Texas Instruments
Annual Report 2014

Plain-text annual report

2014 Annual Report Notice of 2015 Annual Meeting & Proxy Statement To our shareholders Richard K. Templeton Chairman, President and Chief Executive Officer 2014 was a year of strong results – evidence of the soundness of our strategy and a preview of the performance we believe TI can produce in the coming years. We delivered solid growth, substantial profits and robust cash generation, and we returned more than 100 percent of free cash flow to our shareholders. Fueled by a passion for technology that impacts lives, we used this financial strength to develop compelling innovations for our customers to help them take their products to new levels. We believe these will be hallmark traits of TI in the years ahead. Manufacturing: Our strategy of acquiring manufacturing capacity opportunistically and ahead of demand, combined with a product portfolio that can be built using long-lived equipment, continues to serve us well. It enables us to cost effectively maintain our capital expenditures at about 4 percent of revenue, while allowing us to become an exceptionally reliable supplier to our customers. In 2014, we initiated plans to increase Analog production on 300-millimeter wafers, which will provide cost advantages that will further improve margins and cash generation over the long term. The year’s performance is best viewed through the lens of our capital management strategy. This strategy crystalizes how certain strategic elements, which we have honed for years, contribute to our unique ability to grow, generate and return cash to shareholders. So let’s begin there. Our beliefs: Our capital management strategy is based on the belief that free cash flow growth is key to maximizing shareholder value over the long term. Further, free cash flow will only be valued if it is wisely invested in our businesses or directly returned to shareholders. Given these beliefs, we focus on growing free cash flow over the long term. Since 2004, free cash flow has grown at a compound annual growth rate of 7 percent, and in 2014, free cash flow was $3.5 billion, up 18 percent from the prior year. Our business model: The foundation of our capital management strategy begins with a business model that is built on two core semiconductor businesses, Analog and Embedded Processing. Their long product life cycles, intrinsic diversity and need for less capital-intensive manufacturing provide a combination of stability, profitability and strong cash generation. These core businesses, together, have grown an average 9 percent per year over the last 10 years and comprised 83 percent of our revenue in 2014. Importantly, they drove annual company growth of 7 percent in 2014. This marked the fifth consecutive year of share gains for each. Cash availability and a healthy balance sheet: We make sure that our tax practices do not strand cash offshore, and that our balance sheet holds an appropriate amount of cash to fund operations and meet debt and other obligations, yet still finance future opportunities. At year-end 2014, U.S. entities owned 82 percent of our cash, and our pension plans worldwide were 97 percent funded. Technology: Innovation is our lifeblood at TI, letting us deliver breakthrough technologies to the world’s design engineers. Our R&D investments allow us to create entirely new product categories, such as inductance-to-digital converters; expand our product portfolio into new areas, such as reinforced isolation, high-voltage and high-power density solutions with silicon and gallium nitride technologies; and improve existing capabilities, such as our InstaSPIN™ motor control technology. In 2014, we invested $1.4 billion in R&D, substantially more than our best competitors. Returns to shareholders: Our business model enables us to consistently generate more cash than we need to fund our future. In 2014, TI’s free cash flow of $3.5 billion was 27 percent of revenue, and in the years ahead we expect that rate can improve to 30 percent of revenue sustainably in good economic markets. This gets us to the final piece of our capital management strategy – returning cash to our shareholders. Through dividends and share repurchases, we are committed to returning 100 percent of our free cash flow plus proceeds from stock-option exercises except that which is needed for debt retirement. We have increased our dividends for 11 consecutive years, and we’ve reduced our shares outstanding by 39 percent since 2004. In 2014, we returned $4.2 billion to shareholders. In conclusion: Over the years, we have created a strong company. But our goal is to make TI stronger still. We do not intend to squander the unique position we’ve created, one that is anchored in the diversity of tens of thousands of products and customers for analog and embedded processing semiconductors, bolstered by an efficient manufacturing operation, and supported by the largest sales channels in the industry. We intend to deliver more value to our customers, to our shareholders and to society as we bring semiconductors to more markets than ever before. Note: Free cash flow (non-GAAP) = Cash flow from operations minus Capital expenditures. See page 124 for details. Board of directors, executive officers 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 or re-elected every five years based on exceptional technical contributions that significantly add to TI’s shareholder value. Stockholder and other information Stockholder records information Stockholder correspondence: Computershare P. O. Box 30170 College Station, TX 77842-3170 Toll free: 800-981-8676 Phone: 781-575-2000 Website: www.computershare.com/investor For online inquiries: https://www-us.computershare.com/investor/contact InstaSPIN, DLP, OMAP and the platform bar are trademarks of Texas Instruments. All other trademarks are the property of their respective owners. FINANCIAL SNAPSHOT Earnings summary 13.0 12.2 $B 15 12 9 6 3 0 2.57 1.91 $ 3 2 1 0 2013 2014 3.9 2.8 2.8 2.2 Revenue Operating Profit Net Income Diluted EPS Free cash flow summary 7% CAGR $B 4 3 2 1 0 2004 2006 2008 2010 2012 2014 CAGR – Compound annual growth rate Cash generation summary (Millions of dollars) Cash return summary (Millions of dollars) 2013 Cash flow from operations $ 3,384 Capital expenditures $ 412 Free cash flow $ 2,972 24% Free cash flow % of revenue Change 15% -7% 18% 2014 $ 3,892 $ 385 $ 3,507 27% 2013 Dividends paid $ 1,175 Stock repurchases $ 2,868 Total cash returned $ 4,043 2014 $ 1,323 $ 2,831 $ 4,154 Change 13% -1% 3% Note: Free cash flow (non-GAAP) = Cash flow from operations minus Capital expenditures See page 124 for details i Texas InsTrumenTsForm 10-K Table of Contents PART I Item 1 Business Item 1A Risk Factors 2 8 Item 1B Unresolved Staff Comments 12 Item 2 Item 3 Item 4 Item 5 Item 6 Item 7 Properties 13 Legal Proceedings 13 Mine Safety Disclosures 13 PART II Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 14 Selected Financial Data 15 Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 •  Overview 16 •  Results of operations 17 •  Prior results of operations 18 •  Financial condition 20 •  Liquidity and capital resources 20 •  Non-GAAP financial information 20 •  Long-term contractual obligations 21 •  Critical accounting policies 21 •  Changes in accounting standards, Off-balance sheet arrangements, and Commitments and contingencies 23 Item 7A Quantitative and Qualitative Disclosures About  Market Risk 24 Item 8 Financial Statements and Supplementary Data 25 •  Consolidated  Statements of Income 26 •  Consolidated  Statements of Comprehensive Income 27 •  Consolidated  Balance Sheets 28 •  Consolidated  Statements of Cash Flows 29 •  Consolidated  Statements of Stockholders’ Equity 30 Notes to financial statements 31 •  •  •  •  •  •  •  •  •  •  •  •  •  (1) Description of business, including segment and geographic area information 31 (2) Basis of presentation and significant accounting policies and practices 32 (3) Acquisition charges 36 (4) Restructuring charges/other 37 (5) Stock-based compensation 38 (6) Profit sharing plans 43 (7) Income taxes 43 (8) Financial instruments and risk concentration 46 (9) Valuation of debt and equity investments and certain liabilities 46 (10) Goodwill and acquisition-related intangibles 48 (11) Postretirement benefit plans 49 (12) Debt and lines of credit 55 (13) Commitments and contingencies 56 i i Tex as In sTru m en Ts •  •  (14) Supplemental financial information 57 (15) Quarterly financial data (unaudited) 59 Report of independent registered public accounting firm 60 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 61 Item 9A Controls and Procedures 61 Item 9B Other Information 63 PART III Item 10 Directors, Executive Officers and Corporate Governance 63 Item 11 Executive Compensation 63 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 64 Item 13 Certain Relationships and Related Transactions, and Director Independence 65 Item 14 Principal Accountant Fees and Services 65 Item 15 Exhibits, Financial Statement Schedules 65 Notice regarding forwarding-looking statements 67 Signatures 68 PART IV Notice of 2015 annual meeting of stockholders and proxy statement Notice of annual meeting of stockholders 71 Proxy statement table of contents Other information 72 123 Tex as In sTru me nTs i i i (This page intentionally left blank.) i v Tex as In sTru m en Ts UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2014 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _________ to _________ Commission File Number 1-3761 TEXAS INSTRUMENTS INCORPORATED (Exact name of Registrant as specified in its charter) Delaware (State of Incorporation) 12500 TI Boulevard, Dallas, Texas (Address of Principal Executive Offices) 75-0289970 (I.R.S. Employer Identification No.) 75243 (Zip Code) Registrant’s Telephone Number, Including Area Code: 214-479-3773 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $1 00 Name of each exchange on which registered The NASDAQ Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes  No  Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes  No  Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every  Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the  preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes   No  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of  the Exchange Act Large accelerated filer  Accelerated filer  Non-accelerated filer  Smaller reporting company  Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   No  The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $50,978,062,488 as of  June 30, 2014 1,047,142,301 (Number of shares of common stock outstanding as of February 17, 2015) Part III hereof incorporates information by reference to the Registrant’s proxy statement for the 2015 annual meeting of stockholders. Tex as In sTru menTs • 2014 F Orm 10 -K 1 ITEM 1. Business. P ART I F o r m 1 0 - k 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 35 countries. We have two reportable segments: Analog and Embedded Processing. We report the results of our remaining business  activities in 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. In 2014, we generated $13.05 billion of revenue. Product information Semiconductors are electronic components that serve as the building blocks inside modern electronic systems and equipment.  Semiconductors, generally known as “chips,” combine multiple transistors on a single piece of material to form a complete electronic  circuit We have tens of thousands of products 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 application-specific standard semiconductor products, both of which we market to multiple customers. Catalog  products are designed for use by many customers and/or many applications and are sold through both distribution and direct channels.  The life cycles of catalog products generally span multiple years, with some products continuing to sell for decades after their initial release. Application-specific standard products (ASSPs) are designed for use by a smaller number of customers and are targeted to a  specific application. The life cycles of ASSPs are generally determined by end-equipment upgrade cycles and can be as short as 12 to  24 months, although some can be used across multiple generations of customers’ products. The vast majority of our revenue is derived  from products that are differentiated from competitors’ products 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. Our segments also reflect how management allocates  resources and measures results Additional information regarding each segment follows analog Analog generated $8.1 billion of revenue in 2014. 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 embedded processors. Analog semiconductors also are used to manage power in every electronic device, whether  plugged into a wall or running off a battery. Our Analog products are used in many markets, particularly personal electronics and industrial. Sales of our Analog products generated 62 percent of our revenue in 2014 According to external sources, the market for analog semiconductors was $44 billion in 2014. Our Analog segment’s revenue in 2014 was 18 percent of this fragmented market, the leading  position. We believe we are well positioned to increase our market share over time.  Our Analog segment includes the following product lines: High Volume Analog & Logic (HVAL), Power Management (Power), High  Performance Analog (HPA) and Silicon Valley Analog (SVA). HVAL products These include high-volume integrated analog products for specific applications and high-volume catalog products. HVAL products  support applications like automotive safety devices, touchscreen controllers, low-voltage motor drivers and integrated motor controllers Power products These include both catalog products and ASSPs that help customers manage power in electronic systems. Our broad portfolio of Power  products is designed to enhance the efficiency of powered devices using battery management solutions, portable power conversion  devices, power supply controls and point-of-load products HPA products These include catalog analog products that we market to many different customers who use them in manufacturing a wide range of products HPA products include high-speed data converters, amplifiers, sensors, high reliability products, interface products and precision analog products  that are typically used in systems that require high performance HPA products generally have long life cycles, often more than 10 years 2 Tex as In sTru me nTs • 2014 FO rm 10-K SVA products These include a broad portfolio of industrial, high-voltage power management, data converter, interface and operational amplifier  catalog products used in manufacturing a wide range of electronic systems. SVA products support applications like video and data  interface products, electrical arc/fault detection systems, and mobile lighting and display systems. SVA products generally have long life  cycles, often more than 10 years. SVA consists primarily of products that we acquired through our purchase of National Semiconductor  Corporation (National) in 2011 embedded Processing Embedded Processing generated $2.7 billion of revenue in 2014. Embedded Processing products are the “brains” of many electronic  devices. Embedded processors are designed to handle specific tasks and can be optimized for various combinations of performance,  power and cost, depending on the application. The devices vary from simple, low-cost products used in electric toothbrushes to highly  specialized, complex devices used in communications infrastructure equipment. Our Embedded Processing products are used in many  markets, particularly industrial and automotive k - 0 1 m r o F 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 many customers prefer to re-use software from one product generation to the next. Sales of Embedded Processing products generated 21 percent of our revenue in 2014. According to external sources, the market for  embedded processors was $18 billion in 2014. We held the number two position, which represented 15 percent of this fragmented  market. We believe we are well positioned to increase our market share over time. Our Embedded Processing segment includes the following major product lines: Processor, Microcontrollers and Connectivity.  Processor products These include digital signal processors (DSPs) and applications processors DSPs perform mathematical computations almost instantaneously to process or improve digital data Applications processors are typically tailored for a specific class of applications such as communications infrastructure and automotive (infotainment and advanced driver assistance systems). They are also sold into broad  industrial applications Microcontroller products These include self-contained systems with a processor core, memory and peripherals that are designed to control a set of specific tasks for electronic equipment Microcontrollers tend to have minimal requirements for memory and program length, with no operating system and low software complexity Analog components that control or interface with sensors and other systems are often integrated into microcontrollers Connectivity products These include products that enable electronic devices to seamlessly connect and transfer data, and the requirements for speed,  data capability, distance, power and security vary depending on the application. Our Connectivity products support many wireless  technologies to meet these requirements, including low-power wireless network standards like Zigbee® and other technologies  like Bluetooth®, WiFi and GPS. Our Connectivity products are usually designed into customer devices alongside our processor and  microcontroller products, enabling data to be collected, transmitted and acted upon. Other Other generated $2.2 billion of revenue in 2014 and includes: •  Revenue from our smaller product lines, such as DLP® products (primarily used in projectors to create high-definition images),  certain custom semiconductors known as application-specific integrated circuits (ASICs) and calculators •  Revenue from our baseband products and from our OMAP™ applications processors and connectivity products sold into  smartphones and consumer tablets. Our exit from these “legacy wireless products” was completed in 2013.  •  Royalties received for our patented technology that we license to other electronics companies We also include in Other items that are not used in evaluating the results of or in allocating resources to our segments These include acquisition-related charges; restructuring charges; and certain corporate-level items, such as litigation expenses, environmental costs, insurance settlements, and gains and losses from other activities, including asset dispositions Tex as In sTru menTs • 2014 F Orm 10 -K 3 Financial information with respect to our segments and our operations outside the United States is contained in Note 1 to the financial statements, which is included in Item 8, “Financial Statements and Supplementary Data ” Risks attendant to our foreign operations are described in Item 1A, “Risk  Factors ” m arkets for our products The table below lists the major markets that used our products in 2014 and the estimated percentage of our 2014 revenue that the  market represented The chart also lists, in decreasing order of our revenue, the sectors within each market Market Industrial (31% of TI revenue) F o r m 1 0 - k Automotive (13% of TI revenue) Personal electronics (29% of TI revenue) Communications equipment (17% of TI revenue) Enterprise systems (6% of TI revenue) Other (calculators, royalties and other) (4% of TI revenue) Sectors Factory automation and control Medical/healthcare/fitness Building automation Smart grid and energy Test and measurement Motor drives Display Space/avionics/defense Appliance Other power delivery Electronic point of sale Lighting Industrial transportation Other (education, toys, musical instruments, etc ) No single sector in this market accounted for more than 4% of TI revenue. Infotainment and cluster Passive safety Body Advanced driver assistance systems (ADAS) Hybrid/electric vehicle and powertrain No single sector in this market accounted for more than 5% of TI revenue. Mobile phones Personal and notebook computers TV/set-top box/audio Storage Printers and other peripherals Tablets Wearables (non-medical) Gaming No single sector in this market accounted for more than 9% of TI revenue. Wireless infrastructure Telecom infrastructure Enterprise switching Residential gateway No single sector in this market accounted for more than 10% of TI revenue. Projectors Servers Multi-function printers High-performance computing Thin client No single sector in this market accounted for more than 4% of TI revenue. 4 Tex as In sTru me nTs • 2014 FO rm 10-K Market characteristics 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” 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.  k - 0 1 m r o F We employ several strategies to dampen the effect of the semiconductor cycle on TI We acquire our facilities and equipment ahead of demand, which usually allows us to acquire this capacity at lower costs. We focus our resources on our Analog and Embedded  Processing segments, which serve diverse markets and diverse customers This diversity reduces our dependence on the performance of a single market or small group of customers. Additionally, we utilize consignment inventory programs with our customers and  distributors, which gives us real-time insight into end-market demand, allowing us to better manage our factory loadings. seasonality Our revenue is subject to some seasonal variation. Our semiconductor revenue tends to be weaker in the first and fourth quarters when  compared to the second and third quarters. Calculator revenue is tied to the U.S. back-to-school season and is therefore at its highest in  the second and third quarters Competitive landscape The analog and embedded processing markets are highly fragmented. As a result, we face significant global competition from dozens  of large and small companies, including both broad-based suppliers and niche suppliers. Our competitors also include emerging  companies, particularly in Asia, that sell products into the same markets in which we operate We believe that competitive performance in the semiconductor market generally depends on several factors, including the breadth  of a company’s product line, the strength and depth of the sales network, technological innovation, product development execution, technical support, customer service, quality, reliability, price and scale. The primary competitive factors for our Analog products include  design proficiency, a diverse product portfolio to meet wide-ranging customer needs, manufacturing process technologies that provide differentiated levels of performance, applications and sales support, and manufacturing expertise and capacity The primary competitive factors for our Embedded Processing products are the ability to design and cost-effectively manufacture products, system-level  knowledge about targeted end markets, installed base of software, software expertise, applications and sales support, and a product’s  performance, integration and power characteristics Manufacturing Semiconductor manufacturing begins with a sequence of photolithographic and chemical processing steps that fabricate a number  of semiconductor devices on a thin silicon wafer Each device on the wafer is packaged and tested 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 logic products, such as some of our processor 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 We own much of our manufacturing capacity; therefore, a significant portion of our operating cost is fixed When factory loadings decrease, our fixed costs are spread over reduced output and, absent other circumstances, our profit margins decrease.  Tex as In sTru menTs • 2014 F Orm 10 -K 5 Conversely, as factory loadings increase, our fixed costs are spread over increased output and, absent other circumstances, our profit  margins increase. However, our operating focus is more on maximizing long-term free cash flow than minimizing short-term variations  in profit margins caused by factory loadings. Free cash flow is cash flow from operations less capital expenditures. To this end, we seek to maximize long-term free cash flow by keeping capital expenditures low through opportunistic purchases of  facilities and equipment ahead of demand. For example, in 2013, we purchased an assembly/test facility in Chengdu, China. In 2014, we  initiated plans to adapt existing facilities to manufacture more products, including new products, using 300 -millimeter wafers, our most cost-effective manufacturing process. These activities may have near-term effects on our profit margins, but we believe they will result  in long-term benefits to free cash flow. We expect to maintain sufficient internal manufacturing capacity to meet the vast majority of our production needs. To supplement our  manufacturing capacity and maximize our responsiveness to customer demand and return on capital, we utilize the capacity of outside  suppliers, commonly known as foundries, and subcontractors. In 2014, we sourced about 20 percent of our total wafers from external  foundries and about 40 percent of our assembly/test services from subcontractors. F o r m 1 0 - k Inventory Our inventory practices differ by product, but we generally maintain inventory levels that are consistent with our expectations of  customer demand. We carry proportionally more inventory of products with long life cycles and a broad customer base. Additionally, we  sometimes maintain 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 distributors. Design centers Our design centers provide design, engineering and product application support as well as after-sales customer service The design centers are strategically located around the world to take advantage of key technical and engineering talent and proximity to key customers Customers We estimate that we sell our products to more than 100,000 customers. Our customer base is diverse, with one-third of our revenue  deriving from customers outside our top 100 In addition, no single customer accounts for 10 percent or more of our revenue Most of our customers purchase our products through distributors. Sales and distribution We market and sell our semiconductor products through a direct sales force and distributors. We have sales or marketing offices in  34 countries. About 60 percent of our revenue comes through distribution channels. Our distributors maintain an inventory of our  products and sell directly to a wide range of customers. They also sell products from our competitors. Our distribution network holds  a mix of TI-consigned and distributor-owned inventory. Over time, we expect this mix will continue to shift more toward consignment.  About 60 percent of our distributor revenue is generated from sales of consigned inventory. Acquisitions, divestitures and investments From time to time we consider acquisitions and divestitures that may strengthen or better focus our business portfolio. We also make  investments directly or indirectly in private companies Investments are focused primarily on next-generation technologies and markets strategic to us. In September 2011, we acquired National Semiconductor Corporation. Backlog We define backlog as of a particular date as purchase orders with a customer-requested delivery date within a specified length of  time. Our backlog at any particular date may not be indicative of revenue for any future period. As customer requirements and industry  conditions change, orders may be subject to cancellation or modification of terms such as pricing, quantity or delivery date. Customer  order placement practices continually evolve based on customers’ individual business needs and capabilities, as well as industry  supply and capacity considerations. Further, our consignment programs do not result in backlog because the order occurs at the  same time as delivery, i.e., when the customer pulls the product from consigned inventory. Our backlog of orders was $0.94 billion at  December 31, 2014, and $1.06 billion at December 31, 2013. 6 Tex as In sTru me nTs • 2014 FO rm 10-K Raw materials We purchase materials, parts and supplies from a number of suppliers. In some cases we purchase such items from sole source  suppliers. The materials, parts and supplies essential to our business are generally available at present, and we believe that such  materials, parts and supplies will be available in the foreseeable future. Intellectual property We own many patents, and have many patent applications pending, in the United States and other countries in fields relating to our business. We have developed a strong, broad-based patent portfolio and continually add patents to that portfolio. We also have  agreements with numerous companies involving license rights and anticipate that other license agreements may be negotiated in the  future. In general, our license agreements have multi-year terms and may be renewed after renegotiation. Our semiconductor patent portfolio is an ongoing contributor to our revenue. We do not consider our business materially dependent  upon any one patent or patent license, although taken as a whole, our rights and the products made and sold under patents and patent licenses are important to our business.  k - 0 1 m r o F We often participate in industry initiatives to set technical standards Our competitors may participate in the same initiatives Participation in these initiatives may require us to license certain of our patents to other companies on reasonable and non- discriminatory terms We own trademarks that are used in the conduct of our business. These trademarks are valuable assets, the most important of which  are “Texas Instruments” and our corporate monogram. Other valuable trademarks include DLP® Research and development Our R&D expense was $1.36 billion in 2014, compared with $1.52 billion in 2013 and $1.88 billion in 2012. Our primary areas of R&D  investment are Analog and Embedded Processing products. Our R&D has been declining primarily as a result of our decision to wind  down investments in legacy wireless products This wind-down is now complete We conduct most of our R&D internally. However, we also closely engage with a wide range of third parties, including software suppliers,  universities and select industry consortia, and we collaborate with our foundry suppliers on semiconductor manufacturing technology. Executive officers of the Registrant The following is an alphabetical list of the names and ages of the executive officers and those chosen to become executive officers of  the company and the positions or offices with the company held by each person named:  Name Stephen A Anderson Brian T Crutcher R Gregory Delagi Joseph F. Hubach * Kevin P. March Kevin J. Ritchie Richard K. Templeton Cynthia Hoff Trochu * Teresa L West Darla H Whitaker Bing Xie Age 53 42 52 57 57 58 56 51 54 49 47 Position Senior Vice President Executive Vice President Senior Vice President Senior Vice President, Secretary and General Counsel Senior Vice President and Chief Financial Officer Senior Vice President Director; Chairman of the Board; President and Chief Executive Officer Elected to become Senior Vice President, Secretary and General Counsel Senior Vice President Senior Vice President Senior Vice President *  Effective August 3, 2015, Mr. Hubach will retire from the company, and Ms. Trochu will succeed him.  The term of office of these officers is from the date of their election until their successor shall have been elected and qualified. All have  been employees of the company for more than five years. Mses. West and Whitaker and Messrs. Anderson, Delagi, Hubach, March,  Ritchie and Templeton have served as executive officers of the company for more than five years. Mr. Crutcher became an executive  officer of the company in 2010. Mr. Xie became an executive officer of the company in 2015.  Tex as In sTru menTs • 2014 F Orm 10 -K 7 Employees At December 31, 2014, we had 31,003 employees. Available information Our Internet address is www.ti.com. Information on our web site is not a part of this report. We make available free of charge through  our Investor Relations web site our reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, as soon as reasonably  practicable after they are filed with the SEC. Also available through the TI  Investor Relations web site are reports filed by our directors  and executive officers on Forms 3, 4 and 5, and amendments to those reports F o r m 1 0 - k Available on our web site at www.ti.com/corporategovernance are: (i) our Corporate Governance Guidelines; (ii) charters for the Audit,  Compensation, and Governance and Stockholder Relations Committees of our board of directors; (iii) our Code of Business Conduct; and  (iv) our Code of Ethics for TI Chief Executive Officer and Senior Finance Officers Stockholders may request copies of these documents free of charge by writing to Texas Instruments Incorporated, P.O. Box 660199, MS 8657, Dallas, Texas, 75266-0199, Attention:  Investor Relations ITEM 1A. Risk Factors. You should read the following risk factors in conjunction with the factors discussed elsewhere in this and other of our filings with the  Securities and Exchange Commission (SEC) and in materials incorporated by reference in these filings. These  risk factors are intended to highlight certain factors that may affect our financial condition and results of operations and are not meant to be an exhaustive  discussion of risks that apply to companies like TI with broad international operations. Like other companies, we are susceptible to  macroeconomic downturns in the United States or abroad that may affect the general economic climate and our performance and  the performance of our customers. Similarly, the price of our securities is subject to volatility due to fluctuations in general market  conditions, actual financial results that do not meet our and/or the investment community’s expectations, changes in our and/or the  investment community’s expectations for our future results and other factors, many of which are beyond our control. Cyclicality in the semiconductor market may affect our performance. Semiconductor products are the principal source of our revenue. The semiconductor market historically has been cyclical and  subject to significant and often rapid increases and decreases in product demand. These changes could have adverse effects on our  results of operations, and on the market price of our securities. Our results of operations may be adversely affected in the future if  demand for our semiconductors decreases or if this market or key end-equipment markets grow at a significantly slower pace than management expects Our margins may vary over time. Our profit margins may be adversely affected in the future by a number of factors, including decreases in our shipment volume,  reductions in, or obsolescence of our inventory and shifts in our product mix. In addition, the highly competitive market environment in  which we operate might adversely affect pricing for our products Because we own much of our manufacturing capacity, a significant portion of our operating costs is fixed In general, these fixed costs do not decline with reductions in customer demand or factory loadings, and can adversely affect profit margins as a result The markets we serve are characterized by rapid technological change that requires us to develop new technologies and products. Our results of operations depend in part upon our ability to successfully develop, manufacture and market innovative products in  a rapidly changing technological environment We require significant capital to develop new technologies and products to meet changing customer demands that, in turn, may result in shortened product life cycles and a decline in average selling prices of our products. Moreover, expenditures for technology and product development are generally made before the commercial viability for such  developments can be assured, so we may not be able to successfully develop and market these new products. We do not expect that  all of our R&D projects will result in  products that are ultimately released for sale, or that our projects will contribute significant revenue  until at least a few years after they are completed. Further, the products we do develop and market might not be well-received by  customers, and we might not realize a return on the capital expended to develop such products. 