense recognized in:
Cost of revenue (COR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development (R&D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative (SG&A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48
71
127
17
$263
$ 40
58
121
50
$269
$ 36
53
101
—
$190
These amounts include expense related to non-qualified stock options, RSUs and stock options offered under our employee stock
purchase plan and are net of expected forfeitures.
We issue awards of non-qualified stock options generally with graded vesting provisions (e.g., 25 percent per year for four years).
We recognize the related compensation cost on a straight-line basis over the minimum service period required for vesting of the award.
For awards to employees who are retirement eligible or nearing retirement eligibility, we recognize compensation cost on a straight-line
basis over the longer of the service period required to be performed by the employee in order to earn the award, or a six-month period.
Our RSUs generally vest four years after the date of grant. We recognize the related compensation costs on a straight-line basis over
the vesting period.
1 4 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Fair-value methods and assumptions
We account for all awards granted under our various stock-based compensation plans at fair value. We estimate the fair values for
non-qualified stock options under long-term incentive and director compensation plans using the Black-Scholes option-pricing model
with the following weighted average assumptions.
2012
2011
2010
Weighted average grant date fair value, per share . . . . . . . . . . . . . . . . . . . . . . . . . . . $8.31
Weighted average assumptions used:
$10.37
$ 6.61
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected lives (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30%
7.1
1.40%
2.10%
30%
6.9
2.61%
1.51%
32%
6.4
2.83%
2.08%
We determine expected volatility on all options granted after July 1, 2005, using available implied volatility rates. We believe that
market-based measures of implied volatility are currently the best available indicators of the expected volatility used in these estimates.
We determine expected lives of options based on the historical option exercise experience of our optionees using a rolling ten-year
average. We believe the historical experience method is the best estimate of future exercise patterns currently available.
Risk-free interest rates are determined using the implied yield currently available for zero-coupon U.S. government issues with a
remaining term equal to the expected life of the options.
Expected dividend yields are based on the approved annual dividend rate in effect and the current market price of our common
stock at the time of grant. No assumption for a future dividend rate change is included unless there is an approved plan to change the
dividend in the near term.
The fair value per share of RSUs that we grant is determined based on the closing price of our common stock on the date of grant.
Our employee stock purchase plan is a discount-purchase plan and consequently the Black-Scholes option-pricing model is not
used to determine the fair value per share of these awards. The fair value per share under this plan equals the amount of the discount.
Long-term incentive and director compensation plans
Stock option and RSU transactions under our long-term incentive and director compensation plans during 2012 were as follows:
Outstanding grants, December 31, 2011 . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired and forfeited . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding grants, December 31, 2012 . . . . . . . . . . . .
Stock Options
RSUs
Shares
113,273,394
13,508,034
—
(4,732,514)
(22,409,816)
99,639,098
Weighted
Average Exercise
Price per Share
$ 25.79
32.35
—
29.78
20.32
$ 27.73
Shares
23,358,846
5,617,150
(4,182,928)
(1,417,834)
—
23,375,234
Weighted Average
Grant Date
Fair Value per
Share
$ 25.09
31.60
28.66
26.76
—
$ 25.91
The weighted average grant date fair value of RSUs granted during the years 2012, 2011 and 2010 was $31.60, $33.20 and $23.47 per
share, respectively. For the years ended December 31, 2012, 2011 and 2010, the total fair value of shares vested from RSU grants was
$120 million, $155 million and $51 million, respectively.
Summarized information about stock options outstanding at December 31, 2012, is as follows:
Range of
Exercise
Price
$ 9.56 to 10.00
10.01 to 20.00
20.01 to 30.00
30.01 to 38.40
$ 9.56 to 38.40
Number
Outstanding
(Shares)
4,882
13,179,570
34,637,310
51,817,336
99,639,098
Stock Options Outstanding
Weighted Average
Remaining Contractual
Life (Years)
Weighted Average
Exercise Price per
Share
0.8
4.5
4.8
4.9
4.8
$ 9.56
15.32
24.86
32.81
$ 27.73
Options Exercisable
Number
Exercisable
(Shares)
4,882
9,619,657
27,154,258
31,755,628
68,534,425
Weighted Average
Exercise Price per
Share
$ 9.56
15.43
25.33
32.59
$ 27.30
During the years ended December 31, 2012, 2011 and 2010, the aggregate intrinsic value (i.e., the difference in the closing market
price and the exercise price paid by the optionee) of options exercised was $244 million, $231 million and $140 million, respectively.
2 0 1 2 A N N U A L R E P O R T • 1 5
ANNUAL REPORTTEXAS INSTRUMENTS Summarized information as of December 31, 2012, about outstanding stock options that are vested and expected to vest, as well as
stock options that are currently exercisable, is as follows:
Outstanding Stock Options (Fully
Vested and Expected to Vest) (a)
Options
Exercisable
Number of outstanding (shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average remaining contractual life (in years) . . . . . . . . . . . . . . . . . . .
Weighted average exercise price per share . . . . . . . . . . . . . . . . . . . . . . . . .
Intrinsic value (millions of dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,121,395
4.7
28.75
398
$
$
68,534,425
3.3
27.30
300
$
$
(a) Includes effects of expected forfeitures of approximately 4 million shares. Excluding the effects of expected forfeitures, the
aggregate intrinsic value of stock options outstanding was $414 million.
As of December 31, 2012, the total future compensation cost related to equity awards not yet recognized in the Consolidated statements
of income was $460 million, consisting of $143 million related to unvested stock options and $317 million related to RSUs. The
$460 million will be recognized as follows: $205 million in 2013, $153 million in 2014, $94 million in 2015 and $8 million in 2016.
Employee stock purchase plan
Options outstanding under the employee stock purchase plan at December 31, 2012, had an exercise price of $27.47 per share
(85 percent of the fair market value of TI common stock on the date of automatic exercise). Of the total outstanding options, none were
exercisable at year-end 2012.
Employee stock purchase plan transactions during 2012 were as follows:
Outstanding grants, December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding grants, December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Stock
Purchase Plan
(Shares)
580,095
2,931,354
(2,829,498)
681,951
Exercise Price
$ 25.29
25.64
25.12
$ 27.47
The weighted average grant date fair value of options granted under the employee stock purchase plans during the years 2012, 2011
and 2010 was $4.52, $4.59 and $3.97 per share, respectively. During the years ended December 31, 2012, 2011 and 2010, the total
intrinsic value of options exercised under these plans was $13 million, $10 million and $9 million, respectively.
Effect on shares outstanding and treasury shares
Our practice is to issue shares of common stock upon exercise of stock options generally from treasury shares and, on a limited basis,
from previously unissued shares. We settled stock option plan exercises using treasury shares of 25,064,951 in 2012; 27,308,311 in
2011 and 19,077,274 in 2010; and previously unissued common shares of 180,955 in 2012; 390,438 in 2011 and 342,380 in 2010.
Upon vesting of RSUs, we issued treasury shares of 3,187,490 in 2012; 3,748,623 in 2011 and 1,392,790 in 2010, and previously
unissued common shares of 4,593 in 2012; 73,852 in 2011, with none in 2010.
Shares available for future grant and reserved for issuance are summarized below:
Shares
As of December 31, 2012
Long-term Incentive
and Director
Compensation Plans
Employee Stock
Purchase Plan
Total
Reserved for issuance (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares to be issued upon exercise of outstanding options and RSUs . . . . .
Available for future grants . . . . . . . . . . . . . . . . . . . . . . . . . . . .
197,554,600
(123,143,365)
74,411,235
25,137,819
(681,951)
24,455,868
222,692,419
(123,825,316)
98,867,103
(a) Includes 129,033 shares credited to directors’ deferred compensation accounts that settle in shares of TI common stock. These
shares are not included as grants outstanding at December 31, 2012.
Effect on cash flows
Cash received from the exercise of options was $523 million in 2012, $690 million in 2011 and $407 million in 2010. The related net tax
impact realized was $56 million, $45 million and $21 million (which includes excess tax benefits realized of $38 million, $31 million and
$13 million) in 2012, 2011 and 2010, respectively.
1 6 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS 6. Profit sharing plans
Profit sharing benefits are generally formulaic and determined by one or more subsidiary or company-wide financial metrics. We pay
profit sharing benefits primarily under the company-wide TI Employee Profit Sharing Plan. This plan provides for profit sharing to be paid
based solely on TI’s operating margin for the full calendar year. Under this plan, TI must achieve a minimum threshold of 10 percent
operating margin before any profit sharing is paid. At 10 percent operating margin, profit sharing will be 2 percent of eligible payroll. The
maximum amount of profit sharing available under the plan is 20 percent of eligible payroll, which is paid only if TI’s operating margin is
at or above 35 percent for a full calendar year.
We recognized $96 million, $143 million and $279 million of profit sharing expense under the TI Employee Profit Sharing Plan in
2012, 2011 and 2010, respectively.
7. Income taxes
Income before income taxes
U.S.
Non-U.S.
Total
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 319
1,791
3,769
$1,616
1,164
782
$ 1,935
2,955
4,551
Provision (benefit) for income taxes
U.S. Federal
Non-U.S.
U.S. State
Total
2012:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (43)
—
$ (43)
2011:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 692
(154)
$ 538
$ 156
65
$ 221
$ 138
24
$ 162
2010:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,401
(188)
$1,213
$ 92
(2)
$ 90
Principal reconciling items from income tax computed at the statutory federal rate follow:
$ (2)
—
$ (2)
$ 111
65
$ 176
$ 8
11
$ 19
$ 18
2
$ 20
$ 838
(119)
$ 719
$ 1,511
(188)
$ 1,323
Computed tax at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. effective tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax benefit for manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impact of changes to uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. R&D tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 677
(345)
(158)
(88)
42
—
48
$ 176
$1,034
(245)
(31)
—
27
(58)
(8 )
$ 719
$1,593
(184)
(63)
—
10
(54)
21
$1,323
2012
2011
2010
The total provision for 2012 in the reconciliation above includes $252 million of discrete tax benefits primarily for additional U.S. tax
benefits for manufacturing related to the years 2000 through 2011.
2 0 1 2 A N N U A L R E P O R T • 1 7
ANNUAL REPORTTEXAS INSTRUMENTS The primary components of deferred income tax assets and liabilities were as follows:
Deferred income tax assets:
Inventories and related reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loss and tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefit costs recognized in AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities:
Acquisition-related intangibles and fair-value adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued retirement costs (defined benefit and retiree health care) . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
December 31,
2012
2011
734
382
366
357
331
209
2,379
(221)
2,158
(921)
(243)
(131)
(102)
(11)
(1,408)
750
$
913
400
357
431
322
122
2,545
(178)
2,367
(1,030)
(180)
(141)
(92)
(36)
(1,479)
888
$
The deferred income tax assets and liabilities based on tax jurisdictions are presented on the Consolidated balance sheets as follows:
December 31,
2012
2011
Current deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred income tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,044
280
(2)
(572)
750
$
$ 1,174
321
—
(607)
888
$
We make an ongoing assessment regarding the realization of U.S. and non-U.S. deferred tax assets. In 2012, we recognized a net
increase of $43 million in our valuation allowance. This increase was due to valuation allowances on unutilized tax credits. While the net
deferred tax assets of $2.16 billion at December 31, 2012, are not assured of realization, our assessment is that a valuation allowance
is not required on this balance. This assessment is based on our evaluation of relevant criteria including the existence of deferred
tax liabilities that can be used to absorb deferred tax assets, taxable income in prior carryback years and expectations for future
taxable income.
We have U.S. and non-U.S. tax loss carryforwards of approximately $175 million, none of which will expire before the year 2023.
A provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend
payments from these subsidiaries are expected to result in additional tax liability. The remaining undistributed earnings (approximately
$5.54 billion at December 31, 2012) have been indefinitely reinvested; therefore, no provision has been made for taxes due upon
remittance of these earnings. The indefinitely reinvested earnings of our non-U.S. subsidiaries are primarily invested in tangible assets
such as inventory and property, plant and equipment. Determination of the amount of unrecognized deferred income tax liability is not
practical because of the complexities associated with its hypothetical calculation.
Cash payments made for income taxes, net of refunds, were $171 million, $902 million and $1.47 billion for the years ended
December 31, 2012, 2011 and 2010, respectively.
1 8 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Uncertain tax positions
We operate in a number of tax jurisdictions, and our income tax returns are subject to examination by tax authorities in those
jurisdictions who may challenge any item on these tax returns. Because the matters challenged by authorities are typically complex,
their ultimate outcome is uncertain. Before any benefit can be recorded in the financial statements, we must determine that it is “more
likely than not” that a tax position will be sustained by the appropriate tax authorities. We recognize accrued interest related to uncertain
tax positions and penalties as components of OI&E.
The changes in the total amounts of uncertain tax positions are summarized as follows:
2012
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $210
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . . . . . . .
12
Additions from the acquisition of National . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(92)
Settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39
Expiration of the statute of limitations for assessing taxes . . . . . . . . . . . . . . . . . . . . . . . .
(30)
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $184
Interest income (expense) recognized in the year ended December 31 . . . . . . . . . . . . . . . . . . $ 32
8
Interest receivable (payable) as of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2011
$103
15
132
3
(39)
(4)
—
$210
$
1
$ (3)
2010
$ 56
12
—
50
(12)
(3)
—
$103
$ (2)
5
$
The liability for uncertain tax positions is a component of Deferred credits and other liabilities on our December 31, 2012, balance sheet.
The interest receivable is a component of Other assets on our December 31, 2012, balance sheet.
Within the $184 million liability for uncertain tax positions as of December 31, 2012, are positions totaling $159 million that, if
recognized, would impact the tax rate. If these tax liabilities are ultimately realized, $78 million of existing deferred tax assets would
also be realized, primarily related to refunds from counterparty jurisdictions resulting from procedures for relief from double taxation.
Regarding the $184 million liability:
• About $60 million of the liability represents uncertain tax positions for tax years in jurisdictions in which audit assessments have
not been made. The liability is primarily related to transfer pricing issues for which procedures for relief from double taxation will
mitigate the tax rate impact of any difference between the actual tax assessments and our estimates. The increase in the liability
for transfer pricing issues for the next 12 months is expected to be about $10 million.
• About $30 million of the liability represents audit assessments subject to ongoing procedures for relief from double taxation.
Settlement of the $30 million is subject to timely completion of the tax treaty processes and may be settled within the next
12 months. Settlement would not have a significant tax rate impact, as the tax rates of the counterparty jurisdictions are similar.
• The balance of the liability represents tax adjustments that are known and currently before the tax authorities or otherwise
identified by the company as adjustments to filed returns. Settlement of these matters at the known amounts will not have any
additional tax rate impact. Based on the expected settlement dates of various income tax examinations, the anticipated reduction
in these uncertain tax positions during the next 12 months could range between about $30 million and $60 million.