8 Tex as In sTru me nTs • 2014 FO rm 10-K We face substantial competition that requires us to respond rapidly to product development and pricing pressures. We face intense technological and pricing competition in the markets in which we operate We expect this competition will continue to increase from large competitors and from smaller competitors serving niche markets, and also from emerging companies, particularly in Asia, that sell products into the same markets in which we operate. For example, the China market is highly competitive, and both  international and domestic competitors are aggressively seeking to increase their market share Additionally, we may face increased competition as a result of China’s adoption of policies designed to promote its domestic semiconductor industry Certain of our competitors possess sufficient financial, technical and management resources to develop and market products that may compete favorably against our products. The price and product development pressures that result from competition may lead to reduced profit  margins and lost business opportunities in the event that we are unable to match the price declines or cost efficiencies, or meet the  technological, product, support, software or manufacturing advancements of our competitors Our performance depends in part on our ability to enforce our intellectual property rights and to develop and license new intellectual property. Access to worldwide markets depends in part on the continued strength of our intellectual property portfolio. There can be no assurance  that, as our business expands into new areas, we will be able to independently develop the technology, software or know-how  necessary to conduct our business or that we can do so without infringing the intellectual property rights of others. To the extent that we  have to rely on licensed technology from others, there can be no assurance that we will be able to obtain licenses at all or on terms we  consider reasonable. The lack of a necessary license could expose us to claims for damages and/or injunction from third parties, as well  as claims for indemnification by our customers in instances where we have a contractual or other legal obligation to indemnify them  against damages resulting from infringement claims With regard to our own intellectual property, we actively enforce and protect our rights. However, there can be no assurance that our  efforts will be adequate to prevent the misappropriation or improper use of our protected technology. We benefit from royalty revenue generated from various patent license agreements. The amount of such revenue depends in part on  negotiations with new licensees, and with existing licensees in connection with renewals of their licenses There is no guarantee that such negotiations will be successful. Future royalty revenue also depends on the strength and enforceability of our patent portfolio  and our enforcement efforts, and on the sales and financial stability of our licensees. Additionally, consolidation of our licensees  may negatively affect our royalty revenue. Royalty revenue from licensees is not always uniform or predictable, in part due to the  performance of our licensees and in part due to the timing of new license agreements or the expiration and renewal of existing agreements a decline in demand in certain markets or sectors could have a material adverse effect on the demand for our products and results of operations. Our customer base includes companies in a wide range of markets and sectors within those markets, but we generate a significant  amount of revenue from sales to customers in the personal electronics and communications equipment markets Decline in one or more sectors within these markets could have a material adverse effect on the demand for our products and our results of operations and financial condition Our global operations subject us to risks associated with international political, economic or other conditions. We have facilities in 35 countries. About 85 percent of our revenue comes from shipments to locations outside the United States; in  particular, shipments of products into China typically represent a large portion of our revenue Operating internationally exposes us to political and economic conditions, security risks, health conditions and possible disruptions in transportation, communications and  information technology networks of the various countries in which we operate Any of these could result in an adverse effect on our business operations and our financial results. Additionally, in periods when the U.S. dollar significantly fluctuates in relation to the  non-U.S. currencies in which we transact business, the remeasurement of non-U.S. dollar transactions can have an adverse effect on  our results of operations and financial condition 9 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-kOur results of operations could be affected by natural events in the locations in which we or our customers or suppliers operate. We have manufacturing, data and design facilities and other operations in locations subject to natural occurrences such as health  epidemics, severe weather and geological events that could disrupt operations In addition, our suppliers and customers have similar facilities and operations in such locations A natural disaster that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, may adversely affect our results and financial condition The loss of or significant curtailment of purchases by any of our largest customers could adversely affect our results of operations. We generate revenue from thousands of customers worldwide. The loss of or significant curtailment of purchases by one or more of our  top customers (including curtailments due to a change in the design or manufacturing sourcing policies or practices of these customers, or the timing of customer or distributor inventory adjustments) may adversely affect our results of operations and financial condition. F o r m 1 0 - k Our results of operations could be adversely affected by our distributors’ promotion of competing product lines or our distributors’ financial performance. In 2014, about 60 percent of our revenue was generated from sales of our products  through distributors. Our distributors carry  competing product lines, and our sales could be affected if our distributors promote competing products over our products. Moreover,  our results of operations could be affected if our distributors suffer financial difficulties that result in their inability to pay amounts owed  to us Our results of operations and financial condition could be adversely affected if a customer or a distributor suffers a loss with respect to our inventory. We have consignment inventory programs in place for some of our largest customers and distributors. If a customer or distributor were  to experience a loss with respect to TI-consigned inventory, our results of operations and financial condition may be adversely affected if  we do not recover the full value of the lost inventory from the customer, distributor or insurer, or if our recovery is delayed. Incorrect forecasts of customer demand could adversely affect our results of operations. Our ability to match inventory and production with the product mix needed to fill orders may affect our ability to meet a quarter’s  revenue forecast In addition, when responding to customers’ requests for shorter shipment lead times, we manufacture products based on forecasts of customers’ demands. These forecasts are based on multiple assumptions. If we inaccurately forecast customer  demand, we may hold inadequate, excess or obsolete inventory that would reduce our profit margins and adversely affect our results of  operations and financial condition Our performance depends on the availability and cost of raw materials, utilities, critical manufacturing equipment, manufacturing processes and third-party manufacturing services. Our manufacturing processes and critical manufacturing equipment, and those of some of our customers and suppliers, require that certain key raw materials, natural resources and utilities be available. Limited or delayed access to and high costs of these items could  adversely affect our results of operations. Our products contain materials that are subject to conflict minerals reporting requirements.  Our relationships with customers and suppliers may be adversely affected if we are unable to describe our products as conflict-free.  Additionally, our costs may increase if customers demand that we change the sourcing of materials we cannot identify as conflict-free Our inability to timely implement new manufacturing technologies or install manufacturing equipment could adversely affect our results  of operations. We subcontract a portion of our wafer fabrication and assembly and testing of our products. We also depend on third  parties to provide advanced logic manufacturing process technology development. A limited number of third parties perform these  functions, and we do not have long-term contracts with all of them. Reliance on these third parties involves risks, including possible  shortages of capacity in periods of high demand, the third parties’ inability to develop and deliver advanced logic manufacturing process  technology in a timely, cost effective, and appropriate manner and the possibility of third parties imposing increased costs on us. 1 0 Tex as In sTru me nTs • 2014 FO rm 10-K Our results of operations could be affected by changes in tax-related matters. We have facilities in 35 countries and as a result are subject to taxation and audit by a number of taxing authorities. Tax rates vary  among the jurisdictions in which we operate. Our results of operations could be affected by market opportunities or decisions we make  that cause us to increase or decrease operations in one or more countries, or by changes in applicable tax rates or audits by the taxing  authorities in countries in which we operate In addition, we are subject to laws and regulations in various jurisdictions that determine how much profit has been earned and when it  is subject to taxation in that jurisdiction. Changes in these laws and regulations could affect the locations where we are deemed to earn  income, which could in turn affect our results of operations. We have deferred tax assets on our balance sheet. Changes in applicable  tax laws and regulations or in our business performance could affect our ability to realize those deferred tax assets, which could also  affect our results of operations. Each quarter we forecast our tax liability based on our forecast of our performance for the year. If that  performance forecast changes, our forecasted tax liability will change. We have not made a provision for U.S. income tax on the portion of our undistributed earnings of our non-U.S. subsidiaries that is  considered permanently reinvested outside the United States If in the future we repatriate any of these foreign earnings, we might incur incremental U S income tax, which could affect our results of operations k - 0 1 m r o F Our operations could be affected by the complex laws, rules and regulations to which our business is subject. We are subject to complex laws, rules and regulations affecting our domestic and international operations relating to, for example,  environmental, safety and health; exports and imports; bribery and corruption; tax; data privacy; labor and employment; competition;  and intellectual property ownership and infringement. Compliance with these laws, rules and regulations may be onerous and  expensive, and if we fail to comply or if we become subject to enforcement activity, our ability to manufacture our products and operate our business could be restricted and we could be subject to fines, penalties or other legal liability. Furthermore, should these laws, rules  and regulations be amended or expanded, or new ones enacted, we could incur materially greater compliance costs or restrictions on  our ability to manufacture our products and operate our business.  Some of these complex laws, rules and regulations – for example, those related to environmental, safety and health requirements – may particularly affect us in the jurisdictions in which we manufacture products, especially if such laws and regulations: require the use of  abatement equipment beyond what we currently employ; require the addition or elimination of a raw material or process to or from our  current manufacturing processes; or impose costs, fees or reporting requirements on the direct or indirect use of energy, or of materials or gases used or emitted into the environment, in connection with the manufacture of our products. There can be no assurance that in  all instances a substitute for a prohibited raw material or process would be available, or be available at reasonable cost. Our results of operations could be affected by changes in the financial markets. We maintain bank accounts, one or more multi-year revolving credit agreements, and a portfolio of investments to support the financing  needs of the company. Our ability to fund our daily operations, invest in our business, make strategic acquisitions, service our debt  obligations and meet our cash return objectives requires continuous access to our bank and investment accounts, as well as access to  our bank credit lines that support commercial paper borrowings and provide additional liquidity through short-term bank loans. If we are  unable to access these accounts and credit lines (for example, due to instability in the financial markets), our results of operations and  financial condition could be adversely affected. Similarly, such circumstances could also restrict our ability to access the capital markets  or redeem our investments. If our customers or suppliers are unable to access credit markets and other sources of needed liquidity, we  may receive fewer customer orders or be unable to obtain needed supplies, collect accounts receivable or access needed technology.  material impairments of our goodwill or intangible assets could adversely affect our results of operations. Charges associated with impairments of our goodwill or intangible assets could adversely affect our financial condition and results  of operations Goodwill is reviewed for impairment annually or more frequently if certain impairment indicators arise or upon the disposition of a significant portion of a reporting unit. The review compares the fair value for each reporting unit to its associated book  value including goodwill. A decrease in the fair value associated with a reporting unit resulting from, among other things, unfavorable  changes in the estimated future discounted cash flow of the reporting unit, may require us to recognize impairments of goodwill. Most of  our intangible assets are amortized over their estimated useful lives, but they are reviewed for impairment whenever events or changes  in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the future undiscounted cash  flows expected to result from the use of the intangible asset and its eventual disposition is less than the carrying amount of the asset,  we would recognize an impairment loss to the extent the carrying amount of the asset exceeds its fair value. Tex as In sTru menTs • 2014 F Orm 10 -K 1 1 Our results of operations and our reputation could be affected by warranty claims, product recalls, product liability claims, or legal proceedings. We could be subject to warranty or product liability claims or claims based on epidemic or delivery failures that could lead to significant  expenses as we defend such claims or pay damage awards or settlements In the event of a warranty claim, we may also incur costs if we decide to compensate the affected customer or end consumer. We maintain product liability insurance, but there is no guarantee  that such insurance will be available or adequate to protect against all such claims. In addition, it is possible for one of our customers to  recall a product containing a TI part In such instances, we may incur costs and expenses relating to the recall Costs or payments we may make in connection with warranty, epidemic failure and delivery claims, product recalls or legal proceedings may adversely affect our results of operations and financial condition and our reputation F o r m 1 0 - k Our continued success depends in part on our ability to retain and recruit a sufficient number of qualified employees in a competitive environment. Our continued success depends in part on the retention and recruitment of skilled personnel, including technical, marketing, management and staff personnel. There can be no assurance that we will be able to successfully retain and recruit the key personnel  that we require Our debt could affect our operations and financial condition. From time to time, we issue debt securities with various interest rates and maturities. While we believe we will have the ability to  service this debt, our ability to make principal and interest payments when due depends upon our future performance, which will be  subject to general economic conditions, industry cycles, and business and other factors affecting our operations, including the other  risk factors described under Item 1A, many of which are beyond our control. In addition, our obligation to make principal and interest  payments could divert funds that otherwise would be invested in our operations or returned to shareholders, or cause us to raise funds  through such means as the issuance of new debt or equity, or the disposition of assets.  Our ability to successfully implement business and organizational changes could affect our business plans and results of operations. From time to time, we undertake business and organizational changes, including acquisitions, divestitures and restructuring actions, to  support or carry out our strategic objectives. Our failure to successfully implement these changes could adversely affect our business  plans and operating results. For example, we may not realize the expected benefits of an acquisition if we are unable to timely and  successfully integrate acquired operations, product lines and technology, and our pre-acquisition due diligence may not identify all possible issues and risks that might arise with respect to an acquisition. Further, we may not achieve or sustain the expected growth or  cost savings benefits of business and organizational changes, and restructuring charges could differ materially in amount and timing  from our expectations Our operating results and our reputation could be adversely affected by breaches of our information technology systems or those of our customers or suppliers. Breaches of our information technology systems or those of our customers or suppliers could be caused by computer viruses,  unauthorized access, sabotage, vandalism or terrorism. These breaches could compromise our information technology networks or  those of our customers or suppliers and could result in unauthorized release of our, our customers’ or our suppliers’ confidential or  proprietary information, cause a disruption to our manufacturing and other operations, result in release of employee personal data, or cause us to incur increased information technology protection costs, any of which could adversely affect our operating results and our reputation ITEM 1B. Unr esolved Staff Comments. Not applicab le. 1 2 Tex as In sTru me nTs • 2014 FO rm 10-K ITEM 2. Properties. Our principal executive offices are located at 12500 TI Boulevard, Dallas, Texas. The following table indicates the general location of  our principal manufacturing and design operations and the reportable segments that make major use of them. Except as otherwise  indicated, we own these facilities Dallas, Texas Sherman, Texas Houston, Texas Tucson, Arizona (1) Santa Clara, California South Portland, Maine Aguascalientes, Mexico (1) Aizu, Japan Miho, Japan Tokyo, Japan (1) Chengdu, China (2) Shanghai, China (1) Bangalore, India (2) Kuala Lumpur, Malaysia (2) Melaka, Malaysia (2) Baguio, Philippines (2) Pampanga (Clark), Philippines (2) Taipei, Taiwan (2) Freising, Germany Greenock, Scotland (1) Leased (2) Portions of the facilities are leased and owned This may include land leases, particularly for our non-U S sites Embedded Processing X Analog X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Our facilities in the United States contained approximately 15.1 million square feet at December 31, 2014, of which approximately  0 8 million square feet were leased Our facilities outside the United States contained approximately 10 3 million square feet at December 31, 2014, of which approximately 1.7 million square feet were leased. At the end of 2014, we occupied substantially all of the space in our facilities.  Leases covering our currently occupied leased facilities expire at varying dates generally within the next five years. We believe our  current properties are suitable and adequate for both their intended purpose and our current and foreseeable future needs.  ITEM 3. Legal Proceedings. We are involved in various inquiries and proceedings that arise in the ordinary course of our business. We believe that the amount of our  liability, if any, will not have a material adverse effect upon our financial condition, results of operations or liquidity.  The Internal Revenue Code requires that companies disclose in their Form 10-K whether they have been required to pay penalties to the  Internal Revenue Service for certain transactions that have been identified by the IRS as abusive or that have a significant tax avoidance  purpose. We have not been required to pay any such penalties. ITEM 4. Mine Safety Disclosures. Not applicable. 1 3 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-kP ART II I TEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The information concerning the number of stockholders of record at December 31, 2014, is contained in Item 6, “ Selected Financial Data ” 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 in each quarter during the past two years.  Quarter 1st 2nd 3rd 4th F o r m 1 0 - k Stock prices: Dividends paid: 2014 High Low 2013 High Low 2014 2013 Issuer purchases of equity securities $ 47.16 $ 48.47 $ 49.29 $ 55.62 41.93 43 91 39 24 44.89 40.89 35 62 37 09 33 92 31 55 45.67 40 85 35 05 $ 0.30 $ 0.30 $ 0.30 $ 0.34 0 30 0 21 0 28 0 28 The following table contains information regarding our purchases of our common stock during the fourth quarter of 2014. Period October 1, 2014 through October 31, 2014 November 1, 2014 through November 30, 2014 December 1, 2014 through December 31, 2014 Total Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) 11,317,506 2,820,815 695,093 Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (1) $ 3.35 billion 3.21 billion 3.17 billion 14,833,414 (2) $ 3.17 billion (3) Total Number of Shares Purchased 11,317,506 2,820,815 695,093 14,833,414 (2) Average Price Paid per Share $ 45 62 50 94 53 71 $ 47 01 (1)  All purchases during the quarter were made under the authorization from our board of directors to purchase up to $5.0 billion of  additional shares of TI common stock announced on February 21, 2013. (2) All purchases during the quarter were open-market purchases (3)  As of December 31, 2014, this amount consisted of the remaining portion of the $5.0 billion authorized in February 2013. No  expiration date has been specified for this authorization. 1 4 Tex as In sTru me nTs • 2014 FO rm 10-K ITEM 6. Selected Financial Data. (Millions of dollars, except share and per-share amounts) 2014 For Years Ended December 31, 2012 2011 2013 2010 Cash flow data Cash flows from operating activities Capital expenditures Free cash flow (a) Dividends paid Stock repurchases $ 3,892 385 3,507 1,323 2,831 $ 3,384 412 2,972 1,175 2,868 $ 3,414 495 2,919 819 1,800 $ 3,256 816 2,440 644 1,973 $ 3,820 1,199 2,621 592 2,454 Income statement data Revenue by segment: Analog Embedded Processing Other Revenue Gross profit Operating expenses (R&D and SG&A) Acquisition charges Restructuring charges/other Operating profit 8,104 2,740 2,201 13,045 7,427 3,201 330 (51) 3,947 7,194 2,450 2,561 12,205 6,364 3,380 341 (189) 2,832 6,998 2,257 3,570 12,825 6,368 3,681 450 264 1,973 6,375 2,381 4,979 13,735 6,772 3,353 315 112 2,992 5,979 2,359 5,628 13,966 7,492 3,089 — (111) 4,514 Net income $ 2,821 $ 2,162 $ 1,759 $ 2,236 $ 3,228 k - 0 1 m r o F As a result of accounting rule ASC 260, which requires a portion of Net income to be allocated to unvested restricted stock units (RSUs)  on which we pay dividend equivalents, diluted earnings per share (EPS) is calculated using the following: Net income Income allocated to RSUs Income allocated to common shares for diluted EPS Average diluted shares outstanding, in millions Diluted earnings per common share Cash dividends declared per common share $ $ $ $ 2,821 (43) 2,778 1,080 2.57 1.24 $ $ $ $ 2,162 (36) 2,126 1,113 1 91 1 07 $ $ $ $ 1,759 (31) 1,728 1,146 1 51 0 72 $ $ $ $ 2,236 (34) 2,202 1,171 1 88 0 56 $ $ $ $ 3,228 (44) 3,184 1,213 2 62 0 49 (a)  Free cash flow is a non-GAAP measure derived by subtracting Capital expenditures from Cash flows from operating activities. 2014 2013 December 31, 2012 2011 2010 (Millions of dollars, except Other data items) Balance sheet data Cash, cash equivalents and short-term investments Total assets Current portion of long-term debt and commercial paper borrowings Long-term debt $ 3,541 17,722 1,001 3,641 $ 3,829 18,938 1,000 4,158 $ 3,965 20,021 1,500 4,186 $ 2,935 20,497 1,381 4,211 $ 3,072 13,401 — — Other data Number of: Employees Stockholders of record 31,003 16,361 32,209 17,213 34,151 18,128 34,759 19,733 28,412 20,525 See Notes to the financial statements and Management’s discussion and analysis of financial condition and results of operations Tex as In sTru menTs • 2014 F Orm 10 -K 1 5 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Overview We design, make and sell semiconductors to electronics designers and manufacturers all over the world. Our business model is carefully constructed around several advantages that are unique to TI: F o r m 1 0 - k • Industry’s broadest portfolio of differentiated analog and embedded processing semiconductors. Our customers’ design engineers need at least one, and most times multiple, chips for their systems. The breadth of our portfolio means we can solve more of these needs than can our competitors, which gives us access to more customers and the opportunity to generate more revenue per system. We invest more than $1 billion each year to develop new products for our portfolio. • A strong foundation of manufacturing technology and low-cost production. We invest in manufacturing technologies that differentiate the features of our semiconductors, and we do most of our own production in-house as opposed to outsourcing it. This ability to directly control our manufacturing helps ensure a consistent supply of products for our customers. We produce billions of semiconductors each year on a mixture of 150-, 200- and 300-millimeter wafers, and we are able to keep costs low for manufacturing facilities and equipment because our analog and much of our embedded processing semiconductors can be made using mature assets that we acquire ahead of demand when their prices are most attractive. In 2014 we produced approximately 25 percent of our Analog semiconductors on 300-millimeter wafers, the industry’s largest wafers, which have a 40 percent cost advantage per unpackaged chip over 200-millimeter wafers. T he majority of our future Analog growth will be produced on 300-millimeter wafers, which will be meaningful to the growth of our margins and cash flow over the long term. Industry’s largest market channels. Our global sales force is larger than those of our competitors, and the breadth of our portfolio attracts tens of millions of visits to our web site each year where customers often begin their initial product searches and design-in journey. T hese capabilities combine to provide us unique access to more than 100,000 customers. • • Diversity and longevity in our products and in the markets we serve. Together, the advantages above result in diverse and long- lived positions that deliver high terminal value to our shareholders. Because of the breadth of our portfolio we are not dependent on any single product, and because of the breadth of our markets we are not dependent on any single application or customer. Some of our products generate revenue for decades, which strengthens the return on our investments. These advantages have resulted in consistent share gains and free cash flow growth, and they put us in a unique class of companies with the ability to grow, generate cash, and return that cash to shareholders. Management’s discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with the financial statements and the related notes that appear elsewhere in this document. In the following discussion of our results of operations: • All dollar amounts in the tables are stated in millions of U.S. dollars, except per-share amounts. • When we discuss our results: ○ Unless otherwise noted, changes in our revenue are attributable to changes in customer demand, which are evidenced by fl uctuations in shipment volumes. ○ New products tend not to have a signifi cant impact on our revenue in any given period because we sell such a large number ○ of products. From time to time, our revenue and gross profi t 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. ○ Because we own much of our manufacturing capacity, a signifi cant portion of our operating cost is fi xed. When factory loadings decrease, our fi xed costs are spread over reduced output and, absent other circumstances, our profi t margins decrease. Conversely, as factory loadings increase, our fi xed costs are spread over increased output and, absent other circumstances, our profi t margins increase. Increases and decreases in factory loadings tend to correspond to increases and decreases in demand. • 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. See Note 1 to the financial statements for more information regarding our segments. • Our exit from legacy wireless products and the elimination (effective January 1, 2013) of the Wireless segment resulted in changes to our corporate-level expense allocations, which negatively affected Analog and Embedded Processing profitability in the year ended December 31, 2013 and, to a less significant extent, in 2014. We allocate our corporate-level expenses, which are largely fixed, among our product lines in proportion to the operating expenses directly generated by them. Legacy wireless products generated lower operating expenses in 2014 and 2013 than in 2012 because we stopped investing in them. The 1 6 Tex as In sTru me nTs • 2014 FO rm 10-K corporate-level expenses allocated to those products were, therefore, proportionately lower, and the corporate-level expenses allocated to the remaining product lines were proportionately higher. This allocation change affects the profitability of each of our segments, but does not impact operating expense or profitability trends at the consolidated level. Results of operations We continued to perform well in 2014, reflecting our focus on Analog and Embedded Processing semiconductors. We believe these products serve highly diverse markets with thousands of applications and have dependable long-term growth opportunities. In 2014, Analog revenue grew 13 percent and Embedded Processing revenue grew 12 percent. These two segments represented 83 percent of TI revenue for the year, up from 79 percent in 2013. Gross margin of 56.9 percent for the year reflects the diversity and longevity of our product portfolio, as well as the efficiency of our manufacturing strategy. Our business model focused on Analog and Embedded Processing allows us to generate strong cash flow from operations. In 2014, free cash flow was 27 percent of revenue, up 3 percentage points from a year ago. During the year, we returned $4.2 billion of cash to investors through a combination of stock repurchases and dividends. Free cash flow is a non-GAAP financial measure. For a reconciliation to GAAP and an explanation of the reason for providing this non- GAAP measure, see the Non-GAAP financial information section after the Liquidity and capital resources section. Details of financial results – 2014 compared with 2013 Revenue was $13.05 billion, up $840 million, or 7 percent, from 2013 due to higher revenue from Analog and Embedded Processing. These increases more than offset lower revenue from legacy wireless products. Gross profit was $7.43 billion, an increase of $1.06 billion, or 17 percent, from 2013 primarily due to higher revenue and, to a lesser extent, a more favorable mix of products shipped. Gross profit margin was 56.9 percent of revenue compared with 52.1 percent in 2013. Operating expenses were $1.36 billion for R&D and $1.84 billion for SG&A. R&D expense decreased $164 million, or 11 percent, from 2013 primarily due to savings from ongoing efforts across the company to align costs with growth opportunities, including the previously announced wind-down of our legacy wireless products and restructuring actions in Embedded Processing and Japan. R&D expense as a percent of revenue was 10.4 percent compared with 12.5 percent in 2013. SG&A expense was about even, as higher variable compensation costs were offset by savings from our cost alignment efforts. SG&A expense as a percent of revenue was 14.1 percent compared with 15.2 percent in 2013. Acquisition charges were related to our 2011 acquisition of National Semiconductor and were $330 million compared with $341 million in 2013. The charges were primarily from the amortization of intangible assets. See Note 3 to the financial statements for detailed information. Restructuring charges/other was a net credit of $51 million, which included gains on sales of assets of $75 million, partially offset by restructuring charges and other expenses of $24 million. This compared with a net credit of $189 million in 2013, reflecting a $315 million gain from our transfer of wireless connectivity technology to a customer, partially offset by restructuring charges of $126 million. These amounts are included in Other for segment reporting purposes. For details on the types of costs incurred and the amounts associated with each restructuring action, see Note 4 to the financial statements. Operating profit was $3.95 billion, or 30.3 percent of revenue, compared with $2.83 billion, or 23.2 percent, in 2013. The income tax provision was $1.05 billion compared with $592 million in 2013. The increase in the total tax provision was due to higher income before income taxes and, to a lesser extent, the effect of the retroactive reinstatement of the federal research tax credit for 2012 in 2013. Our annual effective tax rates were 27 percent in 2014 and 24 percent in 2013. The federal research tax credit included in the annual effective tax rates for 2014 and 2013 expired at the end of 2014. See Note 7 to the financial statements for a reconciliation of the income tax provision to the statutory federal tax. Our annual effective tax rate benefits from lower rates (compared to the U.S. statutory rate) applicable to our operations in many of the jurisdictions in which we operate and from U.S. tax benefits. These lower non-U.S. tax rates are generally statutory in nature, without expiration and available to companies that operate in those taxing jurisdictions. We benefit to a lesser extent from tax holidays in non- U.S. jurisdictions, in particular, Malaysia and the Philippines. Pre-tax income related to assembly/test manufacturing facilities in those jurisdictions is included in the non-U.S. effective tax rates reconciling item. Net income was $2.82 billion, an increase of $659 million, or 30 percent, from 2013. EPS was $2.57 compared with $1.91 in 2013. EPS benefited $0.07 from 2013 due to a lower number of average shares outstanding as a result of our stock repurchase program. 