Within the $210 million liability for uncertain tax positions as of December 31, 2011, are uncertain tax positions totaling $233 million
that, if recognized, would impact the tax rate. If these tax liabilities are ultimately realized, $83 million of deferred tax assets would also
be realized, primarily related to refunds from counterparty jurisdictions resulting from procedures for relief from double taxation.
As of December 31, 2012, the statute of limitations remains open for U.S. federal tax returns for 2000 and following years. Audit
activities related to our U.S. federal tax returns through 2008 have been completed except for certain pending tax treaty procedures for
relief from double taxation. These procedures pertain to U.S. federal tax returns for the years 2003 through 2008. U.S. federal tax returns
for National are currently under audit for tax years through fiscal year 2012.
In non-U.S. jurisdictions, the years open to audit represent the years still open under the statute of limitations. With respect to major
jurisdictions outside the U.S., our subsidiaries are no longer subject to income tax audits for years before 2005.
2 0 1 2 A N N U A L R E P O R T • 1 9
ANNUAL REPORTTEXAS INSTRUMENTS 8. Financial instruments and risk concentration
Financial instruments
We hold derivative financial instruments such as forward foreign currency exchange contracts and interest rate swaps, the fair
value of which was not material as of December 31, 2012. Our forward foreign currency exchange contracts outstanding as of
December 31, 2012, had a notional value of $305 million to hedge our non-U.S. dollar net balance sheet exposures, including
$140 million to sell Japanese yen, $26 million to sell Chinese yuan and $26 million to sell British pound sterling.
Our investments in cash equivalents, short-term investments and certain long-term investments, as well as our postretirement plan
assets and deferred compensation liabilities, are carried at fair value, which is described in Note 9. The carrying values for other current
financial assets and liabilities, such as accounts receivable and accounts payable, approximate fair value due to the short maturity of
such instruments. The carrying value of our long-term debt approximates the fair value as measured using broker-dealer quotes, which
are Level 2 inputs. See Note 9 for the definition of Level 2 inputs.
Risk concentration
Financial instruments that could subject us to concentrations of credit risk are primarily cash, cash equivalents, short-term investments
and accounts receivable. To manage our credit risk exposure, we place cash investments in investment-grade debt securities and limit
the amount of credit exposure to any one issuer. We also limit counterparties on financial derivative contracts to financial institutions
with investment-grade ratings.
Concentrations of credit risk with respect to accounts receivable are limited due to our large number of customers and their
dispersion across different industries and geographic areas. We maintain allowances for expected returns, disputes, adjustments,
incentives and collectability. These allowances are deducted from accounts receivable on our Consolidated balance sheets.
Details of these Accounts receivable allowances are as follows:
Accounts receivable allowances
Balance at
Beginning of Year
Additions Charged
(Credited) to
Operating Results
Recoveries and
Write-offs, Net
Balance at
End of Year
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19
18
23
$12
1
(4)
$ —
—
(1)
$31
19
18
9. Valuation of debt and equity investments and certain liabilities
Debt and equity investments
We classify our investments as available for sale, trading, equity method or cost method. Most of our investments are classified as
available for sale.
Available-for-sale and trading securities are stated at fair value, which is generally based on market prices, broker quotes or, when
necessary, financial models (see fair-value discussion below). Unrealized gains and losses on available-for-sale securities are recorded
as an increase or decrease, net of taxes, in AOCI on our Consolidated balance sheets. We record other-than-temporary impairments on
available-for-sale securities in OI&E in our Consolidated statements of income.
We classify certain mutual funds as trading securities. These mutual funds hold a variety of debt and equity investments intended
to generate returns that offset changes in certain deferred compensation liabilities. We record changes in the fair value of these mutual
funds and the related deferred compensation liabilities in SG&A. Changes in the fair value of debt securities classified as trading
securities are recorded in OI&E.
Our other investments are not measured at fair value but are accounted for using either the equity method or cost method.
These investments consist of interests in venture capital funds and other non-marketable equity securities. Gains and losses from
equity-method investments are reflected in OI&E based on our ownership share of the investee’s financial results. Gains and losses on
cost-method investments are recorded in OI&E when realized or when an impairment of the investment’s value is warranted based on
our assessment of the recoverability of each investment.
2 0 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Details of our investments and related unrealized gains and losses included in AOCI are as follows:
December 31, 2012
December 31, 2011
Cash and
Cash
Equivalents
Short-term
Investments
Long-term
Investments
Cash and
Cash
Equivalents
Short-term
Investments
Long-term
Investments
Measured at fair value:
Available-for-sale securities
Money market funds . . . . . . . . . . . . . . . . .
Corporate obligations . . . . . . . . . . . . . . . . .
U.S. Government agency and Treasury securities . . .
Auction-rate securities . . . . . . . . . . . . . . . .
$ 211
188
795
—
Trading securities
Auction-rate securities . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
1,194
Other measurement basis:
Equity-method investments . . . . . . . . . . . . .
Cost-method investments . . . . . . . . . . . . . .
Cash on hand . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
222
$ 1,416
Amounts included in AOCI from
available-for-sale securities:
$ —
325
2,224
—
—
—
2,549
—
—
—
$ 2,549
$ —
—
—
—
—
159
159
34
22
—
$ 215
$ 55
135
430
—
—
—
620
—
—
372
$ 992
$ —
159
1,691
—
93
—
1,943
—
—
—
$ 1,943
$ —
—
—
41
—
169
210
32
23
—
$ 265
Unrealized gains (pre-tax) . . . . . . . . . . . . . . . .
Unrealized losses (pre-tax) . . . . . . . . . . . . . . . .
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
$ —
5
$
At December 31, 2012, we had no significant unrealized losses associated with our available-for-sale investments. We have determined
that our remaining available-for-sale investments with unrealized losses are not other-than-temporarily impaired as we expect to
recover the entire cost basis of these securities. We do not intend to sell these investments, nor do we expect to be required to sell
these investments, before a recovery of the cost basis. We did not recognize any credit losses related to available-for-sale investments
for the years ended December 31, 2012 and 2011. During the third quarter of 2012, we sold all of our remaining investments in
auction-rate securities.
For the years ended December 31, 2012, 2011 and 2010, the proceeds from sales, redemptions and maturities of short-term
available-for-sale investments were $2.20 billion, $3.55 billion and $2.56 billion, respectively. Gross realized gains and losses from
these sales were not significant.
The following table presents the aggregate maturities of investments in debt securities classified as available for sale at
December 31, 2012:
Due
Fair Value
One year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
One to three years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,343
400
Gross realized gains and losses from sales of long-term investments were not significant for 2012, 2011 or 2010. Other-than-temporary
declines and impairments in the values of these investments recognized in OI&E were $7 million, $2 million and $1 million in 2012,
2011 and 2010, respectively.
2 0 1 2 A N N U A L R E P O R T • 2 1
ANNUAL REPORTTEXAS INSTRUMENTS Fair-value considerations
We measure and report certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date.
The three-level hierarchy discussed below indicates the extent and level of judgment used to estimate fair-value measurements.
Level 1 – Uses unadjusted quoted prices that are available in active markets for identical assets or liabilities as of the reporting date.
Level 2 – Uses inputs other than Level 1 that are either directly or indirectly observable as of the reporting date through correlation
with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets
that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies
that do not require significant judgment since the input assumptions used in the models, such as interest rates and
volatility factors, are corroborated by readily observable data. Our Level 2 assets consist of corporate obligations and
some U.S. government agency and Treasury securities. We utilize a third-party data service to provide Level 2 valuations,
verifying these valuations for reasonableness relative to unadjusted quotes obtained from brokers or dealers based on
observable prices for similar assets in active markets.
Level 3 – Uses inputs that are unobservable, supported by little or no market activity and reflect the use of significant management
judgment. These values are generally determined using pricing models that utilize management estimates of market
participant assumptions.
The following are our assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2012 and
2011. These tables do not include cash on hand, assets held by our postretirement plans, or assets and liabilities that are measured at
historical cost or any basis other than fair value.
Fair Value
December 31, 2012
Level 1
Level 2
Level 3
Assets
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government agency and Treasury securities . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 211
513
3,019
159
$ 3,902
$ 211
—
1,145
159
$ 1,515
$ — $ —
—
—
—
$ —
513
1,874
—
$ 2,387
Liabilities
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 174
$ 174
$ 174
$ 174
$ — $ —
$ — $ —
Fair Value
December 31, 2011
Level 1
Level 2
Level 3
Assets
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government agency and Treasury securities . . . . . . . . . . . . . . . . .
Auction-rate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
55
294
2,121
134
169
$ 2,773
$
55
—
606
—
169
$ 830
$ — $ —
—
—
134
—
$ 134
294
1,515
—
—
$ 1,809
Liabilities
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 191
$ 191
$ 191
$ 191
$ — $ —
$ — $ —
2 2 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS The following table summarizes the change in the fair values for Level 3 assets and liabilities for the years ended December 31, 2012
and 2011.
Balance, December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration – included in operating profit . . . . . . . . . . . . . . . .
Change in unrealized loss – included in AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized loss – included in AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10. Goodwill and acquisition-related intangibles
Level 3
Auction-rate
Securities
Contingent
Consideration
$ 257
—
(1)
(122)
134
13
(84)
(63)
$ —
$ 8
(8)
—
—
—
—
—
—
$ —
The following table summarizes the changes in goodwill by segment for the years ended December 31, 2012 and 2011.
Goodwill, December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
Additions from acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . .
Analog
$ 630
3,528
4,158
—
$ 4,158
Embedded
Processing
Wireless
Other
Total
$ 172
—
172
—
$ 172
$ 90
—
90
(90)
$ —
$ 32
—
32
—
$ 32
$ 924
3,528
4,452
(90)
$ 4,362
We performed our annual goodwill impairment test as of October 1, 2012, and determined the fair value of each of our reporting
units was in excess of its carrying value. Determination of fair value was based upon management estimates and judgment, using
unobservable inputs in discounted cash flow models to calculate the fair value of each reporting unit. These unobservable inputs are
considered Level 3 measurements.
In November 2012, as a result of unsuccessful efforts to divest certain product lines in the Wireless business and the subsequent
decision to restructure and wind down those product lines, we reassessed the recoverability of the goodwill associated with the Wireless
segment. We determined its fair value, using a discounted cash flow analysis, was less than the carrying amount and, therefore,
performed the required second step of the impairment analysis to determine the amount of the impairment charge. We deducted the
fair value of the Wireless segment from the total of the estimated fair values of the segment’s identifiable assets and liabilities, including
intangible assets with no carrying value. This calculation resulted in an implied negative fair value of goodwill. As a result, we recognized
a non-cash, non-tax deductible impairment charge of $90 million for all the associated goodwill of this segment. We recognized this
impairment in Restructuring charges/other in the Consolidated statements of income, as discussed in Note 3. There was no impairment
of goodwill during 2011 or 2010.
2 0 1 2 A N N U A L R E P O R T • 2 3
ANNUAL REPORTTEXAS INSTRUMENTS The addition to Analog goodwill in 2011 was from the National acquisition. We also recognized other intangible assets associated with
this acquisition of $2.96 billion, primarily for developed technology and customer relationships. In 2012, we had no additional intangible
assets from an acquisition. The components of acquisition-related intangible assets as of December 31, 2012 and 2011, are as follows:
December 31, 2012
December 31, 2011
Amortization
Period
(Years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
Acquisition-related intangibles:
Developed technology . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . .
Other intangibles . . . . . . . . . . . . . . . . .
In-process R&D . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
4 - 10
5 - 8
2 - 7
(a)
$ 2,145
821
46
31
$ 3,043
$ 312
137
36
n/a
$ 485
$ 1,833 $ 2,089
822
50
93
$ 2,558 $ 3,054
684
10
31
$ 91
34
29
n/a
$ 154
$ 1,998
788
21
93
$ 2,900
(a) In-process R&D is not amortized until the associated project has been completed. Alternatively, if the associated project is
determined not to be viable, it will be expensed.
Amortization of acquisition-related intangibles was $342 million, $111 million and $48 million for 2012, 2011 and 2010, respectively,
primarily related to developed technology. Amortization expenses related to the National acquisition were $325 million and $87 million
for 2012 and 2011, respectively. Future estimated amortization of acquisition-related intangibles for the years ended December 31 is
as follows:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 335
321
319
319
318
946
11. Postretirement benefit plans
Plan descriptions
We have various employee retirement plans including defined benefit, defined contribution and retiree health care benefit plans. For
qualifying employees, we offer deferred compensation arrangements. As a part of the National acquisition, we assumed the assets and
liabilities of its defined benefit plans, primarily those associated with the United Kingdom and Germany.
U.S. retirement plans:
Our principal retirement plans in the U.S. are qualified and non-qualified defined benefit pension plans (all of which were closed to new
participants after November 1997), a defined contribution plan and an enhanced defined contribution plan. The defined benefit pension
plans include employees still accruing benefits as well as employees and participants who no longer accrue service-related benefits, but
instead, may participate in the enhanced defined contribution plan.
Both defined contribution plans offer an employer-matching savings option that allows employees to make pre-tax contributions to
various investment choices, including a TI common stock fund. Employees who elected to continue accruing a benefit in the qualified
defined benefit pension plans may also participate in the defined contribution plan, where employer-matching contributions are
provided for up to 2 percent of the employee’s annual eligible earnings. Employees who elected not to continue accruing a benefit in
the defined benefit pension plans, and employees hired after November 1997 and through December 31, 2003, may participate in the
enhanced defined contribution plan. This plan provides for a fixed employer contribution of 2 percent of the employee’s annual eligible
earnings, plus an employer-matching contribution of up to 4 percent of the employee’s annual eligible earnings. Employees hired after
December 31, 2003, do not receive the fixed employer contribution of 2 percent of the employee’s annual eligible earnings.
At December 31, 2012 and 2011, as a result of employees’ elections, TI’s U.S. defined contribution plans held shares of TI common
stock totaling 20 million shares and 22 million shares valued at $610 million and $639 million, respectively. Dividends paid on these
shares for 2012 and 2011 were $16 million and $13 million, respectively.
Our aggregate expense for the U.S. defined contribution plans was $70 million in 2012, $55 million in 2011 and $50 million in 2010.
2 4 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Benefits under the qualified defined benefit pension plan are determined using a formula based upon years of service and
the highest five consecutive years of compensation. We intend to contribute amounts to this plan to meet the minimum funding
requirements of applicable local laws and regulations, plus such additional amounts as we deem appropriate. The non-qualified defined
benefit plans are unfunded and closed to new participants.