1 7 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-kF o r m 1 0 - k segment results – 2014 compared with 2013 Analog (includes High Volume Analog & Logic, Power Management, High Performance Analog and Silicon Valley Analog product lines) Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 $ 8,104 2,786 34.4% 2013 $ 7,194 1,859 25.8% Change 13% 50% Analog revenue increased in all products lines. Revenue from Power grew the most, followed by revenue from, in decreasing order, HPA, HVAL and SVA. Operating profit increased primarily due to higher revenue and associated gross profit. Embedded Processing (includes Processor, Microcontrollers and Connectivity product lines) Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 $ 2,740 384 14.0% 2013 $ 2,450 185 7.6% Change 12% 108% Embedded Processing revenue increased primarily due to Microcontrollers and Processor, which contributed about equally to the increase. Connectivity increased to a lesser extent. Revenue from Processor increased as a result of a more favorable mix of products shipped. Operating profit increased primarily due to higher revenue and associated gross profit. Other (includes DLP products, custom ASIC products, calculators, royalties and legacy wireless products) Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * Includes Acquisition charges and Restructuring charges/other 2014 $ 2,201 777 35.3% 2013 $ 2,561 788 30.8% Change -14% -1% Other revenue decreased due to legacy wireless products. Operating profit was about even as reductions in operating expenses were offset by changes in Restructuring charges/other. See Note 4 to the financial statements for information regarding Restructuring charges/other. Prior results of operations Our performance in 2013 was strong, reflecting our increased focus on Analog and Embedded Processing. During 2013, 79 percent of our revenue came from Analog and Embedded Processing, with Analog revenue increasing 3 percent from 2012 and Embedded Processing revenue increasing 9 percent from 2012. Operating margin for Analog was 25.8 percent, and it exceeded 30 percent during the second half of 2013. Operating margin for Embedded Processing was 7.6 percent. Additionally, we completed our exit from legacy wireless products. Our business model continued to generate strong cash flow from operations, with free cash flow for 2013 of $3 billion, or 24 percent of revenue. During 2013 we returned over $4 billion of cash to investors through a combination of stock repurchases and dividends. Details of financial results – 2013 compared with 2012 Revenue was $12.20 billion, down $620 million, or 5 percent, from 2012 due to lower revenue from legacy wireless products. Despite the decline in overall revenue, gross profit of $6.36 billion was about even with 2012 due to a more favorable mix of products shipped and, to a lesser extent, lower manufacturing costs. Gross profit margin was 52.1 percent of revenue compared with 49.6 percent in 2012. Operating expenses were $1.52 billion for R&D and $1.86 billion for SG&A. R&D expense decreased $355 million, or 19 percent, from 2012 primarily reflecting the wind-down of our legacy wireless products. R&D expense as a percent of revenue was 12.5 percent compared with 14.6 percent in 2012. SG&A expense increased $54 million, or 3 percent, from 2012 primarily due to higher variable compensation and other support costs, partially offset by reduced costs from the wind-down of our legacy wireless products. SG&A expense as a percent of revenue was 15.2 percent compared with 14.1 percent in 2012. 1 8 Tex as In sTru me nTs • 2014 FO rm 10-K Acquisition charges were related to our 2011 acquisition of National and were $341 million in 2013 compared with $450 million in 2012. The charges were primarily from the amortization of intangible assets. The decrease from 2012 was due to the nonrecurrence of integration-related expenses. Restructuring charges/other was a net credit of $189 million, reflecting the $315 million gain from the technology transfer, partially offset by restructuring charges of $126 million. This compared with a net charge of $264 million in 2012, which included restructuring and other charges of $408 million, partially offset by a $144 million gain 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. These net amounts are all included in Other. For details on restructuring actions, see Note 4 to the financial statements. Operating profit was $2.83 billion, or 23.2 percent of revenue, compared with $1.97 billion, or 15.4 percent of revenue, in 2012. The income tax provision was $592 million compared with $176 million for 2012. The increase in the total tax provision was due to higher income before income taxes and, to a lesser extent, lower discrete tax benefits. The discrete tax benefits were $79 million in 2013, primarily due to the effect of the reinstatement of the federal research tax credit for 2012. In 2012, the discrete tax benefits were $252 million, primarily due to additional U.S. tax benefits for manufacturing related to prior years. Our annual effective tax rates were 24 percent in 2013 and 22 percent in 2012. k - 0 1 m r o F Net income was $2.16 billion, an increase of $403 million, or 23 percent, from 2012. EPS was $1.91 compared with $1.51 for 2012. EPS benefited $0.06 from 2012 due to a lower number of average shares outstanding as a result of our stock repurchase program. segment results – 2013 compared with 2012 Analog Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 $ 7,194 1,859 25.8% 2012 $ 6,998 1,650 23.6% Change 3% 13% Analog revenue increased primarily due to growth in Power. Revenue from SVA and HPA also increased, but to a lesser extent. HVAL revenue decreased primarily due to a less favorable mix of products shipped. Operating profit increased primarily due to higher gross profit that benefited from higher revenue and lower manufacturing costs. This increase in gross profit was partially offset by higher operating expenses. Embedded Processing Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 $ 2,450 185 7.6% 2012 $ 2,257 158 7.0% Change 9% 17% Embedded Processing revenue increased primarily due to higher revenue from Microcontrollers, and to a lesser extent, Processor and Connectivity. Operating profit increased due to higher revenue and associated gross profit, partially offset by higher operating expenses. Other Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * Includes Acquisition charges and Restructuring charges/other 2013 $ 2,561 788 30.8% 2012 $ 3,570 165 4.6% Change -28% 378% Revenue from Other decreased primarily due to lower revenue from legacy wireless products. Operating profit from Other increased due to lower operating expenses and Restructuring charges/other. These decreases were partially offset by lower revenue and associated gross profit. Tex as In sTru menTs • 2014 F Orm 10 -K 1 9 F o r m 1 0 - k Financial condition At the end of 2014, total cash (Cash and cash equivalents plus Short-term investments) was $3.54 billion, a decrease of $288 million from the end of 2013. Accounts receivable were $1.25 billion at the end of 2014. This was an increase of $43 million compared with the end of 2013 due to higher revenue. Days sales outstanding were 34 at the end of 2014 compared with 36 at the end of 2013. Inventory was $1.78 billion at the end of 2014. This was an increase of $53 million from the end of 2013. Days of inventory at the end of 2014 were 117 compared with 112 at the end of 2013. As sales to distributors become a larger portion of our revenue, we expect consignment inventory to become a larger portion of our total inventory. This may lead to changes in the level of inventory we carry in the future. 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 operating activities for 2014 was $3.89 billion, an increase of $508 million from 2013 due to an increase in Net income. We had $1.20 billion of Cash and cash equivalents and $2.34 billion of Short-term investments as of December 31, 2014. Our U.S. entities owned 82 percent of total cash at the end of 2014. 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 2019. This credit facility also serves as support for the issuance of commercial paper. As of December 31, 2014, our credit facility was undrawn and we had no commercial paper outstanding. In 2014, investing activities used $377 million compared with $3 million in 2013. For 2014, Capital expenditures were $385 million compared with $412 million in 2013. Capital expenditures in both periods were primarily for semiconductor manufacturing equipment. In 2014, we had purchases of short-term investments, net of sales, that used cash of $141 million. In comparison, in 2013, we had sales of short-term investments, net of purchases, that provided cash proceeds of $342 million. In addition, we had proceeds from sales of assets of $142 million in 2014 compared with $21 million in 2013. In 2014, financing activities used net cash of $3.94 billion compared with $3.17 billion in 2013. In 2014, we received proceeds of $498 million from the issuance of fixed-rate long-term debt (net of original issuance discount) and repaid $1.00 billion of maturing debt. In 2013, we received proceeds of $986 million from the issuance of fixed-rate long-term debt (net of original issuance discount) and repaid $1.50 billion of maturing debt. Dividends paid in 2014 were $1.32 billion compared with $1.18 billion in 2013, reflecting increases in the dividend rate. During 2014, the quarterly dividend increased from $0.30 to $0.34 per share, resulting in an annualized dividend payment of $1.36 per share. In 2013, we announced two increases in our quarterly dividend, increasing from $0.21 to $0.30 per share. In 2014, we used $2.83 billion to repurchase 61.7 million shares of our common stock. This compared with $2.87 billion used in 2013 to repurchase 77.6 million shares. Employee exercises of stock options are also reflected in Cash flows from financing activities. In 2014, these exercises provided cash proceeds of $616 million compared with $1.31 billion in 2013. Stock option exercises in 2013 were higher than historical averages. 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 references to free cash flow and ratios based on that measure. These are financial measures that were not prepared in accordance with generally accepted accounting principles in the United States (GAAP). Free cash flow was calculated by subtracting Capital expenditures from the most directly comparable GAAP measure, Cash flows from operating activities (also referred to as cash flow from operations). We believe that free cash flow and the associated ratios provide insight into our liquidity, 2 0 Tex as In sTru me nTs • 2014 FO rm 10-K our cash-generating capability and the amount of cash potentially available to return to investors, as well as insight into our financial performance. These non-GAAP measures are supplemental to the comparable GAAP measures. Reconciliation to the most directly comparable GAAP-based measures is provided in the table below. Cash flow from operations (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free cash flow (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For Years Ended December 31, 2014 $ 3,892 (385) $ 3,507 2013 $ 3,384 (412) $ 2,972 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,045 $ 12,205 Cash flow from operations as a percent of revenue (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . Free cash flow as a percent of revenue (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30% 27% 28% 24% Long-term contractual obligations Contractual Obligations Long-term debt obligations (a) . . . . . . . . . . . . . . . . . . . . . Operating lease obligations (b) . . . . . . . . . . . . . . . . . . . . . Software license obligations (c) . . . . . . . . . . . . . . . . . . . . Purchase obligations (d) . . . . . . . . . . . . . . . . . . . . . . . . Deferred compensation plan (e) . . . . . . . . . . . . . . . . . . . . Total (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 $ 1,000 87 39 96 16 $ 1,238 Payments Due by Period 2018/2019 $ 1,250 54 — 24 32 $ 1,360 2016/2017 $ 1,625 111 27 87 40 $ 1,890 Thereafter $ 750 80 — 2 80 $ 912 Total $ 4,625 332 66 209 168 $ 5,400 (a) Includes amounts classified as the current portion of long-term debt, specifically obligations that will mature within 12 months. The related interest payments are not included. (b) Includes minimum payments for leased facilities and equipment and purchases of industrial gases under contracts accounted for as operating leases. (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 $2 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, 2014. (f) Excluded from the table are $108 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 2015, but funding projections beyond 2015 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. 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. 2 1 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-kRevenue recognition We recognize revenue from sales of our products, including direct sales to our distributors, when title and risk of loss pass, which usually occurs upon shipment or delivery to the customer or distributor, 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. For sales to distributors, payment is due on our standard commercial terms and is not contingent upon resale of the products. In 2014, about 60 percent of our revenue was generated from sales of our products to distributors. F o r m 1 0 - k We recognize revenue net of allowances, which are management’s estimates of future credits to be granted to customers or distributors under programs common in the semiconductor industry. These allowances are based on analysis of historical data, current economic conditions, and contractual terms and are recorded when revenue is recognized. Allowances may include volume-based incentives, product returns due to quality issues, incentives designed to maximize growth opportunities and special pricing arrangements. For instance, we sell to distributors at standard published prices, but we may grant them price adjustment credits in response to individual competitive opportunities. To estimate allowances, we use statistical percentages of revenue, which are determined quarterly based upon recent historical adjustment trends. 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. We may also 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. Revenue from sales of our products that are subject to inventory consignment agreements, including consignment arrangements with distributors, is recognized in accordance with the principles discussed above, but delivery occurs when the customer or distributor pulls product from consignment inventory that we store at designated locations. About 60 percent of our distributor revenue is generated from sales of consigned inventory . The allowances we record against this revenue are not material. 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. In addition, we record allowances for accounts receivable that we estimate may not be collected. 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. We include amounts received from customers for reimbursement of shipping fees in revenue. We include the costs of shipping and handling in COR. 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 2 2 Tex as In sTru me nTs • 2014 FO rm 10-K k - 0 1 m r o F 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. Also, our plans for the permanent reinvestment or eventual repatriation of the accumulated earnings of certain of our non-U.S. operations could change. Such changes could have a material effect on tax expense in future years. 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. Inventory valuation allowances Inventory is valued net of allowances for unsalable or obsolete raw materials, work-in-process and finished goods. Statistical allowances are determined quarterly for raw materials and work-in-process based on historical disposals of inventory for salability and obsolescence reasons. For finished goods, quarterly statistical allowances are determined by comparing inventory levels of individual parts to historical shipments, current backlog and estimated future sales in order to identify inventory judged unlikely to be sold. A specific allowance for each material type will be carried if there is a significant event not captured by the statistical allowance. Examples are an end-of-life part or demand with imminent risk of cancellation. Allowances are also calculated quarterly for instances where inventoried costs for individual products are in excess of market prices for those products. 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 an asset’s carrying amount may not be recoverable. Factors considered include the asset’s underperformance compared with expectations and shortened useful life due to planned changes in its use. Recoverability is determined by comparing the carrying amount of the asset to the estimated future undiscounted cash flow. If the future undiscounted cash flow is 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 an intangible asset 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. Changes in accounting standards See Note 2 to the financial statements for information on new accounting standards. Off-balance sheet arrangements As of December 31, 2014, 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. Tex as In sTru menTs • 2014 F Orm 10 -K 2 3 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk. Foreign exchange risk The U.S. dollar is the functional currency for financial reporting. Our non-U.S. entities own assets or liabilities denominated in U.S. dollars or other currencies. Exchange rate fluctuations can have a significant impact on taxable income in those jurisdictions, and consequently on our effective tax rate. F o r m 1 0 - k Our balance sheet also reflects amounts remeasured from non-U.S. dollar currencies. Because most of the aggregate non-U.S. dollar balance sheet exposure is hedged by forward currency exchange contracts, based on year-end 2014 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 less than $1 million. We use these 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 2014, we had forward currency exchange contracts outstanding with a notional value of $504 million to hedge net balance sheet exposures (including $183 million to sell Japanese yen, $163 million to sell euros and $29 million to sell British pound sterling). Similar hedging activities existed at year-end 2013. 