U.S. retiree health care benefit plan:
U.S. employees who meet eligibility requirements are offered medical coverage during retirement. We make a contribution toward
the cost of those retiree medical benefits for certain retirees and their dependents. The contribution rates are based upon various
factors, the most important of which are an employee’s date of hire, date of retirement, years of service and eligibility for Medicare
benefits. The balance of the cost is borne by the plan’s participants. Employees hired after January 1, 2001, are responsible for the full
cost of their medical benefits during retirement.
Non-U.S. retirement plans:
We provide retirement coverage for non-U.S. employees, as required by local laws or to the extent we deem appropriate, through a
number of defined benefit and defined contribution plans. Retirement benefits are generally based on an employee’s years of service
and compensation. Funding requirements are determined on an individual country and plan basis and are subject to local country
practices and market circumstances.
As of December 31, 2012 and 2011, as a result of employees’ elections, TI’s non-U.S. defined contribution plans held TI common
stock valued at $13 million and $12 million, respectively. Dividends paid on these shares of TI common stock for 2012 and 2011 were
not material.
Effect on the statements of income and balance sheets
Expense related to defined benefit and retiree health care benefit plans was as follows:
U.S. Defined Benefit
2011
2012
2010
U.S. Retiree Health Care
2010
2011
2012
Non-U.S. Defined Benefit
2010
2011
2012
Service cost . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . .
Amortization of prior service cost (credit) . . . . . . . . .
Recognized net actuarial loss . . . . . . . . . . . . . . .
Net periodic benefit costs . . . . . . . . . . . . . . . . .
$ 24
44
(50)
1
16
35
$ 22
46
(45)
1
23
47
Settlement charges (a) (b) . . . . . . . . . . . . . . . . . —
Curtailment charges (credits) . . . . . . . . . . . . . . .
Special termination benefit charges (credits) (b) . . . . . .
Total, including charges . . . . . . . . . . . . . . . . . .
—
— —
4
(1)
$ 51
$ 34
$ 20
45
(49)
1
22
39
37
—
—
$ 76
$ 5
25
(23)
3
13
23
—
(1)
—
$ 22
$ 4
25
(21)
2
13
23
—
5
—
$ 28
$ 4
26
(23)
2
12
21
$ 45
75
(78)
(4)
41
79
$ 41
69
(83)
(4)
40
63
—
—
193
—
2
—
— (337) —
$ 65
$ (65)
$ 21
$ 37
62
(73)
(3)
30
53
—
—
—
$ 53
(a) Includes restructuring and non-restructuring-related settlement charges.
(b) In Japan, we maintain employee pension fund plans (EPFs) pursuant to the Japanese Welfare Pension Insurance Law (JWPIL). An
EPF consists of two portions: a substitutional portion based on JWPIL-determined minimum old-age pension benefits similar to
Social Security benefits in the United States; and a corporate portion established at the discretion of each employer. Employers and
employees are exempt from contributing to the Japanese Pension Insurance (JPI) if the substitutional portion is funded by an EPF.
The JWPIL was amended to permit each EPF to separate the substitutional portion and transfer those obligations and related assets
to the government of Japan. After such a transfer, the employer is required to contribute periodically to JPI, and the government of
Japan is responsible for future benefit payments relating to the substitutional portion.
During the third quarter of 2012, our EPF received final approval for such a separation and transferred the obligations and assets
of its substitutional portion to the government of Japan. On a pre-tax basis, this resulted in a net gain of $144 million recorded in
Restructuring charges/other on our Consolidated statements of income and included in Other. This net gain of $144 million consisted
of two parts – a gain of $337 million, representing the difference between the fair values of the obligations settled ($533 million)
and the assets transferred from the pension trust to the government of Japan ($196 million), offset by a settlement loss of
$193 million related to the recognition of previously unrecognized actuarial losses included in AOCI.
For the U.S. qualified pension and retiree health care plans, the expected return on the plan assets component of net periodic benefit
cost is based upon a market-related value of assets. In accordance with U.S. GAAP, the market-related value of assets is adjusted by a
smoothing technique whereby certain gains and losses are phased in over a period of three years.
2 0 1 2 A N N U A L R E P O R T • 2 5
ANNUAL REPORTTEXAS INSTRUMENTS
Changes in the benefit obligations and plan assets for the defined benefit and retiree health care benefit plans were as follows:
Change in plan benefit obligation:
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medicare subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed with National acquisition . . . . . . . . . . . . . . . . . . . .
Special termination benefit charges (credits) . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of exchange rate changes . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year (BO) . . . . . . . . . . . . . . . . . . . .
Change in plan assets:
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions (funding of qualified plans) . . . . . . . . . . . .
Employer contributions (payments for non-qualified plans) . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed with National acquisition . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of exchange rate changes . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year (FVPA) . . . . . . . . . . . . . . . .
Funded status (FVPA – BO) at end of year . . . . . . . . . . . . . . . . . .
U.S. Defined
Benefit
U.S. Retiree
Health Care
2012
2011
2012
2011
Non-U.S.
Defined Benefit
2011
2012
$ 959
24
44
—
(45)
—
116
—
1
—
(1)
—
—
$1,098
$ 914
95
104
3
—
—
(45)
—
—
$1,071
$ (27)
$880
22
46
—
(52)
—
61
—
(2)
—
4
—
—
$959
$833
106
25
2
—
—
(52)
—
—
$914
$ (45)
$521
5
25
17
(47)
5
(17)
—
(1)
—
—
1
—
$509
$431
37
78
—
17
—
(46)
—
—
$517
8
$
$473
4
25
18
(43)
4
19
—
4
—
—
17
—
$521
$404
6
46
—
18
—
(43)
—
—
$431
$ (90)
$2,748
45
75
1
(83)
—
222
(533)
—
—
—
—
(61)
$2,414
$2,211
207
134
—
1
—
(83)
(196)
(56)
$2,218
$ (196)
$2,217
41
69
1
(72)
—
91
(1)
(3)
301
—
—
104
$2,748
$1,835
53
72
—
1
235
(72)
(1)
88
$2,211
$ (537)
Amounts recognized on the balance sheet as of December 31, 2012, were as follows:
Overfunded retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Underfunded retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded status (FVPA – BO) at end of year . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34
(8)
(53)
$(27)
$ 12
—
(4)
$ 8
Amounts recognized on the balance sheet as of December 31, 2011, were as follows:
U.S. Defined
Benefit
U.S. Retiree
Health Care
Overfunded retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underfunded retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded status (FVPA – BO) at end of year . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11
(2)
(54)
$(45)
$ —
—
(90)
$(90)
U.S. Defined
Benefit
U.S. Retiree
Health Care
Non-U.S.
Defined
Benefit
$ 22
(6)
(212)
$(196)
Total
$ 68
(14)
(269)
$(215)
Non-U.S.
Defined
Benefit
$ 29
(9)
(557)
$(537)
Total
$ 40
(11)
(701)
$(672)
Contributions to the plans meet or exceed all minimum funding requirements. We expect to contribute about $100 million to our
retirement benefit plans in 2013. The amounts shown for underfunded U.S. defined benefit plans were for non-qualified pension plans.
Because contributions to those non-qualified plans are not tax deductible until the benefit is actually paid to the employee, we do not
fund them. As of December 31, 2012 and 2011, the unfunded benefit obligations of those non-qualified plans were $61 million and
$56 million, respectively.
2 6 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Accumulated benefit obligations, which represent the benefit obligations excluding the impact of future salary increases, were
$1.01 billion and $875 million at year-end 2012 and 2011, respectively, for the U.S. defined benefit plans, and $2.23 billion and
$2.54 billion at year-end 2012 and 2011, respectively, for the non-U.S. defined benefit plans.
The amounts recorded in AOCI for the years ended December 31, 2012 and 2011, are detailed below by plan type:
U.S. Defined
Benefit
Net
Actuarial
Loss
Prior
Service
Cost
U.S. Retiree
Health Care
Net
Actuarial
Loss
Prior
Service
Cost
Non-U.S.
Defined Benefit
Net
Actuarial
Loss
Prior
Service
Cost
Total
Net
Actuarial
Loss
Prior
Service
Cost
AOCI balance, December 31, 2011, net of taxes . . . . .
$140
$ — $140
$14
$ 500
$(23)
$ 780
$ (9)
Changes in AOCI by category in 2012:
Annual adjustments . . . . . . . . . . . . . . . .
Reclassification of recognized transactions . . . .
Less tax expense (benefit) . . . . . . . . . . . . .
Total change to AOCI in 2012 . . . . . . . . . . . .
AOCI balance, December 31, 2012, net of taxes . . . .
72
(16)
(20)
36
$176
—
(1)
—
(1)
$ (1)
(31)
(13)
16
(28)
$112
1
(3)
1
(1)
$13
68
(234)
79
(87)
$ 413
2
4
(2)
4
$(19)
109
(263)
75
(79)
$ 701
3
—
(1)
2
$ (7)
The estimated amounts of net actuarial loss and unrecognized prior service cost (credit) included in AOCI as of December 31, 2012, that
are expected to be amortized into net periodic benefit cost over the next fiscal year are: $23 million and $1 million for the U.S. defined
benefit plans; $11 million and $4 million for the U.S. retiree health care plan; and $39 million and ($4) million for the non-U.S. defined
benefit plans.
Information on plan assets
We report and measure the plan assets of our defined benefit pension and other postretirement plans at fair value. The tables below
set forth the fair value of our plan assets as of December 31, 2012 and 2011, using the same three-level hierarchy of fair-value inputs
described in Note 9.
Fair Value
December 31, 2012
Level 1
Level 2
Level 3
Assets of U.S. defined benefit plan
Money market collective trusts . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government agency and Treasury securities . . . . . . . . . . . . . . . . .
U.S. bond funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. equity funds and option collars . . . . . . . . . . . . . . . . . . . . . . . .
International equity funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets of U.S. retiree health care plan
Money market collective trusts . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. bond funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. equity funds and option collars . . . . . . . . . . . . . . . . . . . . . . . .
International equity funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets of non-U.S. defined benefit plans
Cash and money market collective trusts . . . . . . . . . . . . . . . . . . . . . .
Local market bond funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International/global bond funds . . . . . . . . . . . . . . . . . . . . . . . . . .
Local market equity funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International/global equity funds . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 119
247
368
219
81
37
$ 1,071
$
49
205
197
66
$ 517
$ 133
942
343
204
564
32
$ 2,218
$ — $ 119
247
368
219
81
—
$ — $ 1,034
—
—
—
—
—
$ — $
205
46
—
$ 251
$ 88
183
19
20
—
—
$ 310
49
—
151
66
$ 266
$
45
759
324
184
564
13
$ 1,889
$ —
—
—
—
—
37
$ 37
$ —
—
—
—
$ —
$ —
—
—
—
—
19
$ 19
2 0 1 2 A N N U A L R E P O R T • 2 7
ANNUAL REPORTTEXAS INSTRUMENTS Fair Value
December 31, 2011
Level 1
Level 2
Level 3
Assets of U.S. defined benefit plan
Money market collective trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government agency and Treasury securities . . . . . . . . . . . . . . . . . .
U.S. bond funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. equity funds and option collars . . . . . . . . . . . . . . . . . . . . . . . . .
International equity funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
23
266
309
229
52
35
$ 914
Assets of U.S. retiree health care plan
Money market collective trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. bond funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. equity funds and option collars . . . . . . . . . . . . . . . . . . . . . . . . .
International equity funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
50
175
159
47
$ 431
Assets of non-U.S. defined benefit plans
Cash and money market collective trusts . . . . . . . . . . . . . . . . . . . . . . .
Local market bond funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International/global bond funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Local market equity funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International/global equity funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
50
1,129
335
133
521
43
$2,211
$ — $
$ — $
244
—
—
—
—
$244
175
40
—
$215
$ 41
209
3
13
136
—
$402
23
22
309
229
52
—
$ 635
50
—
119
47
$ 216
$
9
920
332
120
385
25
$1,791
$ —
—
—
—
—
35
$ 35
$ —
—
—
—
$ —
$ —
—
—
—
—
18
$ 18
The investments in our major benefit plans largely consist of low-cost, broad-market index funds to mitigate risks of concentration
within market sectors. In recent years, our investment policy has shifted toward a closer matching of the interest rate sensitivity of
the plan assets and liabilities. The appropriate mix of equity and bond investments is determined primarily through the use of detailed
asset-liability modeling studies that look to balance the impact of changes in the discount rate against the need to provide asset growth
to cover future service cost. Most of our plans around the world have added a greater proportion of fixed income securities with return
characteristics that are more closely aligned with changes in the liabilities caused by discount rate volatility. For the U.S. plans, we
utilize an option collar strategy to reduce the volatility of returns on investments in U.S. equity funds.
The only Level 3 assets in our worldwide benefit plans are certain private equity limited partnerships in our U.S. pension plan and
diversified hedge and property funds in a non-U.S. pension plan. These investments are valued using inputs from the fund managers
and internal models. The following table summarizes the change in the fair values for Level 3 plan assets for the years ending
December 31, 2012 and 2011:
Balance, December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed with National acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34
—
1
—
35
(2)
4
$ 37
$ 51
(51)
—
18
18
—
1
$ 19
Level 3 Plan Assets
U.S.
Defined
Benefit
Non-U.S.
Defined
Benefit
2 8 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Assumptions and investment policies
Defined Benefit
2011
2012
U.S. Retiree
Health Care
2012
2011
Weighted average assumptions used to determine benefit obligations:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.16% 4.92% 3.97% 4.89%
2.80% 2.89%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.50% 3.50%
3.10% 3.18%
Weighted average assumptions used to determine net periodic benefit cost:
U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.92% 5.58% 4.86% 5.48%
2.88% 2.79%
U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . .
6.00% 6.25% 5.50% 5.50%
3.83% 4.17%
U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. average long-term pay progression . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.50% 3.40%
3.17% 3.24%
We utilize a variety of methods to select an appropriate discount rate depending on the depth of the corporate bond market in the
country in which the benefit plan operates. In the U.S., we use a settlement approach whereby a portfolio of bonds is selected from the
universe of actively traded high-quality U.S. corporate bonds. The selected portfolio is designed to provide cash flows sufficient to pay
the plan’s expected benefit payments when due. The resulting discount rate reflects the rate of return of the selected portfolio of bonds.
For our non-U.S. locations with a sufficient number of actively traded high-quality bonds, an analysis is performed in which the projected
cash flows from the defined benefit plans are discounted against a yield curve constructed with an appropriate universe of high-quality
corporate bonds available in each country. In this manner, a present value is developed. The discount rate selected is the single
equivalent rate that produces the same present value. Both the settlement approach and the yield curve approach produce a discount
rate that recognizes each plan’s distinct liability characteristics. For countries that lack a sufficient corporate bond market, a government
bond index adjusted for an appropriate risk premium is used to establish the discount rate.
Assumptions for the expected long-term rate of return on plan assets are based on future expectations for returns for each asset
class and the effect of periodic target asset allocation rebalancing. We adjust the results for the payment of reasonable expenses
of the plan from plan assets. We believe our assumptions are appropriate based on the investment mix and long-term nature of the
plans’ investments. Assumptions used for the non-U.S. defined benefit plans reflect the different economic environments within the
various countries.
The table below shows target allocation ranges for the plans that hold a substantial majority of the defined benefit assets.
Asset category
U.S. Defined
Benefit
U.S. Retiree
Health Care
Non-U.S.
Defined Benefit
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
35%
65%
50%
50%
25% - 60%
40% - 75%
We intend to rebalance the plans’ investments when they are not within the target allocation ranges. Additional contributions are
invested consistent with the target ranges and may be used to rebalance the portfolio. The investment allocations and individual
investments are chosen with regard to the duration of the obligations of each plan.
Weighted average asset allocations as of December 31, are as follows:
Asset category
2012
2011
2012
2011
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31% 35%
58% 63%
2%
11%
51% 48%
40% 41%
9% 11%
2012
36%
58%
6%
2011
32%
66%
2%
U.S. Defined
Benefit
U.S. Retiree
Health Care
Non-U.S.
Defined Benefit
2 0 1 2 A N N U A L R E P O R T • 2 9
ANNUAL REPORTTEXAS INSTRUMENTS The plans are slightly outside their target allocation ranges due to cash funding late in the year. None of the plan assets related to the
defined benefit pension plans and retiree health care benefit plan are directly invested in TI common stock. As of December 31, 2012,
we do not expect to return any of the plans’ assets to TI in the next 12 months.
The following table shows the benefits we expect to pay to participants from the plans in the next ten years. Almost all of the payments
will be made from plan assets and not from company assets.
U.S. Defined
Benefit
U.S. Retiree
Health Care
Medicare
Subsidy
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018-2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$197
102
111
113
111
495
$ 34
35
37
38
39
193
$ (4)
(4)
(4)
(5)
(5)
(16)
Assumed health care cost trend rates for the U.S. retiree health care plan at December 31 are as follows:
Non-U.S.
Defined
Benefit
$ 80
81
87
91
94
535
2012
2011
Assumed health care cost trend rate for next year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.0% 9.0%
Ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0% 5.0%
2017
Year in which ultimate trend rate is reached . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
A one percentage point increase or decrease in health care cost trend rates over all future periods would have increased or decreased
the accumulated postretirement benefit obligation for the U.S. retiree health care plan at December 31, 2012, by $26 million or
$22 million, respectively. The service cost and interest cost components of 2012 plan expense would have increased or decreased
by $2 million.
Deferred compensation arrangements
We have a deferred compensation plan that allows U.S. employees whose base salary and management responsibility exceed a certain
level to defer receipt of a portion of their cash compensation. Payments under this plan are made based on the participant’s distribution
election and plan balance. Participants can earn a return on their deferred compensation based on notional investments in the same
investment funds that are offered in our defined contribution plans.
As of December 31, 2012, our liability to participants of the deferred compensation plan was $139 million and is recorded in
Deferred credits and other liabilities on our Consolidated balance sheets. This amount reflects the accumulated participant deferrals and
earnings thereon as of that date. Except as described in the next paragraph, no assets are held in trust for the deferred compensation
plan and so we remain liable to the participants. To serve as an economic hedge against changes in fair values of this liability, we invest
in similar mutual funds that are recorded in Long-term investments. We record changes in the fair value of the liability and the related
investment in SG&A as discussed in Note 9.
In connection with the National acquisition, we assumed its deferred compensation plan. As of December 31, 2012, this consisted of
$35 million of obligations and matching assets held in a Rabbi trust. No further contributions will be made to this plan.
12. Debt and lines of credit
Short-term borrowings
We maintain a line of credit to support commercial paper borrowings, if any, and to provide additional liquidity through bank loans. As of
December 31, 2012, we have a five-year variable-rate revolving credit facility from a consortium of investment-grade banks that allows
us to borrow up to $2 billion through March 2017. The interest rate on borrowings under this credit facility, if drawn, is indexed to the
applicable London Interbank Offered Rate (LIBOR). As of December 31, 2012, we have no commercial paper outstanding, having repaid
$1 billion on a cumulative basis in 2012.
Long-term debt
In August 2012, we issued an aggregate principal amount of $1.5 billion of fixed-rate long-term debt, with $750 million due in 2015
and $750 million due in 2019. The proceeds of the offering were $1.492 billion, net of the original issuance discount. We also incurred
$7 million of issuance costs that are included in Other assets and are being amortized to Interest and debt expense over the term of
the debt.
3 0 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS In May 2011, we issued fixed- and floating-rate long-term debt to help fund the National acquisition. The proceeds of the offering
were $3.497 billion, net of the original issuance discount. We also incurred $12 million of issuance costs that are included in Other
assets and are being amortized to Interest and debt expense over the term of the debt.
We also have an interest rate swap agreement related to the $1 billion floating-rate debt due 2013. Under this agreement, we
will receive variable payments based on three-month LIBOR rates and pay a fixed rate through May 15, 2013. Changes in the cash
flows of the interest rate swap are expected to exactly offset the changes in cash flows attributable to fluctuations in the three-month
LIBOR-based interest payments. We have designated this interest rate swap as a cash flow hedge and record changes in its fair value in
AOCI. As of December 31, 2012, the fair value of the swap agreement is a $2 million liability. The net effect of this swap is to convert the
$1 billion floating-rate debt to a fixed-rate obligation bearing a rate of 0.922 percent.
At the acquisition date, we assumed $1 billion of outstanding National debt with a fair value of $1.105 billion. The excess of the fair
value over the stated value is amortized as a reduction of Interest and debt expense over the term of the related debt. In 2012 and 2011,
we amortized $26 million and $9 million, respectively. During 2012, we repaid $375 million of this debt.
Total long-term debt outstanding as of December 31, 2012 and 2011 is as follows:
Notes due 2012 at 6.15% (assumed with National acquisition) . . . . . . . . . . . . . . . . . . . . . . . . . .
Floating-rate notes due 2013 (swapped to a 0.922% fixed rate) . . . . . . . . . . . . . . . . . . . . . . . . .
Notes due 2013 at 0.875% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes due 2014 at 1.375% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes due 2015 at 3.95% (assumed with National acquisition) . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes due 2015 at 0.45% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes due 2016 at 2.375% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes due 2017 at 6.60% (assumed with National acquisition) . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes due 2019 at 1.65% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add net unamortized premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2012
2011
$ — $ 375
1,000
500
1,000
250
—
1,000
375
—
4,500
93
(382)
$ 4,211
1,000
500
1,000
250
750
1,000
375
750
5,625
61
(1,500)
$ 4,186
Interest and debt expense was $85 million in 2012 and $42 million in 2011. This was net of the amortization of the debt premium and
other debt issuance costs. Cash payments for interest on long-term debt were $97 million in 2012 and $54 million in 2011. Capitalized
interest was not material.
13. Commitments and contingencies
Operating leases
We conduct certain operations in leased facilities and also lease a portion of our data processing and other equipment. In addition,
certain long-term supply agreements to purchase industrial gases are accounted for as operating leases. Lease agreements frequently
include purchase and renewal provisions and require us to pay taxes, insurance and maintenance costs. Rental and lease expense
incurred was $124 million, $109 million and $100 million in 2012, 2011 and 2010, respectively.
Capitalized software licenses
We have licenses for certain internal-use electronic design automation software that we account for as capital leases. The related
liabilities are apportioned between Accounts payable and Deferred credits and other liabilities on our Consolidated balance sheets,
depending on the contractual timing of payments.
2 0 1 2 A N N U A L R E P O R T • 3 1
ANNUAL REPORTTEXAS INSTRUMENTS Purchase commitments
Some of our purchase commitments entered in the ordinary course of business provide for minimum payments. At December 31, 2012,
we had committed to make the following minimum payments under our non-cancellable operating leases, capitalized software licenses
and purchase commitments:
Operating
Leases
Capitalized
Software
Licenses
Purchase
Commitments
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 102
77
66
49
32
80
$ 46
33
14
—
—
—
$ 77
54
25
18
10
22
Indemnification guarantees
We routinely sell products with an intellectual property indemnification included in the terms of sale. Historically, we have had only
minimal, infrequent losses associated with these indemnities. Consequently, we cannot reasonably estimate or accrue for any future
liabilities that may result.
Warranty costs/product liabilities
We accrue for known product-related claims if a loss is probable and can be reasonably estimated. During the periods presented, there
have been no material accruals or payments regarding product warranty or product liability. Historically, we have experienced a low
rate of payments on product claims. Although we cannot predict the likelihood or amount of any future claims, we do not believe they
will have a material adverse effect on our financial condition, results of operations or liquidity. Consistent with general industry practice,
we enter into formal contracts with certain customers that include negotiated warranty remedies. Typically, under these agreements
our warranty for semiconductor products includes three years of coverage; an obligation to repair, replace or refund; and a maximum
payment obligation tied to the price paid for our products. In some cases, product claims may exceed the price of our products.
General
We are subject to various legal and administrative proceedings. Although it is not possible to predict the outcome of these matters, we
believe that the results of these proceedings will not have a material adverse effect on our financial condition, results of operations or
liquidity. From time to time, we also negotiate contingent consideration payment arrangements associated with certain acquisitions,
which are recorded at fair value.
Discontinued operations indemnity
In connection with the 2006 sale of the former Sensors & Controls (S&C) business, we have agreed to indemnify Sensata Technologies,
Inc., for specified litigation matters and certain liabilities, including environmental liabilities. In a settlement with a third party, we
have agreed to indemnify that party for certain events relating to S&C products, which events we consider remote. We believe our
total remaining potential exposure from both of these indemnities will not exceed $200 million. As of December 31, 2012, we believe
future payments related to these indemnity obligations will not have a material effect on our financial condition, results of operations
or liquidity.
14. Stockholders’ equity
We are authorized to issue 10,000,000 shares of preferred stock. No preferred stock is currently outstanding.
Treasury shares acquired in connection with the board-authorized stock repurchase program in 2012, 2011 and 2010 were
59,757,780 shares, 59,466,168 shares and 93,522,896 shares, respectively. As of December 31, 2012, $3.9 billion of stock repurchase
authorizations remain, and no expiration date has been specified.
3 2 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS 15. Supplemental financial information
Other income (expense) net
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gains on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax interest (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
2011
$ 8
18
32
(11)
$ 47
$ 11
6
1
(13)
$ 5
2010
$ 13
11
(2)
15
$ 37
(a) Includes lease income of approximately $15 million per year, primarily from the purchaser of a former business. As of December 31, 2012,
the aggregate amount of non-cancellable future lease payments to be received from these leases is $66 million. These leases
contain renewal options. Other also includes miscellaneous non-operational items such as realized gains and losses associated with
former equity investments; gains and losses related to former businesses, including settlements in 2012 and 2011; gains and losses
from currency exchange rate changes; and gains and losses from our derivative financial instruments, primarily forward foreign
currency exchange contracts.
Property, plant and equipment at cost
Depreciable
Lives (Years)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
5 - 40
3 - 10
December 31,
2012
2011
$ 189
3,006
3,696
$ 6,891
$ 188
2,998
3,947
$ 7,133
Authorizations for property, plant and equipment expenditures in future years were $234 million at December 31, 2012.
Accrued expenses and other liabilities
December 31,
2012
2011
Customer incentive programs and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severance and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and other non-income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 213
217
127
324
$ 881
$ 190
140
98
367
$ 795
Accumulated other comprehensive income (loss), net of taxes
Unrealized losses on available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefit plans:
December 31,
2012
2011
$ — $
(3)
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow hedge derivative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(701)
7
(5)
$ (699)
(780)
9
(2)
$ (776)
2 0 1 2 A N N U A L R E P O R T • 3 3
ANNUAL REPORTTEXAS INSTRUMENTS 16. Segment and geographic area data
Reportable segments
The information presented in our Notes to financial statements is based on our segment structure existing as of December 31, 2012.
This structure is comprised of three reportable segments: Analog, Embedded Processing and Wireless. These reportable segments
represent groups of similar products that are combined on the basis of similar design and development requirements, product
characteristics, manufacturing processes and distribution channels. A summary of each reportable segment follows:
• Analog – Analog semiconductors change real-world signals – such as sound, temperature, pressure or images – by conditioning
them, amplifying them and often converting them to a stream of digital data that can be processed by other semiconductors,
such as digital signal processors (DSPs). Analog semiconductors are also used to manage power in every electronic device,
whether plugged into a wall or running off of a battery. Analog includes the following major product lines: HVAL, Power, HPA
and SVA.
• Embedded Processing – Our Embedded Processing products include our DSPs and microcontrollers. DSPs perform mathematical
computations almost instantaneously to process or improve digital data. Microcontrollers are designed to control a set of specific
tasks for electronic equipment. We make and sell catalog Embedded Processing products used in many different applications
and application-specific Embedded Processing products used in specific applications, such as communications infrastructure
equipment and automotive.
• Wireless – Our Wireless products consist of OMAP applications processors, connectivity products and baseband products. We
concentrated our Wireless investments on OMAP applications processors and connectivity products for the smartphone and
consumer tablet markets.
As previously announced, the Wireless segment will be eliminated due to the decision to wind down certain of its product lines. As
a result, we will restructure our reportable segments beginning January 1, 2013, and we will report our first quarter of 2013 financial
results accordingly. Financial results for Wireless products for the smartphone and consumer tablet markets will be included in Other.
Financial results for Wireless products that address embedded applications, a strategic focus for the company, will be reported in the
Embedded Processing segment.
Other
Other includes other operating segments that neither meet the quantitative thresholds for individually reportable segments nor are they
aggregated with other operating segments. These operating segments primarily include our smaller semiconductor product lines such
as DLP® products (primarily used in projectors to create high-definition images), custom semiconductors known as application-specific
integrated circuits (ASICs) and calculators.
Other also includes royalties received for our patented technology that we license to other electronics companies and revenue from
transitional supply agreements related to acquisitions and divestitures. Other may also include certain unallocated income and expenses
such as gains and losses on sales of assets; sales tax refunds; and certain litigation costs, settlements or reserves. Except for these
few unallocated items, we allocate all of our expenses associated with corporate activities to our operating segments based on specific
methodologies, such as percentage of operating expenses or headcount.
Acquisition-related charges related to National are also recorded in Other in 2012 and 2011, as detailed in Note 2.
Restructuring charges related to the 2011 announced action in Hiji, Japan, and Houston, Texas; losses and insurance proceeds
associated with the 2011 earthquake in Japan; and the 2012 gain on the transfer of the Japan substitutional pension are also included
in Other. In 2010, the gain related to a divestiture of a product line is included in Other. See Notes 3 and 4 for additional information.