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. As of December 31, 2014, 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 $12 million and decrease the fair value of our long-term debt by $128 million. Because interest rates on our long-term debt are fixed, changes in interest rates would not affect the cash flows associated with long-term debt. Equity risk Long-term investments at year-end 2014 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 4 Tex as In sTru me nTs • 2014 FO rm 10-K ITEM 8. Financial Statements and Supplementary Data. Texas Instruments Incorporated and Subsidiaries Index to Financial statements (Item 15(a)) Consolidated financial statements Income for each of the three years in the period ended December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income for each of the three years in the period ended December 31, 2014 . . . . . . . . . . . . . . . . . . Balance sheets at December 31, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows for each of the three years in the period ended December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity for each of the three years in the period ended December 31, 2014 . . . . . . . . . . . . . . . . . . . 26 27 28 29 30 Notes to financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Report of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. 2 5 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-k Consolidated Statements of Income (Millions of dollars, except share and per-share amounts ) For Years Ended December 31, 2013 2012 2014 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,045 5,618 7,427 1,358 1,843 330 (51) 3,947 21 94 3,874 1,053 $ 2,821 $ 12,205 5,841 6,364 1,522 1,858 341 (189) 2,832 17 95 2,754 592 $ 2,162 $ 12,825 6,457 6,368 1,877 1,804 450 264 1,973 47 85 1,935 176 $ 1,759 F o r m 1 0 - k Earnings per common share (EPS): Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 2.61 2.57 $ $ 1.94 1.91 $ $ 1.53 1.51 Average shares outstanding (millions): Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,065 1,080 1,098 1,113 1,132 1,146 Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.24 $ 1.07 $ 0.72 As a result of accounting rule ASC 260, which requires a portion of Net income to be allocated to unvested restricted stock units (RSUs) on which we pay dividend equivalents, diluted EPS is calculated using the following: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income allocated to RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income allocated to common stock for diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,821 (43) $ 2,778 $ 2,162 (36) $ 2,126 $ 1,759 (31) $ 1,728 See accompanying notes. 2 6 Tex as In sTru me nTs • 2014 FO rm 10-K Consolidated Statements of Comprehensive Income (Millions of dollars) For Years Ended December 31, 2012 2013 2014 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) $ 2,821 $ 2,162 $ 1,759 Net actuarial gains (losses) of defined benefit plans: Adjustment, net of tax benefit (expense) of $25, ($60) and $29 . . . . . . . . . . . . . . . . Recognized within Net income, net of tax benefit (expense) of ($21), ($37) and ($104) . . . . Prior service cost of defined benefit plans: Adjustment, net of tax benefit (expense) of $0, $1 and $1 . . . . . . . . . . . . . . . . . . Recognized within Net income, net of tax benefit (expense) of $0, $2 and $0 . . . . . . . . . Derivative instruments: Change in fair value, net of tax benefit (expense) of $0, $0 and $1 . . . . . . . . . . . . . . Recognized within Net income, net of tax benefit (expense) of ($1), ($1) and $0 . . . . . . . Available-for-sale investments: (46) 42 (1) — — 1 105 71 (3) (3) — 1 (81) 160 (2) — (3) — k - 0 1 m r o F Unrealized gains (losses), net of tax benefit (expense) of $0, $0 and ($1) . . . . . . . . . . . Other comprehensive income (loss), net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (4) $ 2,817 — 171 $ 2,333 3 77 $ 1,836 See accompanying notes. Tex as In sTru menTs • 2014 F Orm 10 -K 2 7  Consolidated Balance Sheets (Millions of dollars, except share amounts ) Assets Current assets: December 31, 2014 2013 F o r m 1 0 - k Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, net of allowances of ($12) and ($22) . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition-related intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized software licenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overfunded retirement plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,199 2,342 1,246 101 896 787 1,784 347 850 7,768 6,266 (3,426) 2,840 224 4,362 1,902 172 83 127 244 $ 17,722 $ 1,627 2,202 1,203 102 919 710 1,731 393 863 8,019 6,556 (3,157) 3,399 216 4,362 2,223 207 118 130 264 $ 18,938 Liabilities and stockholders’ equity Current liabilities: $ 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: 1,001 437 651 71 4 498 2,662 3,641 225 399 405 7,332 $ 1,000 422 554 119 1 651 2,747 4,158 216 548 462 8,131 Preferred stock, $25 par value. Authorized – 10,000,000 shares. Participating cumulative preferred. None issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Common stock, $1 par value. Authorized – 2,400,000,000 shares. Shares issued – 1,740,815,939 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury common stock at cost. 1,741 1,368 29,653 1,741 1,211 28,173 Shares: 2014 – 694,189,127; 2013 – 658,012,970 . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss), net of taxes (AOCI) . . . . . . . . . . . . . . . . . . Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,840) (532) 10,390 $ 17,722 (19,790) (528) 10,807 $ 18,938 See accompanying notes. 2 8 Tex as In sTru me nTs • 2014 FO rm 10-K Consolidated Statements of Cash Flows (Millions of dollars) Cash flows from operating activities For Years Ended December 31, 2014 2013 2012 Net income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Adjustments to Net income: $ 2,821 $ 2,162 $ 1,759 Depreciation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Amortization of acquisition-related intangibles � � � � � � � � � � � � � � � � � � � � � � � Amortization of capitalized software � � � � � � � � � � � � � � � � � � � � � � � � � � � � Stock-based compensation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Gains on sales of assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 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 Capital expenditures � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Proceeds from asset sales � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Purchases of short-term investments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Proceeds from short-term investments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Cash flows from investing activities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Cash flows from financing activities Proceeds from issuance of long-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � 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 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 850 321 59 277 (73) (61) — (49) (53) 65 (194) 89 (81) (58) (21) 3,892 (385) 142 (3,107) 2,966 7 (377) 498 (1,000) (1,323) (2,831) 616 100 (3) (3,943) 879 336 82 287 (6) 50 — 16 26 (136) (284) 18 78 28 (152) 3,384 (412) 21 (3,907) 4,249 46 (3) 986 (1,500) (1,175) (2,868) 1,314 80 (7) (3,170) 957 342 102 263 — 130 (144) 311 5 162 99 (82) (229) (198) (63) 3,414 (495) — (2,802) 2,198 60 (1,039) 1,492 (1,375) (819) (1,800) 523 38 (10) (1,951) Net change in Cash and cash equivalents � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Cash and cash equivalents at beginning of period � � � � � � � � � � � � � � � � � � � � � � � � � Cash and cash equivalents at end of period � � � � � � � � � � � � � � � � � � � � � � � � � � � � (428) 1,627 $ 1,199 211 1,416 $ 1,627 424 992 $ 1,416 See accompanying notes� 2 9 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-k Consolidated Statements of Stockholders’ Equity (Millions of dollars, except per-share amounts ) Common Stock Paid- In Capital Retained Earnings Treasury Common Stock AOCI Balance, December 31, 2011 � � � � � � � � � � � � � � � � � � � � � � � � � � $ 1,741 $ 1,194 $ 26,278 $ (17,485) $ (776) 2012 F o r m 1 0 - k Net income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Dividends declared and paid ($0�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 � � � � � � � � � � � � � � Dividend equivalents paid on restricted stock units � � � � � � � � � � � � � Balance, December 31, 2012 � � � � � � � � � � � � � � � � � � � � � � � � � � 2013 Net income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Dividends declared and paid ($1�07 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 � � � � � � � � � � � � � � Dividend equivalents paid on restricted stock units � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Balance, December 31, 2013 � � � � � � � � � � � � � � � � � � � � � � � � � � — — — — — — — — 1,741 — — — — — — — — — 1,741 — — (337) — 263 56 — — 1,176 — — (273) — 287 25 — — (4) 1,211 1,759 (819) — — — — — (13) 27,205 2,162 (1,175) — — — — — (19) — 28,173 — — 823 (1,800) — — — — (18,462) — — 1,540 (2,868) — — — — — (19,790) — — — — — — 77 — (699) — — — — — — 171 — — (528) 2014 Net income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Dividends declared and paid ($1.24 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 � � � � � � � � � � � � Dividend equivalents paid on restricted stock units � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Balance, December 31, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � — — — — — — — — — — — (226) — 277 110 — — (4) $ 1,741 $ 1,368 2,821 (1,323) — — — — — (18) — $ 29,653 — — 781 (2,831) — — — — — — — — — — — (4) — — $ (21,840) $ (532) See accompanying notes� 3 0 Tex as In sTru me nTs • 2014 FO rm 10-K Notes to financial statements 1. Description of business, including segment and geographic area information We design, make and sell semiconductors to electronics designers and manufacturers all over the world� We have two reportable segments, which are established along major categories of products as follows: • Analog – consists of the following product lines: High Volume Analog & Logic; Power Management; High Performance Analog; and Silicon Valley Analog, which consists primarily of products that we acquired through our purchase of National Semiconductor Corporation (National) in 2011� • Embedded Processing – consists of the following product lines: Processor, Microcontrollers and Connectivity� We report the results of our remaining business activities in Other� Other includes operating segments that do not meet the quantitative thresholds for individually reportable segments and cannot be aggregated with other operating segments� Other includes DLP® products, custom application-specific integrated circuits, calculators, royalties, and products from our former Wireless segment, which was eliminated effective January 1, 2013� We also include in Other items that are not used in evaluating the results of or in allocating resources to our segments� These include acquisition-related charges (see Note 3); restructuring charges (see Note 4); and certain corporate-level items, such as litigation expenses, environmental costs, insurance settlements, and gains and losses from other activities, including asset dispositions� We allocate the remainder of our expenses associated with corporate activities to our operating segments based on specific methodologies, such as percentage of operating expenses or headcount� Our centralized manufacturing and support organizations, such as facilities, procurement and logistics, provide support to our operating segments, including those in Other� 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� The assets and liabilities associated with these organizations are included in Other� 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 below in the summary of significant accounting policies and practices� k - 0 1 m r o F Segment information Revenue: For Years Ended December 31, 2013 2012 2014 Analog � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Embedded Processing � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Operating profit: Analog � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Embedded Processing � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total operating profit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 8,104 2,740 2,201 $ 13,045 $ 2,786 384 777 $ 3,947 $ 7,194 2,450 2,561 $ 12,205 $ 1,859 185 788 $ 2,832 $ 6,998 2,257 3,570 $ 12,825 $ 1,650 158 165 $ 1,973 Tex as In sTru menTs • 2014 F Orm 10 -K 3 1 Geographic area information The following geographic area information includes revenue, based on product shipment destination and royalty payor location, and property, plant and equipment, based on physical location: For Years Ended December 31, 2013 2012 2014 Revenue: United States � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Asia (a) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Europe � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Japan � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Rest of world � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 1,625 7,915 2,293 1,032 180 $ 13,045 $ 1,666 7,370 1,926 1,072 171 $ 12,205 $ 1,596 7,808 1,861 1,357 203 $ 12,825 (a) Revenue from products shipped into China, including Hong Kong, was $5�7 billion in 2014, $5�2 billion in 2013 and $5�4 billion in 2012� F o r m 1 0 - k Property, plant and equipment, net: United States � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Asia � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Europe � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Japan � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Rest of world � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total property, plant and equipment, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 1,436 1,096 162 124 22 $ 2,840 $ 1,765 1,277 196 144 17 $ 3,399 $ 1,931 1,547 241 174 19 $ 3,912 2014 December 31, 2013 2012 2. Basis of presentation and significant accounting policies and practices Basis of presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ( 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 2014 presentation� The preparation of financial statements requires the use of estimates from which final results may vary� Significant accounting policies and practices Revenue recognition We recognize revenue from sales of our products, including direct sales to our distributors, when title and risk of loss pass, which usually occurs upon shipment or delivery to the customer or distributor, 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� For sales to distributors, payment is due on our standard commercial terms and is not contingent upon resale of the products� In 2014, about 60 percent of our revenue was generated from sales of our products to distributors� We recognize revenue net of allowances, which are management’s estimates of future credits to be granted to customers or distributors under programs common in the semiconductor industry� These allowances are based on analysis of historical data, current economic conditions, and contractual terms and are recorded when revenue is recognized� Allowances may include volume-based incentives, product returns due to quality issues, incentives designed to maximize growth opportunities and special pricing arrangements� For instance, we sell to distributors at standard published prices, but we may grant them price adjustment credits in response to individual competitive opportunities� To estimate allowances, we use statistical percentages of revenue, which are determined quarterly based upon recent historical adjustment trends� 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� 3 2 Tex as In sTru me nTs • 2014 FO rm 10-K We may also 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� Revenue from sales of our products that are subject to inventory consignment agreements, including consignment arrangements with distributors, is recognized in accordance with the principles discussed above, but delivery occurs when the customer or distributor pulls product from consignment inventory that we store at designated locations� About 60 percent of our distributor revenue is generated from sales of consigned inventory� The allowances we record against this revenue are not material� 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� In addition, we record allowances for accounts receivable that we estimate may not be collected� 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� We recognize shipping fees received from customers in revenue, and we include the shipping and handling costs in COR� Advertising costs We expense advertising and other promotional costs as incurred� This expense was $45 million in 2014, $46 million in 2013 and $46 million in 2012� Restructuring charges Restructuring charges may consist of voluntary or involuntary severance-related charges, asset-related charges and other costs due 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� 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 Consolidated Statements of Income on a net (excluded from revenue) basis� Earnings per share (EPS) Unvested share-based payment awards that contain non-forfeitable 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� 3 3 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-kComputation and reconciliation of earnings per common share are as follows (shares in millions): Basic EPS: Net income � � � � � � � � � � � � � � � � � Income allocated to RSUs � � � � � � � � � Income allocated to common stock for 2014 Shares EPS Net Income $ 2,821 (44) For Years Ended December 31, 2013 Shares EPS Net Income $ 2,162 (37) 2012 Shares EPS Net Income $ 1,759 (31) basic EPS calculation � � � � � � � � � � $ 2,777 1,065 $ 2.61 $ 2,125 1,098 $ 1�94 $ 1,728 1,132 $ 1�53 F o r m 1 0 - k Adjustment for dilutive shares: Stock-based compensation plans � � � � � � Diluted EPS: Net income � � � � � � � � � � � � � � � � � Income allocated to RSUs � � � � � � � � � Income allocated to common stock for $ 2,821 (43) 15 15 14 $ 2,162 (36) $ 1,759 (31) diluted EPS calculation � � � � � � � � � $ 2,778 1,080 $ 2.57 $ 2,126 1,113 $ 1�91 $ 1,728 1,146 $ 1�51 Potentially dilutive securities representing 11 million and 52 million shares