We use centralized manufacturing and facilities organizations to provide products and support to our operating segments. Costs
incurred by these organizations, including depreciation, are charged to the segments on a per-unit basis. Consequently, depreciation
expense is not an independently identifiable component within the segments’ results and therefore is not provided.
With the exception of goodwill, we do not identify or allocate assets by operating segment, nor does the chief operating decision
maker evaluate operating segments using discrete asset information. There was no significant intersegment revenue. The accounting
policies of the segments are the same as those described in the summary of significant accounting policies.
3 4 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Segment information
Revenue
Analog
Embedded
Processing Wireless
Other
Total
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,998
6,375
5,979
Operating profit (loss)
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,650
1,693
1,876
$1,971
2,110
2,073
$ 166
368
491
$ 1,357
2,518
2,978
$ 2,499 $12,825
13,735
13,966
2,732
2,936
$ (525) $ 682 $ 1,973
2,992
4,514
519
1,464
412
683
Geographic area information
The following geographic area data include revenue, based on product shipment destination and royalty payor location, and property,
plant and equipment, based on physical location:
U.S.
Asia (a)
Europe
Japan
Rest of
World
Total
Revenue
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,596 $ 7,808 $ 1,861 $ 1,357
1,462
1,366
1,468
1,539
1,822
1,760
8,619
8,903
$ 1,931 $ 1,547 $ 241 $ 174
228
249
1,739
1,575
2,159
1,694
276
139
$ 203
364
398
$ 19
26
23
$12,825
13,735
13,966
$ 3,912
4,428
3,680
(a) Revenue from products shipped into China (including Hong Kong) was $5.38 billion in 2012, $5.83 billion in 2011 and $5.69 billion
in 2010.
Major customer
No customer accounts for 10 percent or more of 2012 revenue. Sales to the Nokia group of companies, including sales to indirect
contract manufacturers, accounted for 13 percent and 19 percent of our 2011 and 2010 revenue, respectively. Revenue from sales to
Nokia is reflected primarily in our Wireless segment.
2 0 1 2 A N N U A L R E P O R T • 3 5
ANNUAL REPORTTEXAS INSTRUMENTS Report of independent registered public accounting firm
The Board of Directors and Stockholders
Texas Instruments Incorporated
We have audited the accompanying consolidated balance sheets of Texas Instruments Incorporated and subsidiaries (the Company) as
of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Texas Instruments Incorporated and subsidiaries at December 31, 2012 and 2011, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2013,
expressed an unqualified opinion thereon.
Dallas, Texas
February 22, 2013
3 6 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Report by management on internal control over financial reporting
The management of TI is responsible for establishing and maintaining effective internal control over financial reporting. TI’s internal
control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and
fair presentation of financial statements issued for external purposes in accordance with generally accepted accounting principles.
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934) that occurred during the fourth quarter of 2012 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
TI management assessed the effectiveness of internal control over financial reporting as of December 31, 2012. In making this
assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria) in Internal Control – Integrated Framework.
Based on our assessment we believe that, as of December 31, 2012, our internal control over financial reporting is effective based on
the COSO criteria.
TI’s independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on the effectiveness of our internal
control over financial reporting, which immediately follows this report.
2 0 1 2 A N N U A L R E P O R T • 3 7
ANNUAL REPORTTEXAS INSTRUMENTS Report of independent registered public accounting firm on
internal control over financial reporting
The Board of Directors and Stockholders
Texas Instruments Incorporated
We have audited Texas Instruments Incorporated’s internal control over financial reporting as of December 31, 2012, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Texas Instruments Incorporated’s management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Report by management on internal control over financial reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Texas Instruments Incorporated maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Texas Instruments Incorporated and subsidiaries as of December 31, 2012 and 2011, and the related
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2012, and our report dated February 22, 2013, expressed an unqualified opinion thereon.
Dallas, Texas
February 22, 2013
3 8 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Summary of selected financial data
[Millions of dollars, except share and per-share amounts]
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs and expenses (a) (b) . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . .
Interest and debt expense . . . . . . . . . . . . . . . . . .
Other income (expense) net . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per common share . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . .
Dividends declared per common share . . . . . . . . . . .
Average dilutive potential common shares outstanding
$
$
$
$
$
For Years Ended December 31,
2012
2011
2010
2009
2008
12,825
10,852
1,973
(85)
47
1,935
176
1,759
1.53
1.51
0.72
$
$
$
$
$
13,735
10,743
2,992
(42)
5
2,955
719
2,236
1.91
1.88
0.56
$
$
$
$
$
13,966 $
9,452
4,514
—
37
4,551
1,323
3,228 $
2.66 $
2.62 $
0.49 $
10,427 $
8,436
1,991
—
26
2,017
547
1,470 $
1.16 $
1.15 $
0.45 $
12,501
10,064
2,437
—
44
2,481
561
1,920
1.46
1.44
0.41
during year, in thousands . . . . . . . . . . . . . . . .
1,146,035
1,171,364
1,212,940
1,268,533
1,321,250
(a) Includes Acquisition-related charges of $471 million in 2012 and $426 million in 2011 associated with our 2011 acquisition
of National.
(b) Includes Restructuring charges/other of $264 million, $112 million, ($111) million, $212 million and $254 million in 2012, 2011,
2010, 2009 and 2008 respectively. The $264 million for 2012 includes a gain on the transfer of a Japan substitutional pension of
$144 million, and the ($111) million for 2010 includes a $144 million gain from the divestiture of a product line.
2012
2011
December 31,
2010
2009
2008
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,800 $ 4,329 $ 5,079 $ 4,527 $ 4,258
3,304
11,923
—
9,326
4,428
20,497
4,211
10,952
3,680
13,401
—
10,437
3,158
12,119
—
9,722
3,912
20,021
4,186
10,961
Number of:
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders of record . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,151
18,128
34,759
19,733
28,412
20,525
26,584
24,190
29,537
25,107
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . .
Capital expenditures (Additions to property, plant and equipment) . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
$3,414
495
819
1,800
For Years Ended December 31,
2009
2010
2011
$3,256
816
644
1,973
$3,820
1,199
592
2,454
$2,643
753
567
954
2008
$3,330
763
537
2,122
See Notes to financial statements and Management’s discussion and analysis of financial condition and results of operations.
2 0 1 2 A N N U A L R E P O R T • 3 9
ANNUAL REPORTTEXAS INSTRUMENTS Management’s discussion and analysis of financial condition and results of operations
The following should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document.
All dollar amounts in the tables in this discussion are stated in millions of U.S. dollars, except per-share amounts.
Overview
We design and make semiconductors that we sell to electronics designers and manufacturers all over the world. We began operations
in 1930. We are incorporated in Delaware, headquartered in Dallas, Texas, and have design, manufacturing or sales operations in
more than 35 countries. We have four segments: Analog, Embedded Processing, Wireless and Other. We expect Analog and Embedded
Processing to be our primary growth engines in the years ahead, and we therefore focus our resources on these segments.
We were the world’s fourth largest semiconductor company in 2012 as measured by revenue, according to preliminary estimates
from an external source.
Product information
Semiconductors are electronic components that serve as the building blocks inside modern electronic systems and equipment.
Semiconductors come in two basic forms: individual transistors and integrated circuits (generally known as “chips”) that combine
multiple transistors on a single piece of material to form a complete electronic circuit. Our products, more than 100,000 orderable parts,
are integrated circuits that are used to accomplish many different things, such as converting and amplifying signals, interfacing with
other devices, managing and distributing power, processing data, canceling noise and improving signal resolution. This broad portfolio
includes products that are integral to almost all electronic equipment.
We sell catalog and, to a lesser extent, custom semiconductor products. Catalog products are designed for use by many customers
and/or many applications and are sold through both distribution and direct channels. The majority of our catalog products are
proprietary, but some are commodity products. The life cycles of catalog products generally span multiple years, with some products
continuing to sell for decades after their initial release. Custom products are designed for a specific customer for a specific application,
are sold only to that customer and are typically sold directly to the customer. The life cycles of custom products are generally
determined by end-equipment upgrade cycles and can be as short as 12 to 24 months.
Our segments represent groups of similar products that are combined on the basis of similar design and development requirements,
product characteristics, manufacturing processes and distribution channels, and how management allocates resources and measures results.
Additional information regarding each segment’s products follows.
Analog
Analog semiconductors change real-world signals – such as sound, temperature, pressure or images – by conditioning them,
amplifying them and often converting them to a stream of digital data that can be processed by other semiconductors, such as digital
signal processors (DSPs). Analog semiconductors are also used to manage power in every electronic device, whether plugged into a
wall or running off a battery. We estimate that we sell our Analog products to more than 100,000 customers. These sales generated
about 55 percent of our revenue in 2012. According to external sources, the worldwide market for analog semiconductors was about
$39 billion in 2012. Our Analog segment’s revenue in 2012 was about $7.0 billion, or about 18 percent of this fragmented market, the
leading position. We believe that we are well positioned to increase our market share over time.
Our Analog segment includes the following major product lines: High Volume Analog & Logic (HVAL), Power Management (Power),
High Performance Analog (HPA) and Silicon Valley Analog (SVA).
HVAL products: These include both high-volume analog and logic products. High-volume analog includes integrated analog products
for specific applications, including custom products. End markets for high-volume analog products include communications, automotive,
computing and many consumer electronics products. Logic includes some commodity products marketed to many different customers
for many different applications.
Power products: These include both catalog and application-specific products that help customers manage power in any type of
electronic system. We design and manufacture power management semiconductors for both portable devices (battery-powered devices,
such as handheld consumer electronics, laptop computers and cordless power tools) and line-powered systems (products that require
an external electrical source, such as computers, digital TVs, wireless basestations and high-voltage industrial equipment).
HPA products: These include catalog analog products, such as amplifiers, data converters and interface semiconductors, that we market
to many different customers who use them in manufacturing a wide range of products sold in many end markets, including the industrial,
communications, computing and consumer electronics markets. HPA products generally have long life cycles, often more than 10 years.
SVA products: These consist of products that we acquired through our purchase of National Semiconductor Corporation (National) in
2011. These include power management, data converter, interface and operational amplifier catalog analog products, nearly all of which
are complementary to our other Analog products. This portfolio of thousands of products is marketed to many different customers who
use them in manufacturing a wide range of products sold in many end markets. SVA products generally have long life cycles, often more
than 10 years.
4 0 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Embedded Processing
Our Embedded Processing products include our DSPs and microcontrollers. DSPs perform mathematical computations almost
instantaneously to process or improve digital data. Microcontrollers are designed to control a set of specific tasks for electronic
equipment. Sales of Embedded Processing products generated about 15 percent of our revenue in 2012. According to external sources,
the worldwide market for embedded processors was about $17 billion in 2012. Our Embedded Processing segment’s revenue in 2012
was about $2.0 billion. This was the number two position and represented about 12 percent of this fragmented market. We believe we
are well positioned to increase our market share over time.
An important characteristic of our Embedded Processing products is that our customers often invest their own research and
development (R&D) to write software that operates on our products. This investment tends to increase the length of our customer
relationships because customers prefer to re-use software from one product generation to the next. We make and sell catalog
Embedded Processing products used in many different applications and application-specific Embedded Processing products used in
communications infrastructure equipment and automotive applications.
Wireless
During 2012, our Wireless products consisted of OMAP™ applications processors, connectivity products and baseband products. We
concentrated our Wireless investments on OMAP applications processors and connectivity products for the smartphone and consumer
tablet markets. Sales of Wireless products generated about $1.4 billion, or about 11 percent, of our revenue for 2012, of which OMAP
and connectivity products represented about $1.1 billion. We had $0.3 billion in revenue from baseband products, a product line that we
have previously announced we are exiting.
In November 2012, we announced that we would restructure our Wireless business to focus investments on embedded markets
with greater potential for sustainable growth. Specifically, we now focus our OMAP applications processors and connectivity products
on embedded applications with long life cycles instead of on the smartphone and consumer tablet markets, where large customers
are increasingly developing their own custom chips. These changes will result in lower resource and investment demands and, as we
have previously announced, elimination of the Wireless segment. As a result of the Wireless restructuring, we recorded a $351 million
charge in the fourth quarter of 2012, of which $245 million was for severance and benefit costs and $106 million was for non-cash
items, which includes a non-tax deductible goodwill impairment of $90 million. We expect about 1,700 jobs to be eliminated and about
$450 million in annualized cost savings to be realized by the time this action is completed in 2013.
Embedded OMAP applications processors, which often use a standard operating system such as Android, Linux, QNX or Windows,
are used in applications that are multi-function, need a graphically intensive user interface and often are connected to the Internet.
Embedded connectivity products include low-power wireless network standards like Zigbee®, and other technologies such as
Bluetooth®, WiFi, GPS and Near Field Communications. Both of these product lines have many of the same characteristics as those in
our Embedded Processing segment and will be reported in that segment beginning with our first-quarter 2013 financial report. In 2012,
sales of these products were about $150 million.
We expect our revenue from OMAP and connectivity products sold into smartphone and consumer tablet applications to decline
rapidly in 2013 and to substantially cease by the end of the year. We also expect baseband revenue to be essentially zero in 2013.
Beginning with our first-quarter 2013 financial report, financial results for Wireless products for the smartphone and consumer tablet
markets will be included in Other.
Other
Other includes revenue from our smaller product lines, such as DLP® (primarily used in projectors to create high-definition images),
custom semiconductors known as application-specific integrated circuits (ASICs) and calculators. It also includes royalties received
for our patented technology that we license to other electronics companies and revenue from transitional supply agreements related
to acquisitions and divestitures. Other generated about $2.5 billion, or about 19 percent of our revenue, in 2012. We also include in
Other certain acquisition-related charges that are not used in evaluating results of and allocating resources to our Analog, Embedded
Processing and Wireless segments. These charges include certain fair-value adjustments, restructuring charges, transaction expenses,
acquisition-related retention bonuses and amortization of intangible assets. Other also includes certain corporate-level items, such as
litigation and environmental costs, insurance proceeds, and assets and liabilities associated with our centralized operations, such as our
worldwide manufacturing, facilities and procurement operations.
Inventory
Our inventory practices differ by product, but we generally maintain inventory levels that are consistent with our expectations of
customer demand. Because of the longer product life cycles of catalog products and their inherently lower risk of obsolescence, we
generally carry more inventory of those products than custom products. Additionally, we sometimes maintain catalog-product inventory
in unfinished wafer form, as well as higher finished-goods inventory of low-volume products, allowing greater flexibility in periods of
high demand. We also have consignment inventory programs in place for our largest customers and some distributors.