of common stock that were outstanding during 2014 and 2012, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been anti-dilutive� There were no potentially dilutive securities to exclude from the computation of diluted earnings per common share during 2013� Investments We present investments on our Consolidated 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 them 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� • Classification of investments: Depending on our reasons for holding the investment and our ownership percentage, we classify our investments as either available for sale, trading, equity method or cost method, 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 $258 million and $202 million as of December 31, 2014 and 2013, respectively� We review inventory quarterly for salability and obsolescence� A statistical allowance is provided for inventory considered unlikely to be sold� The statistical allowance is based on an analysis of historical disposal activity, historical customer shipments, as well as estimated future sales� A specific allowance for each material type will be carried if there is a significant event not captured by the statistical allowance� 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 3 4 Tex as In sTru me nTs • 2014 FO rm 10-K 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 test as of October 1 for our reporting units, which compares the fair value for each reporting unit to its associated carrying value, including goodwill� See Note 10 for additional information� k - 0 1 m r o F 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 valued 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� Derivatives and hedging We use derivative financial instruments to manage exposure to foreign exchange risk� These instruments are primarily forward foreign currency exchange contracts, which are used as economic hedges to reduce the earnings impact that 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� In connection with the issuance of long-term debt, we use financial derivatives such as treasury rate lock agreements that are recognized in AOCI and amortized over the life of the related debt� The results of these derivative transactions have not been material� We do not use derivatives for speculative or trading purposes� Changes in accounting standards In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No� 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This standard raises the threshold at which a disposal qualifies as a discontinued operation� Under the new guidance, only a disposal representing a strategic shift in operations that has or will have a major effect on an entity’s operations and financial results, such as a disposal of a major geographic area or a major line of business, should be presented as discontinued operations� In addition, the new standard requires additional disclosures of both discontinued operations and certain other disposals that do not meet the revised definition of a discontinued operation� This standard is effective for annual and interim reporting periods beginning as of January 1, 2015� In the event that a future disposition meets the revised criteria, we expect that this standard will have an impact on the presentation of our financial statements, and we will provide the appropriate disclosures at that time� In May 2014, the FASB issued ASU No� 2014-09, Revenue from Contracts with Customers (Topic 606)� This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures� This standard is effective for annual and interim reporting periods beginning as of January 1, 2017� We are currently evaluating the potential impact of this standard on our financial position and results of operations� In August 2014, the FASB issued ASU No� 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about an entity’s ability to continue as a going concern, and if so, to provide related footnote disclosures� The standard is effective for annual and interim reporting periods ending after December 15, 2016� We expect it will have no impact on our financial position and results of operations� Tex as In sTru menTs • 2014 F Orm 10 -K 3 5 3. Acquisition charges We incurred various costs as a result of the 2011 acquisition of National that are included in Other for segment reporting purposes, consistent with how management measures the performance of its segments� Total acquisition-related charges are detailed below: Amortization of intangible assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Stock-based compensation� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Retention bonuses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Severance and other benefits � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Transaction and other costs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � As recorded in Acquisition charges � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � As recorded in COR � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total acquisition-related charges � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � F o r m 1 0 - k For Years Ended December 31, 2014 $ 319 11 — — — 330 — $ 330 2013 $ 323 11 7 — — 341 — $ 341 2012 $ 325 17 57 16 35 450 21 $ 471 Acquisition charges The amount of recognized amortization of intangible assets resulting from the National acquisition is based on estimated useful lives� See Note 10 for additional information� 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� Retention bonuses reflect amounts paid to former National employees who fulfilled agreed-upon service period obligations and that were recognized ratably over the required service period� Severance and other benefits costs were for former National employees who were terminated after the closing date� About 350 jobs were eliminated by the end of 2012 as a result of redundancies and cost efficiency measures� As of December 31, 2014, a total of $86 million in cumulative charges have been recognized, of which $84 million has been paid, including $41 million related to change of control provisions under existing employment agreements� Transaction and other costs included various expenses incurred in connection with the National acquisition� COR 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� 3 6 Tex as In sTru me nTs • 2014 FO rm 10-K 4. Restructuring charges/other Restructuring charges/other is comprised of the following components: Restructuring charges by action: 2013 actions Severance and benefits cost (a) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other exit costs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Prior actions Severance and benefits cost (a) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Accelerated depreciation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other exit costs (a) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total restructuring charges � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � For Years Ended December 31, 2014 2013 2012 $ $ 16 10 26 (6) 1 (1) (6) 20 49 — 49 36 11 30 77 126 $ — — — 251 21 128 400 400 Other: Gains on sales of assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Gain on technology transfer � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Gain on transfer of Japan substitutional pension � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Restructuring charges/other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � (75) — — 4 $ (51) — (315) — — $ (189) — — (144) 8 $ 264 (a) Includes changes in estimates� Restructuring charges/other are recognized in Other for segment reporting purposes� Restructuring actions related to the acquisition of National are discussed in Note 3 and the associated costs are reflected in the Acquisition charges line of our Consolidated Statements of Income� 2013 actions We announced in January 2014 cost-saving actions in Embedded Processing and in Japan to reduce expenses and focus our investments on markets with greater potential for sustainable growth and strong long-term returns� We expect the actions to be completed by mid-2015� Cost reductions include the elimination of about 1,100 jobs worldwide� Through December 31, 2014, we have recognized $75 million in cumulative restructuring charges, with no further material charges expected� As of December 31, 2014, $43 million has been paid to terminated employees for severance and benefits� Prior actions In 2012, we announced a restructuring of our Wireless business to reduce expenses and focus our investments on markets with greater potential for sustainable growth and strong long-term returns� This action was completed in 2013� We recognized $383 million in cumulative restructuring charges, including a $90 million impairment of goodwill� As of December 31, 2014, $247 million has been paid to terminated employees for severance and benefits� Also in 2012, we announced closure of two older semiconductor manufacturing facilities in Houston, Texas, and Hiji, Japan� We recognized $200 million in cumulative restructuring charges related to these closures, completing both by the end of 2013� As of December 31, 2014, $103 million has been paid to terminated employees for severance and benefits� As of December 31, 2014 and 2013, we carried immaterial liabilities related to actions commenced in 2008 and 2009� The related expense was recognized in periods prior to 2011� 3 7 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-kThe table below reflects the changes in accrued restructuring balances associated with these actions: Accrual at December 31, 2011 � � � � � � � � � � � � � � � � � � � � � � Restructuring charges (a) � � � � � � � � � � � � � � � � � � � � � � � � � Non-cash items (b) � � � � � � � � � � � � � � � � � � � � � � � � � � � � Payments� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Remaining accrual at December 31, 2012 � � � � � � � � � � � � � � � � F o r m 1 0 - k Restructuring charges (a) � � � � � � � � � � � � � � � � � � � � � � � � � Non-cash items (b) � � � � � � � � � � � � � � � � � � � � � � � � � � � � Payments� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Remaining accrual at December 31, 2013 � � � � � � � � � � � � � � � � Restructuring charges (a) � � � � � � � � � � � � � � � � � � � � � � � Payments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Remaining accrual at December 31, 2014 � � � � � � � � � � � � � � � (a) Includes changes in estimates� 2013 Actions Prior Actions Severance and Benefits $ — — — — — 49 — — 49 16 (43) $ 22 Other Charges $ — — — — — — — — — 10 (1) $ 9 Severance and Benefits $ 109 251 3 (23) 340 36 (5) (266) 105 Other Charges 7 $ 149 (124) (23) 9 41 (17) (26) 7 Total $ 116 400 (121) (46) 349 126 (22) (292) 161 (6) (73) 26 $ — (7) $ — $ 20 (124) 57 (b) Reflects charges for goodwill impairment, stock-based compensation, impacts of postretirement benefit plans and accelerated depreciation� The accrual balances above are primarily reported as a component of either Accrued expenses and other liabilities or Deferred credits and other liabilities on our Consolidated Balance Sheets, depending on the expected timing of payment� Other Gains on sales of assets We recognized $75 million of gains on sales of assets in 2014� This consisted of $30 million associated with the sale of our site in Nice, France; $28 million associated with the sales of real estate in Santa Clara, California; and $17 million of asset sales associated primarily with the closure of our Houston, Texas, and Hiji, Japan, manufacturing facilities� Gain on technology transfer During 2013, we recognized a gain of $315 million on the transfer of wireless connectivity technology to a customer� This technology was associated with the former Wireless business� Gain on transfer of Japan substitutional pension During 2012, we transferred the obligations and assets of the substitutional portion of our Japan pension plan to the government of Japan, resulting in a net gain of $144 million� See Note 11 for additional details� 5. stock-based compensation We have stock options outstanding to participants under 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 10 -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 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� Beginning with 2013 grants, RSUs generally continue to vest after the recipient retires� Holders of most RSUs receive an annual cash payment equivalent to the dividends paid on our common stock� We have options and RSUs outstanding to non-employee directors under 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� 3 8 Tex as In sTru me nTs • 2014 FO rm 10-K 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, 2012 2013 2014 Stock-based compensation expense recognized in: COR � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � R&D � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � SG&A � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Acquisition charges � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 48 62 156 11 $ 277 $ 49 67 160 11 $ 287 $ 48 71 127 17 $ 263 These amounts include expenses 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 with graded vesting provisions (e�g�, 25 percent per year for four years)� Generally, we recognize the related compensation expense on a straight-line basis over the minimum service period required for vesting of the award, adjusting for expected forfeiture activity� Awards issued to employees who are retirement eligible or nearing retirement eligibility are expensed on an accelerated basis� Our RSUs generally vest four years after the date of grant� We recognize the related compensation expense on a straight-line basis over the vesting period, adjusting for expected forfeiture activity� Beginning with 2013 grants, RSUs issued to employees who are retirement eligible or nearing retirement eligibility are expensed on an accelerated basis� 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 using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions� k - 0 1 m r o F Weighted average grant date fair value, per share � � � � � � � � � � � � � � � � � � � � � � � � � Weighted average assumptions used: For Years Ended December 31, 2013 $ 6�78 2012 $ 8�31 2014 $ 8.13 Expected volatility � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Expected lives (in years) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Risk-free interest rates � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Expected dividend yields � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 22% 7.3 2.45% 2.72% 26% 7�4 1�43% 2�56% 30% 7�1 1�40% 2�10% We determine expected volatility on all options granted 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 10-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 annualized approved quarterly dividend rate 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 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-Merton 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� Tex as In sTru menTs • 2014 F Orm 10 -K 3 9 F o r m 1 0 - k Long-term incentive and director compensation plans Stock option and RSU transactions under our long-term incentive and director compensation plans during 2014 were as follows: Outstanding grants, December 31, 2013 � � � � � � � � � � � � � Granted � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Vested RSUs � � � � � � � � � � � � � � � � � � � � � � � � � � � Forfeited and expired � � � � � � � � � � � � � � � � � � � � � � Exercised � � � � � � � � � � � � � � � � � � � � � � � � � � � � Outstanding grants, December 31, 2014 � � � � � � � � � � � � Stock Options RSUs Weighted Average Exercise Price per Share $ 28�98 44.11 — 36.54 27.75 32.84 Weighted Average Grant Date Fair Value per Share $ 29�94 44.71 23.68 33.22 — 34.47 Shares 20,892,022 3,184,237 (5,609,627) (1,162,817) — 17,303,815 Shares 64,930,540 14,053,185 — (1,832,897) (19,503,382) 57,647,446 The weighted average grant date fair value of RSUs granted during the years 2014, 2013 and 2012 was $44�71, $33�70 and $31�60 per share, respectively� For the years ended December 31, 2014, 2013 and 2012, the total grant date fair value of shares vested from RSU grants was $133 million, $98 million and $120 million, respectively� Summarized information about stock options outstanding at December 31, 2014, is as follows: Range of Exercise Price $ 14�47 to 20�00 20�01 to 30�00 30�01 to 40�00 40�01 to 50�00 50�01 to 55�41 14�47 to 55�41 Stock Options Outstanding Options Exercisable Number Outstanding (Shares) 4,061,577 11,270,125 28,910,636 13,399,020 6,088 57,647,446 Weighted Average Remaining Contractual Life (Years) 4.0 3.7 6.5 9.1 9.9 6.4 Weighted Average Exercise Price per Share $ 14.98 25.47 33.00 44.10 55.41 32.84 Number Exercisable (Shares) 4,061,577 11,250,200 12,288,339 1,750 — 27,601,866 Weighted Average Exercise Price per Share $ 14.98 25.46 33.14 42.66 — 27.34 During the years ended December 31, 2014, 2013 and 2012, the aggregate intrinsic value (i�e�, the difference in the closing market price on the date of exercise and the exercise price paid by the optionee) of options exercised was $367 million, $427 million and $244 million, respectively� Summarized information as of December 31, 2014, about outstanding stock options that are vested and expected to vest, as well as stock options that are currently exercisable, is as follows: Number of outstanding (shares) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Weighted average remaining contractual life (in years) � � � � � � � � � � � � � � � � � � � Weighted average exercise price per share � � � � � � � � � � � � � � � � � � � � � � � � � Intrinsic value (millions of dollars) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Outstanding Stock Options (Fully Vested and Expected to Vest) (a) 56,328,323 6.3 32.69 1,170 $ $ Options Exercisable 27,601,866 4.4 27.34 721 $ $ (a) Includes effects of expected forfeitures of approximately 1 million shares� Excluding the effects of expected forfeitures, the aggregate intrinsic value of stock options outstanding was $1,189 million� As of December 31, 2014, the total future compensation cost related to equity awards not yet recognized in the Consolidated Statements of Income was $308 million, consisting of $113 million related to unvested stock options and $195 million related to unvested