2 0 1 2 A N N U A L R E P O R T • 4 1
ANNUAL REPORTTEXAS INSTRUMENTS Manufacturing
Semiconductor manufacturing begins with a sequence of photo-lithographic and chemical processing steps that fabricate a number of
semiconductor devices on a thin silicon wafer. Each device on the wafer is tested, the wafer is cut into individual units and each unit is
assembled into a package that then is usually retested. The entire process takes place in highly specialized facilities and requires an
average of 12 weeks, with most products completing within 8 to 16 weeks.
The cost and lifespan of the equipment and processes we use to manufacture semiconductors vary by technology. Our Analog
products and most of our Embedded Processing products can be manufactured using mature and stable, and therefore less expensive,
equipment than is needed for manufacturing advanced CMOS logic products, such as our Wireless products.
We own and operate semiconductor manufacturing facilities in North America, Asia, Japan and Europe. These include both wafer
fabrication and assembly/test facilities. Our facilities require substantial investment to construct and are largely fixed-cost assets
once in operation. Because we own much of our manufacturing capacity, a significant portion of our operating cost is fixed. In general,
these fixed costs do not decline with reductions in customer demand or utilization of capacity, potentially hurting our profit margins.
Conversely, as product demand rises and factory utilization increases, the fixed costs are spread over increased output, potentially
benefiting our profit margins.
We expect to maintain sufficient internal wafer fabrication capacity to meet the vast majority of our production needs. To supplement
our internal wafer fabrication capacity and maximize our responsiveness to customer demand and return on capital, our wafer
manufacturing strategy utilizes the capacity of outside suppliers, commonly known as foundries, and subcontractors. In 2012, we
sourced about 20 percent of our total wafers and about 75 percent of our advanced CMOS logic needs from external foundries.
In 2011, we initiated closure of an older wafer fabrication facility in Hiji, Japan, and another in Houston, Texas. We expect to
complete these plant closures in 2013.
Product cycle
The global semiconductor market is characterized by constant, though generally incremental, advances in product designs and
manufacturing processes. Semiconductor prices and manufacturing costs tend to decline over time as manufacturing processes and
product life cycles mature.
Market cycle
The “semiconductor cycle” is an important concept that refers to the ebb and flow of supply and demand. The semiconductor market
historically has been characterized by periods of tight supply caused by strengthening demand and/or insufficient manufacturing
capacity, followed by periods of surplus inventory caused by weakening demand and/or excess manufacturing capacity. These are
typically referred to as upturns and downturns in the semiconductor cycle. The semiconductor cycle is affected by the significant time
and money required to build and maintain semiconductor manufacturing facilities.
Seasonality
Our revenue and operating results are subject to some seasonal variation. Our semiconductor sales generally are seasonally weaker
in the first and fourth quarters and stronger in the second and third quarters, as manufacturers prepare for the major holiday selling
seasons. Calculator revenue is tied to the U.S. back-to-school season and is therefore at its highest in the second and third quarters.
Tax considerations
We operate in a number of tax jurisdictions and are subject to several types of taxes including those that are based on income, capital,
property and payroll, as well as sales and other transactional taxes. The timing of the final determination of our tax liabilities varies by
jurisdiction and taxing authority. As a result, during any particular reporting period we may reflect in our financial statements one or
more tax refunds or assessments, or changes to tax liabilities, involving one or more taxing authorities.
Results of operations
The information presented in this Management’s discussion and analysis of financial condition and results of operations (MD&A) is
based on our segment structure as it existed as of December 31, 2012. Additionally, the MD&A reflects our reclassification of certain
amounts in the prior periods’ financial statements to conform to the 2012 presentation. Throughout the following discussion of our
results of operations, unless otherwise noted, changes in our revenue are attributable to changes in customer demand, which are
evidenced by fluctuations in shipment volumes. New products tend not to have a significant impact because our revenue is derived from
such a large number of products. From time to time, our revenue and gross profit are affected by changes in demand for higher-priced
or lower-priced products, which we refer to as changes in the “mix” of products shipped.
4 2 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS 2012 compared with 2011
During 2012, we faced a weak demand environment, but our operations performed well and we strengthened our strategic position. We
reached a milestone in 2012, with 70 percent of our revenue coming from our core businesses of Analog and Embedded Processing.
Also during the year, we successfully integrated National into our operations and increased the diversity of our customer base, especially
in the industrial sector. Despite lower revenue that resulted primarily from our exit from Wireless baseband products, we grew our free
cash flow to almost $3 billion, or 23 percent of revenue. Our free cash flow was the result of more of our revenue coming from Analog
and Embedded Processing, which offer solid growth and high margins and have low capital needs. We returned 90 percent of this
free cash flow to stockholders through our continued share repurchases and higher dividend payments. Free cash flow will continue
to benefit from our strategic purchases of manufacturing capacity during the past few years. (Free cash flow is a non-GAAP financial
measure. For a reconciliation to GAAP and an explanation of the purpose for providing this non-GAAP measure, see the Non-GAAP
financial information section after the Liquidity and capital resources section.)
For Years Ended
December 31,
2011
2012
Revenue by segment:
Analog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,998
Embedded Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,971
Wireless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,357
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,499
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,825
Cost of revenue (COR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,457
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,368
Research and development (R&D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,877
Selling, general and administrative (SG&A) . . . . . . . . . . . . . . . . . . . . . . . . . .
1,804
Acquisition charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
450
Restructuring charges/other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
264
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,973
Other income (expense) net (OI&E) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
Interest and debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,935
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
176
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,759
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.51
$ 6,375
2,110
2,518
2,732
13,735
6,963
6,772
1,715
1,638
315
112
2,992
5
42
2,955
719
$ 2,236
1.88
$
2010
$ 5,979
2,073
2,978
2,936
13,966
6,474
7,492
1,570
1,519
—
(111)
4,514
37
—
4,551
1,323
$ 3,228
$ 2.62
Percentage of revenue:
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49.6 %
14.6 %
14.1 %
15.4 %
49.3 %
12.5 %
11.9 %
21.8 %
53.6 %
11.2 %
10.9 %
32.3 %
As required by accounting rule ASC 260, net income allocated to unvested restricted stock units (RSUs), on which we pay dividend
equivalents, is excluded from the calculation of earnings per share (EPS). The amount excluded was $31 million, $34 million and
$44 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Details of 2012 financial results
Revenue in 2012 was $12.82 billion, down $910 million, or 7 percent, from 2011 primarily due to a weak demand environment.
Revenue from a full year’s inclusion of SVA slightly more than offset lower revenue from Wireless baseband products.
Gross profit in 2012 was $6.37 billion, a decrease of $404 million, or 6 percent, from 2011. The decrease was primarily due to lower
revenue. Gross profit margin in 2012 was 49.6 percent of revenue compared with 49.3 percent in 2011.
Operating expenses were $1.88 billion for R&D and $1.80 billion for SG&A. R&D expense increased $162 million, or 9 percent,
from 2011 primarily due to the inclusion of a full year of SVA. R&D expense as a percent of revenue was 14.6 percent compared with
12.5 percent in 2011. SG&A expense increased $166 million, or 10 percent, from 2011 due to the inclusion of a full year of SVA. SG&A
expense as a percent of revenue was 14.1 percent compared with 11.9 percent in 2011.
Acquisition charges related to the National acquisition were $450 million in 2012 and $315 million in 2011. The increase was due to
a full year of amortization of acquired intangible assets. See Notes 2 and 10 to the financial statements for details.
2 0 1 2 A N N U A L R E P O R T • 4 3
ANNUAL REPORTTEXAS INSTRUMENTS Restructuring charges/other were $264 million in 2012 and $112 million in 2011. The increase was primarily due to the
restructuring action in the Wireless segment, partially offset by a $144 million gain we recognized from the transfer of the obligations
and assets of a portion of our Japan pension program from the pension trust to the government of Japan. See Note 3 to the financial
statements for details.
Operating profit was $1.97 billion, or 15.4 percent of revenue, compared with $2.99 billion, or 21.8 percent of revenue, in 2011.
The decrease was due to, in decreasing order, lower gross profit, higher operating expenses, higher restructuring charges and higher
acquisition charges.
OI&E for 2012 was income of $47 million compared with $5 million for 2011. The increase was primarily due to tax-related
interest income.
Interest and debt expense was $85 million compared with $42 million in the year-ago period. The increase over 2011 was primarily
due to having debt outstanding for a full year in 2012 compared with about eight months in 2011. We issued debt in May 2011
and assumed debt in September 2011, both in connection with our acquisition of National. See Note 12 to the financial statements
for details.
The annual effective tax rate for 2012 was 22 percent. Taxes at this rate were reduced by discrete tax benefits of $252 million,
resulting in a total tax provision for 2012 of $176 million compared with a total tax provision of $719 million for the prior year. The
decrease in the total tax provision was due to the combination of lower income before income taxes and the impact of the discrete tax
benefits. The decrease was partially offset by the impact of the expiration of the federal research tax credit at the end of 2011. The
discrete tax benefits in 2012 were primarily due to additional U.S. tax benefits for manufacturing related to the years 2000 through
2011. The tax provision for 2012 did not include the January 2013 reinstatement of the federal research tax credit. The effect of the
reinstatement of about $65 million for 2012 will be recorded as a discrete tax benefit in the first quarter of 2013.
See Note 7 to the financial statements for a reconciliation of effective tax rates to the statutory federal tax rate.
Net income was $1.76 billion, a decrease of $477 million, or 21 percent, from 2011. EPS for 2012 was $1.51 compared with $1.88
for 2011. The decline in EPS was due to lower net income. EPS benefitted $0.03 from 2011 due to a lower number of average shares
outstanding as a result of our stock repurchase program.
Segment results
A detailed discussion of our segment results appears below.
Analog
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,998
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650
$ 6,375
1,693
10%
-3%
Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.6% 26.6%
Analog revenue increased $623 million, or 10 percent, from 2011 primarily due to the inclusion of a full year of SVA,
extent, growth in Power Management. Partially offsetting the increase was lower revenue from High Performance Analog. Revenue from
High Volume Analog & Logic products was about even.
and to a lesser
Operating profit was $1.65 billion, or 23.6 percent of revenue. This was a decrease of $43 million, or 3 percent, compared with
2011 primarily due to higher operating expenses from the inclusion of a full year of SVA, partially offset by higher gross profit.
2012
2011
Change
Embedded Processing
2012
2011
Change
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,971
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166
8.4% 17.4%
Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,110
368
-7%
-55%
Embedded Processing revenue decreased $139 million, or 7 percent, compared with 2011 due to lower revenue from products sold into
communications infrastructure applications and, to a lesser extent, a less favorable mix of catalog products shipped. The decrease was
partially offset by revenue from products sold into automotive applications.
Operating profit was $166 million, or 8.4 percent of revenue. This was a decrease of $202 million, or 55 percent, compared with
2011 primarily due to lower gross profit.
4 4 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS
Wireless
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,357
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(525)
$ 2,518
412
-46%
n/a
Operating profit (loss)% of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38.7)% 16.4%
Restructuring charges/other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 351
$ —
2012
2011
Change
* Included in Operating profit (loss)
Wireless revenue decreased $1.16 billion, or 46 percent, from 2011 primarily due to our planned exit from baseband products.
Revenue from connectivity products, and to a lesser extent, OMAP applications processors also declined. Baseband revenue for 2012
was $294 million, a decrease of $810 million, or 73 percent, compared with 2011. We expect revenue from Wireless products for the
smartphone and consumer tablet markets to wind down to essentially zero by the end of 2013.
Wireless had an operating loss of $525 million for 2012, compared with operating profit of $412 million in 2011. The decrease was
primarily due to lower revenue and associated gross profit, and to a lesser extent, restructuring charges.
Other
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,499
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
682
Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.3%
Restructuring charges/other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(87)
Acquisition charges* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
450
$ 2,732
519
19.0%
$ 112
315
-9%
31%
2012
2011
Change
* Included in Operating profit
Revenue from Other was $2.50 billion in 2012. This was a decrease of $233 million, or 9 percent, from 2011 primarily due to the
expiration of transitional supply agreements and, to a lesser extent, a less favorable mix of DLP products shipped. Revenue from
calculators and royalties also declined. The decrease was partially offset by business interruption insurance proceeds resulting from the
2011 Japan earthquake and increased revenue from custom ASIC products.
Operating profit for 2012 from Other was $682 million, or 27.3 percent of revenue. This was an increase of $163 million, or
31 percent, compared with 2011 due to lower restructuring charges, partially offset by higher acquisition charges. Included in
Restructuring charges/other for 2012 was a $144 million gain from the Japan pension program change. The increase in acquisition
charges was due to a full year of increased amortization expense for acquired intangible assets.
Prior results of operations - 2011 compared with 2010
Our 2011 revenue was $13.73 billion, net income was $2.24 billion and EPS was $1.88.
Although 2011 started strong, global economic uncertainty and the March 2011 earthquake in Japan impacted TI, our customers
and our suppliers. Despite these challenges, we successfully completed the acquisition of National, we gained share in the Analog and
Embedded Processing markets, and we continued to wind down our baseband operations.
Revenue in 2011 was $13.73 billion, down $231 million, or 2 percent, from 2010 due to lower revenue from Wireless baseband products.
Gross profit in 2011 was $6.77 billion, a decrease of $720 million, or 10 percent, from 2010. The decrease was primarily due to a
combination of, in decreasing order, lower revenue, lower average levels of factory utilization as we reduced production in response to
weaker demand, acquisition-related charges reflected in COR and inventory charges. Lower factory utilization decreased our gross profit
by $175 million from 2010. Gross profit margin was 49.3 percent of revenue compared with 53.6 percent in 2010.
Operating expenses were $1.72 billion for R&D and $1.64 billion for SG&A. R&D expense increased $145 million, or 9 percent,
from 2010 due to the addition of a partial year of SVA and higher product development costs in our other major Analog product lines,
Embedded Processing and Wireless. R&D expense as a percent of revenue was 12.5 percent compared with 11.2 percent in 2010.
SG&A expense increased $119 million, or 8 percent, from 2010 primarily due to the addition of a partial year of SVA, and to a
lesser extent, higher investments in sales and marketing in support of our other major Analog product lines, Embedded Processing and
Wireless. SG&A expense as a percent of revenue was 11.9 percent compared with 10.9 percent in 2010.
Acquisition charges were $315 million in 2011. There were no acquisition charges in 2010.
2 0 1 2 A N N U A L R E P O R T • 4 5
ANNUAL REPORTTEXAS INSTRUMENTS
Restructuring charges/other of $112 million for 2011 were associated with the action initiated to close certain manufacturing facilities
in Texas and Japan. Restructuring charges/other for 2010 included $33 million of restructuring charges associated with pension benefit
settlements related to actions taken in 2009, offset by a gain of $144 million from the divestiture of a product line included in Other.
Operating profit was $2.99 billion, or 21.8 percent of revenue, compared with $4.51 billion, or 32.3 percent of revenue, in 2010. The
decrease was due to, in decreasing order, lower gross profit, higher total acquisition-related charges, higher operating expenses and a
gain on the divestiture of a product line in 2010.
OI&E for 2011 was income of $5 million. This was $32 million lower than in 2010 due to an expense in 2011 associated with a
settlement related to a divested business.
Interest and debt expense was $42 million. This included interest and amortization of debt expense associated with our issuance of
new debt in 2011 and the assumption of debt as a result of our acquisition of National.
The tax provision for 2011 was $719 million compared with $1.32 billion for the prior year. The decrease was primarily due to lower
income before income taxes.
Net income was $2.24 billion, a decrease of $992 million from 2010. EPS for 2011 was $1.88 compared with $2.62 for 2010. EPS
benefited $0.07 from 2010 due to a lower number of average shares outstanding as a result of our stock repurchase program.
Segment results
A detailed discussion of our segment results appears below.
Analog
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,375
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,693
Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.6%
Restructuring charges/other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ —
$ 5,979
1,876
31.4%
13
$
7%
-10%
2011
2010
Change
* Included in Operating profit
Analog revenue increased $396 million, or 7 percent, from 2010 primarily due to the inclusion of a partial year of SVA, and to a lesser
extent, increased shipments of Power Management and High Volume Analog & Logic products. Partially offsetting these increases was
lower revenue from High Performance Analog due to normal price declines.
Operating profit was $1.69 billion, or 26.6 percent of revenue. This was a decrease of $183 million, or 10 percent, compared with
2010 due to higher operating expenses from the inclusion of a partial year of SVA and, to a lesser extent, lower gross profit resulting
from lower factory utilization.
Embedded Processing
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges/other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,110
368
17.4%
$ —
$ 2,073
491
23.7%
$
6
2%
-25%
2011
2010
Change
* Included in Operating profit
Embedded Processing revenue increased $37 million, or 2 percent, compared with 2010 due to increased shipments of products sold
into automotive and communications infrastructure applications. Partially offsetting these increases was lower revenue from catalog
products resulting from a less favorable mix of catalog products shipped.
Operating profit was $368 million, or 17.4 percent of revenue. This was a decrease of $123 million, or 25 percent, compared with
2010 primarily due to lower gross profit, and to a lesser extent, higher operating expenses. Lower gross profit was primarily due to
lower factory utilization and the effect of the mix of products, which contributed about equally to the change.
Wireless
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges/other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,518
412
16.4%
$ —
-15%
-40%
$ 2,978
683
22.9%
10
$
2011
2010
Change
* Included in Operating profit
4 6 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS
Wireless revenue decreased $460 million, or 15 percent, from 2010 due to decreased shipments of baseband products, and to a much
lesser extent, connectivity products. Partially offsetting these decreases was growth in revenue from OMAP applications processors due
to a more favorable mix of products shipped. Baseband revenue for 2011 was $1.10 billion, a decrease of $609 million, or 36 percent,
compared with 2010.
Operating profit was $412 million, or 16.4 percent of revenue. This was a decrease of $271 million, or 40 percent, compared with
2010 primarily due to lower revenue and associated gross profit.
Other
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,732
Operating profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
519
Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.0%
Restructuring charges/other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 112
Acquisition charges* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
315
$ 2,936
1,464
49.9%
$ (140)
—
2011
2010
Change
-7%
-65%
* Included in Operating profit
Revenue from Other was $2.73 billion in 2011. This was a decrease of $204 million, or 7 percent, from 2010 primarily due to decreased
shipments across most areas.
Operating profit for 2011 from Other was $519 million, or 19.0 percent of revenue. This was a decrease of $945 million, or
65 percent, compared with 2010 due to charges associated with the National acquisition; the absence of a gain on divestiture; lower
revenue and associated gross profit; restructuring charges related to the action initiated in 2011 to close certain manufacturing facilities
in Texas and Japan; and the net losses associated with the Japan earthquake.
Financial condition
At the end of 2012, total cash (Cash and cash equivalents plus Short-term investments) was $3.96 billion, an increase of $1.03 billion
from the end of 2011.
Accounts receivable were $1.23 billion at the end of 2012. This was a decrease of $315 million compared with the end of 2011. The
decrease in accounts receivable was due to lower revenue in December 2012 than in December 2011. Days sales outstanding were 37
at the end of 2012 compared with 41 at the end of 2011.
Inventory was $1.76 billion at the end of 2012. This was a decrease of $31 million from the end of 2011. Days of inventory at the
end of 2012 were 103 compared with 86 at the end of 2011. Our days of inventory increased in order to support higher customer
service levels.
Liquidity and capital resources
Our primary source of liquidity is cash flow from operations. Additional sources of liquidity are Cash and cash equivalents, Short-term
investments and revolving credit facilities. Cash flow from operations for 2012 was $3.41 billion, an increase of $158 million from the
prior year due to an increase in cash provided by working capital.
We had $1.416 billion of Cash and cash equivalents and $2.549 billion of Short-term investments as of December 31, 2012.
We have a variable-rate revolving credit facility with a consortium of investment-grade banks that allows us to borrow up to
$2 billion until March 2017. This credit facility also serves as support for the issuance of commercial paper. As of December 31, 2012,
we had no commercial paper outstanding.
In 2012, investing activities used $1.04 billion. This compares with $6.17 billion used in 2011 primarily for the National acquisition,
net of cash acquired. See Note 2 to the financial statements for details. For 2012, capital expenditures (Additions to property, plant and
equipment) were $495 million compared with $816 million in 2011. Capital expenditures in 2012 were primarily for semiconductor
manufacturing equipment. We used cash of $604 million to make net purchases of short-term investments in 2012 compared with
$98 million in 2011.
In 2012, financing activities used net cash of $1.95 billion and provided $2.59 billion in 2011. In 2012, we received proceeds
of $1.49 billion from the issuance of fixed-rate long-term debt (net of original issuance discount). This compares with proceeds in
2011 of $3.50 billion we received from the issuance of fixed- and variable-rate long-term debt (net of the original issuance discount)
and $1.20 billion from the issuance of commercial paper. The 2011 issuance of long-term debt was used in the National acquisition.
The commercial paper was issued for general corporate purposes and to maintain cash balances at desired levels. See Note 12 to
the financial statements for additional details. We used $1.38 billion to repay debt and commercial paper in 2012 compared with
2 0 1 2 A N N U A L R E P O R T • 4 7
ANNUAL REPORTTEXAS INSTRUMENTS
$200 million used to repay commercial paper in 2011. Dividends paid in 2012 of $819 million compared with $644 million in 2011,
reflecting increases in the dividend rate in each year. In September 2012, we announced a 24 percent increase in our quarterly
cash dividend. The quarterly dividend increased from $0.17 to $0.21 per share, resulting in an annualized dividend payment of
$0.84 per share. We used $1.80 billion to repurchase 59.8 million shares of our common stock in 2012 compared with $1.97 billion
used to repurchase 59.5 million shares in 2011. Employee exercises of stock options are also reflected in cash from financing activities.
In 2012, these exercises provided cash proceeds of $523 million compared with $690 million in 2011.
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.
Non-GAAP financial information
This MD&A includes a discussion of free cash flow, a measure that was not prepared in accordance with generally accepted accounting
principles in the United States (non-GAAP measure). We provide this measure to give investors insight into the company’s liquidity
and cash-generating capability and the amount of its cash available to return to investors. It is supplemental to the comparable
GAAP measure.
Free cash flow was calculated by subtracting capital expenditures (Additions to property, plant and equipment) from Cash flows from
operating activities. The components of this calculation are included in the table below.
For Years Ended
December 31,
2012
2011
Cash flows from operating activities (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less capital expenditures (Additions to property, plant and equipment) . . . . . . . . . . . . . . . . . . . . . . .
Free cash flow (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,414
495
$2,919
$3,256
816
$2,440
Long-term contractual obligations
Contractual obligations
Payments Due by Period
2013
2014/2015
2016/2017
Thereafter
Total
Long-term debt obligations (a) . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations (b) . . . . . . . . . . . . . . . . . . . . . . . .
Software license obligations (c). . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations (d) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation plan (e) . . . . . . . . . . . . . . . . . . . . . . .
Total (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,500
102
46
77
12
$ 1,737
$2,000
143
47
79
31
$2,300
$1,375
81
—
28
30
$1,514
$750
80
—
22
66
$918
$ 5,625
406
93
206
139
$ 6,469
(a) Long-term debt obligations include amounts classified as the current portion of long-term debt, i.e., obligations that will be retired
within 12 months. The related interest payments are not included.
(b) Includes minimum payments for leased facilities and equipment, as well as purchases of industrial gases under contracts accounted
for as an operating lease.
(c) Includes payments under license agreements for electronic design automation software.
(d) Includes contractual arrangements with suppliers where there is a fixed non-cancellable payment schedule or minimum payments
due with a reduced delivery schedule. Excluded from the table are cancellable arrangements. However, depending on when certain
purchase arrangements may be cancelled, an additional $10 million of cancellation penalties may be required to be paid, which are
not reflected in the table.
(e) Includes an estimate of payments under this plan for the liability that existed at December 31, 2012.
(f) Excluded from the table are $184 million of uncertain tax liabilities under ASC 740, as well as any planned, future funding
contributions to retirement benefit plans. Amounts associated with uncertain tax liabilities have been excluded because of the
difficulty in making reasonably reliable estimates of the timing of cash settlements with the respective taxing authorities. Regarding
future funding of retirement benefit plans, we plan to contribute about $100 million in 2013, but funding projections beyond
2013 are not practical to estimate due to the rules affecting tax-deductible contributions and the impact from the plans’ asset
performance, interest rates and potential U.S. and non-U.S. legislation.
4 8 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS
Critical accounting policies
In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States, we
use statistical analyses, estimates and projections that affect the reported amounts and related disclosures and may vary from actual
results. We consider the following accounting policies to be both those that are most important to the portrayal of our financial condition
and that require the most subjective judgment. If actual results differ significantly from management’s estimates and projections, there
could be a significant effect on our financial statements.
Revenue recognition
Revenue from sales of our products, including sales to our distributors, is recognized upon shipment or delivery, depending upon the
terms of the sales order, provided that persuasive evidence of a sales arrangement exists, title and risk of loss have transferred to the
customer, the sales amounts are fixed or determinable, and collection of the revenue is reasonably assured. Revenue from sales of
our products that are subject to inventory consignment agreements is recognized when the customer or distributor pulls product from
consignment inventory that we store at designated locations.
We reduce revenue based on estimates of future credits to be granted to customers. Credits include volume-based incentives,
other special pricing arrangements and product returns due to quality issues. Our estimates of future credits are based on historical
experience, analysis of product shipments and contractual arrangements with customers and distributors.
In 2012, about 50 percent of our revenue was generated from sales of our products to distributors. We recognize distributor revenue
net of allowances, which are management’s estimates based on analysis of historical data, current economic conditions and contractual
terms. These allowances recognize the impact of credits granted to distributors under certain programs common in the semiconductor
industry whereby distributors receive certain price adjustments to meet individual competitive opportunities, or are allowed to return
or scrap a limited amount of product in accordance with contractual terms agreed upon with the distributor, or receive price protection
credits when our standard published prices are lowered from the price the distributor paid for product still in its inventory, or other
incentives designed to maximize growth opportunities. Historical claims data are maintained for each of the programs, with differences
among geographic regions taken into consideration. We continually monitor the actual claimed allowances against our estimates, and
we adjust our estimates as appropriate to reflect trends in distributor revenue and inventory levels. Allowances are also adjusted when
recent historical data do not represent anticipated future activity. About 40 percent of our distributor revenue is generated from sales of
consigned inventory, and we expect this proportion to grow over time. The allowances we record against this revenue are not material.
In addition, we monitor collectability of accounts receivable primarily through review of the accounts receivable aging. When
collection is at risk, we assess the impact on amounts recorded for bad debts and, if necessary, will record a charge in the period such
determination is made.
Income taxes
In determining net income for financial statement purposes, we must make certain estimates and judgments in the calculation of tax
provisions and the resultant tax liabilities, and in the recoverability of deferred tax assets that arise from temporary differences between
the tax and financial statement recognition of revenue and expense.
In the ordinary course of global business, there may be many transactions and calculations where the ultimate tax outcome is
uncertain. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws. We recognize
potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on an estimate of the ultimate resolution
of whether, and the extent to which, additional taxes will be due. Although we believe the estimates are reasonable, no assurance
can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions
and accruals.
As part of our financial process, we must assess the likelihood that our deferred tax assets can be recovered. If recovery is not
likely, the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the deferred tax assets
that are estimated not to be ultimately recoverable. In this process, certain relevant criteria are evaluated including the existence of
deferred tax liabilities that can be used to absorb deferred tax assets, the taxable income in prior years that can be used to absorb net
operating losses and credit carrybacks, and taxable income in future years. Our judgment regarding future recoverability of our deferred
tax assets based on these criteria may change due to various factors, including changes in U.S. or international tax laws and changes
in market conditions and their impact on our assessment of taxable income in future periods. These changes, if any, may require
material adjustments to the deferred tax assets and an accompanying reduction or increase in net income in the period when such
determinations are made.
In addition to the factors described above, the effective tax rate reflected in forward-looking statements is based on then-current
tax law. Significant changes in tax law enacted during the year could affect these estimates. Retroactive changes in tax law enacted
subsequent to the end of a reporting period are reflected in the period of enactment as a discrete tax item.
2 0 1 2 A N N U A L R E P O R T • 4 9
ANNUAL REPORTTEXAS INSTRUMENTS Inventory valuation allowances
Inventory is valued net of allowances for unsalable or obsolete raw materials, work-in-process and finished goods. Allowances are
determined quarterly by comparing inventory levels of individual materials and parts to historical usage rates, current backlog and
estimated future sales and by analyzing the age of inventory, in order to identify specific components of inventory that are judged
unlikely to be sold. Allowances are also calculated quarterly for instances where inventoried costs for individual products are in excess
of market prices for those products. In addition to this specific identification process, statistical allowances are calculated for remaining
inventory based on historical write-offs of inventory for salability and obsolescence reasons. Actual future write-offs of inventory for
salability and obsolescence reasons may differ from estimates and calculations used to determine valuation allowances due to changes
in customer demand, customer negotiations, technology shifts and other factors.
Impairment of acquisition-related intangibles and goodwill
We review acquisition-related intangible assets for impairment when certain indicators suggest the carrying amount may not be
recoverable. Factors considered include the underperformance of an asset compared with expectations and shortened useful lives due
to planned changes in the use of the assets. Recoverability is determined by comparing the carrying amount of the assets to estimated
future undiscounted cash flows. If future undiscounted cash flows are less than the carrying amount, an impairment charge would be
recognized for the excess of the carrying amount over fair value, determined by utilizing a discounted cash flow technique. Additionally,
in the case of intangible assets that will continue to be used in future periods, a shortened useful life may be utilized if appropriate,
resulting in accelerated amortization based upon the expected net realizable value of the asset at the date the asset will no longer
be utilized.
We review goodwill for impairment annually, or more frequently if certain impairment indicators arise, such as significant changes in
business climate, operating performance or competition, or upon the disposition of a significant portion of a reporting unit. A significant
amount of judgment is involved in determining if an indicator of impairment has occurred between annual test dates. This impairment
review compares the fair value for each reporting unit containing goodwill to its carrying value. Determining the fair value of a reporting
unit involves the use of significant estimates and assumptions, including projected future cash flows, discount rates based on weighted
average cost of capital and future economic and market conditions. We base our fair-value estimates on assumptions we believe to
be reasonable.
Actual cash flow amounts for future periods may differ from estimates used in impairment testing.
Business combinations
The acquisition method of accounting requires that we recognize the assets acquired and liabilities assumed at their acquisition date
fair values. Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets
acquired and the liabilities assumed.
The measurement of the fair values of assets acquired and liabilities assumed requires considerable judgment. Although
independent appraisals may be used to assist in the determination of the fair values of certain assets and liabilities, those
determinations are usually based on significant estimates provided by management, such as forecasted revenue or profit. In
determining the fair value of intangible assets, an income approach is generally used and may incorporate the use of a discounted cash
flow method. In applying the discounted cash flow method, the estimated future cash flows and residual values for each intangible asset
are discounted to a present value using a discount rate based on an estimated weighted average cost of capital for the semiconductor
industry. These cash flow projections are based on management’s estimates of economic and market conditions including revenue
growth rates, operating margins, capital expenditures and working capital requirements.
While we use our best estimates and assumptions as part of the process to value assets acquired and liabilities assumed at the
acquisition date, our estimates are inherently uncertain and subject to refinement. During the measurement period, which occurs before
finalization of the purchase price allocation, changes in assumptions and estimates that result in adjustments to the fair values of
assets acquired and liabilities assumed are recorded on a retrospective basis as of the acquisition date, with the corresponding offset to
goodwill. Upon the conclusion of the measurement period, any subsequent adjustments will be recorded to our Consolidated statements
of income. The measurement period for the National acquisition concluded on December 31, 2011.
5 0 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Changes in accounting standards
As of December 31, 2012, the Financial Accounting Standards Board had issued several accounting standards that we have not yet
been required to adopt. None of these standards would have a material effect on our financial condition, results of operations or
financial disclosures.
Off-balance sheet arrangements
As of December 31, 2012, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Commitments and contingencies
See Note 13 to the financial statements for a discussion of our commitments and contingencies.
Quantitative and qualitative disclosures about market risk
Foreign exchange risk
The U.S. dollar is the functional currency for financial reporting. We use forward currency exchange contracts to reduce the earnings
impact exchange rate fluctuations may have on our non-U.S. dollar net balance sheet exposures. For example, at year-end 2012, we
had forward currency exchange contracts outstanding with a notional value of $305 million to hedge net balance sheet exposures
(including $140 million to sell Japanese yen, $26 million to sell Chinese yuan and $26 million to sell British pound sterling). Similar
hedging activities existed at year-end 2011.
Because most of the aggregate non-U.S. dollar balance sheet exposure is hedged by these forward currency exchange contracts,
based on year-end 2012 balances and currency exchange rates, a hypothetical 10 percent plus or minus fluctuation in non-U.S.
currency exchange rates would result in a pre-tax currency exchange gain or loss of approximately $1 million.
Interest rate risk
We have the following potential exposure to changes in interest rates: (1) the effect of changes in interest rates on the fair value of our
investments in cash equivalents and short-term investments, which could produce a gain or a loss; and (2) the effect of changes in
interest rates on the fair value of our debt and an associated interest rate swap.
As of December 31, 2012, a hypothetical 100 basis point increase in interest rates would decrease the fair value of our investments
in cash equivalents and short-term investments by $13 million and decrease the fair value of our long-term debt and the associated
interest rate swap by $140 million. Because interest rates on our long-term debt are fixed or have been swapped to fixed rates, changes
in interest rates would not affect the cash flows associated with long-term debt.
Equity risk
Long-term investments at year-end 2012 include the following:
• Investments in mutual funds – includes mutual funds that were selected to generate returns that offset changes in certain
liabilities related to deferred compensation arrangements. The mutual funds hold a variety of debt and equity investments.
• Investments in venture capital funds – includes investments in limited partnerships (accounted for under either the equity or
cost method).
• Equity investments – includes non-marketable (non-publicly traded) equity securities.
Investments in mutual funds are stated at fair value. Changes in prices of the mutual fund investments are expected to offset related
changes in deferred compensation liabilities such that a 10 percent increase or decrease in the investments’ fair values would not
materially affect operating results. Non-marketable equity securities and some venture capital funds are stated at cost. Impairments
deemed to be other-than-temporary are expensed in net income. Investments in the remaining venture capital funds are stated using
the equity method. See Note 9 to the financial statements for details of equity and other long-term investments.
2 0 1 2 A N N U A L R E P O R T • 5 1
ANNUAL REPORTTEXAS INSTRUMENTS Quarterly financial data
[Millions of dollars, except per-share amounts]
2012
Quarter
1st
2nd
3rd
4th
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,121
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,531
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
397
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 265
Earnings per common share:
$ 3,335
1,651
598
$ 446
$ 3,390
1,740
840
$ 784
$ 2,979
1,445
139
$ 264
Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.23
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.22
$ 0.38
$ 0.38
$ 0.68
$ 0.67
$ 0.23
$ 0.23
2011
Quarter
1st
2nd
3rd
4th
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,392
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,728
908
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 666
Earnings per common share:
$ 3,458
1,753
905
$ 672
$ 3,466
1,744
814
$ 601
$ 3,420
1,548
365
$ 298
Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.56
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.55
$ 0.57
$ 0.56
$ 0.52
$ 0.51
$ 0.26
$ 0.25
Included in the results above were the following items:
2012
Acquisition-related charges (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recorded as Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recorded as Acquisition charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges/other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Quarter
1st
2nd
3rd
4th
$ 174
21
153
10
$ 104
—
104
13
$
$ 106
—
106
$ (122)
$
88
—
88
$ 363
2011
Quarter
1st
2nd
3rd
4th
Acquisition-related charges (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recorded as Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recorded as Acquisition charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 256
103
153
Restructuring charges/other (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ — $ 112
$ 154
7
147
13
—
13
2
—
2
$
$
(a) See Note 2 to the financial statements for additional information.
(b) See Note 3 to the financial statements for additional information.
5 2 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS
Common stock prices and dividends
TI common stock is listed on The NASDAQ Global Select Market. The table below shows the high and low closing prices of TI common
stock as reported by Bloomberg L.P. and the dividends paid per common share for each quarter during the past two years.
Quarter
1st
2nd
3rd
4th
Stock prices:
2012 High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34.24
29.24
$ 36.71
32.25
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 33.41
26.55
$ 35.98
30.96
$ 30.38
26.06
$ 33.66
24.34
$ 31.81
27.00
$ 32.09
26.08
Dividends paid:
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparison of total shareholder return
$ 0.17
$ 0.13
$ 0.17
$ 0.13
$ 0.17
$ 0.13
$ 0.21
$ 0.17
This graph compares TI’s total shareholder return with the S&P 500 Index and the S&P Information Technology Index over a five-year
period, beginning December 31, 2007, and ending December 31, 2012. The total shareholder return assumes $100 invested at the
beginning of the period in TI common stock, the S&P 500 Index and the S&P Information Technology Index. It also assumes reinvestment
of all dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Texas Instruments Incorporated, the S&P 500 Index,
and the S&P Information Technology Index
$140
$120
$100
$80
$60
$40
$20
$0
12/07
12/08
12/09
12/10
12/11
12/12
Texas Instruments Incorporated
S&P 500
S&P Information Technology
*$100 invested on 12/31/07 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Texas Instruments Incorporated . . . . . . . . . . . . . . . . . . .
$ 100
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100
S&P Information Technology . . . . . . . . . . . . . . . . . . . . . $ 100
$ 47
$ 63
$ 57
$ 81
$ 80
$ 92
$ 103
$ 92
$ 101
$ 94
$ 94
$ 104
$ 102
$ 109
$ 119
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
2 0 1 2 A N N U A L R E P O R T • 5 3
ANNUAL REPORTTEXAS INSTRUMENTS
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
This report includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as TI or its
management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import.
Similarly, statements herein that describe TI’s business strategy, outlook, objectives, plans, intentions or goals also are forward-looking
statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ
materially from those in forward-looking statements.
We urge you to carefully consider the following important factors that could cause actual results to differ materially from the
expectations of TI or its management:
• Market demand for semiconductors, particularly in key markets such as communications, computing, industrial,
consumer electronics and automotive;
• TI’s ability to maintain or improve profit margins, including its ability to utilize its manufacturing facilities at sufficient levels to
cover its fixed operating costs, in an intensely competitive and cyclical industry;
• TI’s ability to develop, manufacture and market innovative products in a rapidly changing technological environment;
• TI’s ability to compete in products and prices in an intensely competitive industry;
• TI’s ability to maintain and enforce a strong intellectual property portfolio and obtain needed licenses from third parties;
• Expiration of license agreements between TI and its patent licensees, and market conditions reducing royalty payments to TI;
• Economic, social and political conditions in the countries in which TI, its customers or its suppliers operate, including security
risks, health conditions, possible disruptions in transportation, communications and information technology networks and
fluctuations in foreign currency exchange rates;
• Natural events such as severe weather and earthquakes in the locations in which TI, its customers or its suppliers operate;
• Availability and cost of raw materials, utilities, manufacturing equipment, third-party manufacturing services and
manufacturing technology;
• Changes in the tax rate applicable to TI as the result of changes in tax law, the jurisdictions in which profits are determined to be
earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets;
• Changes in laws and regulations to which TI or its suppliers are or may become subject, such as those imposing fees or reporting
or substitution costs relating to the discharge of emissions into the environment or the use of certain raw materials in our
manufacturing processes;
• Losses or curtailments of purchases from key customers and the timing and amount of distributor and other customer
inventory adjustments;
• Customer demand that differs from our forecasts;
• The financial impact of inadequate or excess TI inventory that results from demand that differs from projections;
• Impairments of our non-financial assets;
• Product liability or warranty claims, claims based on epidemic or delivery failure or recalls by TI customers for a product
containing a TI part;
• TI’s ability to recruit and retain skilled personnel;
• Timely implementation of new manufacturing technologies and installation of manufacturing equipment, and the ability to obtain
needed third-party foundry and assembly/test subcontract services;
• TI’s obligation to make principal and interest payments on its debt;
• TI’s ability to successfully integrate and realize opportunities for growth from acquisitions, and our ability to realize our
expectations regarding the amount and timing of restructuring charges and associated cost savings; and
• Breaches of our information technology systems.
For a more detailed discussion of these factors see the Risk Factors discussion in Item 1A of our most recent Form 10-K. The
forward-looking statements included in this report are made only as of the date of this report (March 2013), and we undertake no
obligation to update the forward-looking statements to reflect subsequent events or circumstances.
5 4 • 2 0 1 2 A N N U A L R E P O R T
ANNUAL REPORTTEXAS INSTRUMENTS Board of directors, executive officers
Pamela H. Patsley
Chairman of the Board and
Chief Executive Officer,
MoneyGram International, Inc.
Robert E. Sanchez
President and
Chief Executive Officer,
Ryder System, Inc.
Wayne R. Sanders
Retired Chairman of the Board
and Chief Executive Officer,
Kimberly-Clark Corporation
Ruth J. Simmons
President Emerita,
Brown University
Christine Todd Whitman
President, The Whitman
Strategy Group
Executive officers
Richard K. Templeton
Chairman of the Board,
President and Chief Executive Officer
Niels Anderskouv
Senior Vice President
Stephen A. Anderson
Senior Vice President
Brian T. Crutcher
Senior Vice President
R. Gregory Delagi
Senior Vice President
David K. Heacock
Senior Vice President
Joseph F. Hubach
Senior Vice President, Secretary
and General Counsel
Sami Kiriaki
Senior Vice President
Melendy E. Lovett
Senior Vice President;
President, Education
Technology
Kevin P. March
Senior Vice President and
Chief Financial Officer
Robert K. Novak
Senior Vice President
Kevin J. Ritchie
Senior Vice President
John J. Szczsponik, Jr.
Senior Vice President
Teresa L. West
Senior Vice President
Darla H. Whitaker
Senior Vice President
Directors
Richard K. Templeton
Chairman of the Board,
President and
Chief Executive Officer,
Texas Instruments Incorporated
Ralph W. Babb, Jr.
Chairman of the Board and
Chief Executive Officer,
Comerica Incorporated and
Comerica Bank
Mark A. Blinn
President and
Chief Executive Officer,
Flowserve Corporation
Daniel A. Carp
Retired Chairman of the Board
and Chief Executive Officer,
Eastman Kodak Company
Carrie S. Cox
Chairman of the Board and
Chief Executive Officer,
Humacyte, Inc.
TI Fellows
TI Fellows are engineers, scientists or technologists who are recognized by
peers and TI management for outstanding performance. Fellows are elected
based on exceptional technical contributions that significantly contribute to
TI’s shareholder value.
TI Fellows announced in 2012:
Andrew Marshall
Krishnaswamy Nagaraj
Luu Nguyen
Lars Risbo
Scott Summerfelt
Stockholder and other information
Stockholder records information
First-class, registered and certified mail:
Computershare Trust Company, N.A.
P. O. Box 43078
Providence, RI 02940-3078
Overnight delivery:
Computershare Trust Company, N.A.
250 Royall Street, Mail Stop 1A
Canton, MA 02021
Toll free: 800-981-8676
Phone: 781-575-2000
For general information:
www.computershare.com/contactus
www-us.computershare.com
SEC Form 10-K
Stockholders may obtain a copy of the company’s
annual report to the Securities and Exchange
Commission on Form 10-K (except for exhibits)
and its audited financial statements without
charge by writing to:
Investor Relations
P.O. Box 660199, MS 8657
Dallas, TX 75266-0199
DLP, OMAP and the platform bar are trademarks of Texas Instruments. All other trademarks are the property of their respective owners.
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Texas Instruments Incorporated
P.O. Box 660199
Dallas, TX 75266-0199
www.ti.com
An equal opportunity employer
© 2013 Texas Instruments Incorporated
TI-30001N
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