RSUs� The $308 million is expected to be recognized as follows: $168 million in 2015, $91 million in 2016, $44 million in 2017 and $5 million in 2018� 4 0 Tex as In sTru me nTs • 2014 FO rm 10-K Director deferred compensation Directors who retire or resign from the board may receive stock distributions for compensation they elected to defer� For these stock distributions, we issued treasury shares� Director deferred stock activity during 2014 was as follows: Outstanding, December 31, 2013� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � New shares deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Issued � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Outstanding, December 31, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Director Deferred Stock (Shares) 129,264 13,636 (7,178) 135,722 Employee stock purchase plan Options outstanding under the employee stock purchase plan at December 31, 2014, had an exercise price equal to 85 percent of the fair market value of TI common stock on the date of automatic exercise� The automatic exercise occurred on January 2, 2015, resulting in an exercise price of $45�46 per share� Of the total outstanding options, none were exercisable at year-end 2014� Employee stock purchase plan transactions during 2014 were as follows: Outstanding grants, December 31, 2013 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Granted � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Exercised � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Outstanding grants, December 31, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Employee Stock Purchase Plan (Shares) 485,408 1,673,479 (1,784,184) 374,703 Exercise Price $ 36�64 41.60 39.44 45.46 The weighted average grant date fair value of options granted under the employee stock purchase plans during the years 2014, 2013 and 2012 was $7�34, $5�71 and $4�52 per share, respectively� During the years ended December 31, 2014, 2013 and 2012, the total intrinsic value of options exercised under these plans was $12 million, $13 million and $13 million, respectively� 4 1 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-kEffect on shares outstanding and treasury shares Treasury shares were acquired in connection with the board-authorized stock repurchase program� As of December 31, 2014, $3�17 billion of stock repurchase authorizations remain, and no expiration date has been specified� Our current practice is to issue shares of common stock from treasury shares upon exercise of stock options, distribution of director deferred compensation and vesting of RSUs� The table below reflects the changes in our treasury shares: Stock Options RSUs Treasury Shares F o r m 1 0 - k Balance, December 31, 2011 � � � � � � � � � � � � � � � � � � � � � � � � � � � � Repurchases � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Shares used for: Stock options/RSUs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Previously unissued common shares (a) � � � � � � � � � � � � � � � � � � � � Stock applied to taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � ESPP � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Director deferred stock � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total issued � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Balance, December 31, 2012 � � � � � � � � � � � � � � � � � � � � � � � � � � � � Repurchases � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Shares used for: Stock options/RSUs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Stock applied to taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � ESPP � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Director deferred stock � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total issued � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Balance, December 31, 2013 � � � � � � � � � � � � � � � � � � � � � � � � � � � � Repurchases � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Shares used for: Stock options/RSUs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Stock applied to exercises or taxes � � � � � � � � � � � � � � � � � � � � � ESPP � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Director deferred stock � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total issued � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Balance, December 31, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � (a) Beginning in 2013, only treasury shares were issued� Shares available for future grants and reserved for issuance are summarized below: (22,409,816) 180,955 — (2,829,498) — (25,058,359) (4,182,928) 4,593 990,845 — — (3,187,490) (45,507,711) — (2,386,834) — (47,894,545) (5,741,981) 1,461,422 — — (4,280,559) (19,503,382) 6,618 (1,784,184) — (21,280,948) (5,609,627) 1,408,701 — — (4,200,926) 601,131,631 59,757,780 (6,592) (28,245,849) 632,636,970 77,564,013 (12,909) (52,175,104) 658,012,970 61,665,209 (7,178) (25,481,874) 694,189,127 Shares Long- Term Incentive and Director Compensation Plans Reserved for issuance (a) � � � � � � � � � � � � � � � � � � � � � � � � � � � � Shares to be issued upon exercise of outstanding options and RSUs (a) � � � � Available for future grants � � � � � � � � � � � � � � � � � � � � � � � � � � � 121,127,656 (75,086,983) 46,040,673 December 31, 2014 Employee Stock Purchase Plan 39,565,038 (374,703) 39,190,335 Total 160,692,694 (75,461,686) 85,231,008 (a) Includes 135,722 shares credited to directors’ deferred stock accounts that settle in shares of TI common stock� These shares are not included as grants outstanding at December 31, 2014� The effects on cash flows were as follows : Proceeds from common stock transactions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Tax benefit realized from stock options exercised � � � � � � � � � � � � � � � � � � � � � � � � � � � For Years Ended December 31, 2013 2014 $ 1,314 $ 616 227 218 2012 $ 523 133 4 2 Tex as In sTru me nTs • 2014 FO rm 10-K 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 $269 million, $161 million and $96 million of profit sharing expense under the TI Employee Profit Sharing Plan in 2014, 2013 and 2012, respectively� 7. Income taxes Income before Income Taxes U.S. Non-U.S. Total 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2013 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2012 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 2,684 1,507 319 $ 1,190 1,247 1,616 $ 3,874 2,754 1,935 Provision (Benefit) for Income Taxes U.S. Federal Non-U.S. U.S. State Total k - 0 1 m r o F 2014 Current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 911 (73) $ 838 2013 Current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 291 17 $ 308 2012 Current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ (108) 65 $ (43) Principal reconciling items from income tax computed at the statutory federal rate follow: Computed tax at statutory rate � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Non-U�S� effective tax rates � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � U�S� R&D tax credit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � U�S� tax benefit for manufacturing � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Impact of changes to uncertain tax positions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Non-deductible expenses� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total provision for income taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 194 11 $ 205 $ 247 33 $ 280 $ 156 65 $ 221 $ 9 1 $ 10 $ 4 — $ 4 $ (2) — $ (2) $ 1,114 (61) $ 1,053 $ $ $ $ 542 50 592 46 130 176 For Years Ended December 31, 2012 2013 2014 $ 1,356 (212) (59) (51) 3 6 10 $ 1,053 $ 964 (156) (129) (66) (14) 13 (20) $ 592 $ 677 (345) — (158) (88) 42 48 $ 176 The total provision for 2013 in the reconciliation above includes $79 million of discrete tax benefits primarily for the reinstatement of the U�S� R&D tax credit retroactive to 2012� Tex as In sTru menTs • 2014 F Orm 10 -K 4 3 F o r m 1 0 - k Included in the non-U�S� effective tax rates reconciling item are benefits from tax holidays of $44 million, $40 million and $51 million in 2014, 2013 and 2012, respectively� The tax benefits relate to our operations in Malaysia and the Philippines, and expire in 2018 and 2017, respectively� The terms of the Malaysia tax holiday are currently under governmental review as required for the end of the first five years of the holiday period� We do not expect any potential change in the holiday to have a material impact on the financial statements� The total provision for 2012 includes $252 million of discrete tax benefits primarily for additional U�S� tax benefits for manufacturing related to the years 2000 through 2011 and, to a lesser extent, audit adjustments� The primary components of deferred income tax assets and liabilities were as follows: Deferred income tax assets: Deferred loss and tax credit carryforwards � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Accrued expenses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Stock-based compensation� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Inventories and related reserves � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Retirement costs for defined benefit and retiree health care � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ Valuation allowance � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Deferred income tax liabilities: Acquisition-related intangibles and fair-value adjustments � � � � � � � � � � � � � � � � � � � � � � � � � International earnings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Property, plant and equipment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Net deferred income tax asset � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ December 31, 2014 2013 289 248 238 157 96 122 1,150 (195) 955 (688) (104) (10) (37) (839) 116 $ 345 265 262 162 101 148 1,283 (219) 1,064 (804) (121) (57) (31) (1,013) 51 $ The deferred income tax assets and liabilities based on tax jurisdictions are presented on the Consolidated Balance Sheets as follows: 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 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � December 31, 2014 2013 $ 347 172 (4) (399) $ 116 $ 393 207 (1) (548) 51 $ We make an ongoing assessment regarding the realization of U�S� and non-U�S� deferred tax assets� 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� In 2014, we recognized a net decrease of $24 million in our valuation allowance, due to unutilized tax credits� We have U�S� and non-U�S� tax loss carryforwards of approximately $108 million, none of which will expire before the year 2024� 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 of approximately $7�67 billion at December 31, 2014, have been indefinitely reinvested outside of the United States; therefore, no U�S� tax 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 working capital 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� 4 4 Tex as In sTru me nTs • 2014 FO rm 10-K Cash payments made for income taxes, net of refunds, were $1�104 billion, $569 million and $171 million for the years ended December 31, 2014, 2013 and 2012, respectively� 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: Balance, January 1 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Additions based on tax positions related to the current year � � � � � � � � � � � � � � � � � � � � � � � Additions for tax positions of prior years � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Reductions for tax positions of prior years � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Settlements with tax authorities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Expiration of the statute of limitations for assessing taxes � � � � � � � � � � � � � � � � � � � � � � � � Balance, December 31 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2014 $ 91 10 52 (9) (36) — $ 108 2013 $ 184 7 19 (10) (96) (13) $ 91 2012 $ 210 12 45 (92) 39 (30) $ 184 Interest income (expense) recognized in the year ended December 31 � � � � � � � � � � � � � � � � � � $ 6 $ (10) $ 32 Interest receivable (payable) as of December 31 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ — $ (5) $ 8 The liability for uncertain tax positions and interest payable are components of Deferred credits and other liabilities on our Consolidated Balance Sheets� Interest receivable is a component of Other assets on our Consolidated Balance Sheets� The $108 million liability for uncertain tax positions as of December 31, 2014, is comprised of positions that, if recognized, would impact the tax rate� If these tax liabilities are ultimately realized, $56 million of existing deferred tax assets would also be realized, related to refunds from counterparty jurisdictions resulting from procedures for relief from double taxation� Regarding the $108 million liability: • About $76 million of the liability represents uncertain tax positions for tax years in jurisdictions in which audit assessments have not been made� Of this liability, $52 million relates to the cumulative effect of a tax depreciation-related method change� The balance of this 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� • About $32 million of the liability represents audit assessments� Of the liability, $29 million is related to transfer pricing issues for which there are ongoing procedures for relief from double taxation� Settlement of the $29 million is subject to timely completion of the tax treaty processes and a significant portion of that liability may be settled within the next 12 months� Settlement will not have a significant tax rate impact, as the tax rates of the counterparty jurisdictions are similar� All of the $91 million liability for uncertain tax positions as of December 31, 2013, is made up of positions that, if recognized, would impact the tax rate� If these tax liabilities are ultimately realized, $76 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, 2014, the statute of limitations remains open for U�S� federal tax returns for 2010 and following years� Audit activities related to our U�S� federal tax returns through 2009 have been completed except for certain pending tax treaty procedures for relief from double taxation and the review of refunds claimed on amended returns for years prior to 2010� The procedures for relief from double taxation pertain to U�S� federal tax returns for the years 2004 through 2010� 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 United States, our subsidiaries are no longer subject to income tax audits for years before 2007� 4 5 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-k8. Financial instruments and risk concentration Financial instruments We hold derivative financial instruments such as forward foreign currency exchange contracts, the fair value of which was not material as of December 31, 2014� Our forward foreign currency exchange contracts outstanding as of December 31, 2014, had a notional value of $504 million to hedge our non-U�S� dollar net balance sheet exposures, including $183 million to sell Japanese yen, $163 million to sell euros and $29 million to sell British pound sterling� Prior to the second quarter of 2013, we also held interest rate swaps� See Note 12 for more details� 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� 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 a description of fair value and the definition of Level 2 inputs� F o r m 1 0 - k Risk concentration We are subject to counterparty risk from financial institutions, customers and issuers of debt securities� Financial instruments that could subject us to concentrations of credit risk are primarily cash deposits, 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 cash deposits and 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: Balance, January 1 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Additions charged (credited) to operating results � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Recoveries and write-offs, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Balance, December 31 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2014 $ 22 (9) (1) $ 12 2013 $ 31 (9) — $ 22 2012 $ 19 12 — $ 31 9. Valuation of debt and equity investments and certain liabilities Debt and equity investments We classify our investments as either 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 or broker quotes� 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� 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� 4 6 Tex as In sTru me nTs • 2014 FO rm 10-K Details of our investments are as follows: Measured at fair value: Available-for-sale securities Money market funds � � � � � � � � � � Corporate obligations � � � � � � � � � � U�S� Government agency and Treasury securities � � � � � � � � � � � Trading securities Mutual funds � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � Other measurement basis: Equity-method investments � � � � � � Cost-method investments � � � � � � � Cash on hand � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � December 31, 2014 December 31, 2013 Cash and Cash Equivalents Short-Term Investments Long-Term Investments Cash and Cash Equivalents Short-Term Investments Long-Term Investments $ 522 97 365 — 984 — — 215 $ 1,199 $ — 390 $ — — 1,952 — 2,342 — — — $ 2,342 — 185 185 27 12 — $ 224 $ 500 123 787 — 1,410 — — 217 $ 1,627 $ — 217 $ — — 1,985 — 2,202 — — — $ 2,202 — 179 179 24 13 — $ 216 k - 0 1 m r o F At December 31, 2014 and 2013, we had no significant unrealized gains or losses associated with our available-for-sale investments� We did not recognize any credit losses related to available-for-sale investments for the years ended December 31, 2014, 2013 and 2012� For the years ended December 31, 2014, 2013 and 2012, the proceeds from sales, redemptions and maturities of short-term available-for-sale investments were $2�97 billion, $4�25 billion and $2�20 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, 2014: Due One year or less � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � One to two years � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Fair Value $ 3,121 205 Gross realized gains and losses from sales of long-term investments were not significant for 2014, 2013 and 2012� Other-than-temporary declines and impairments in the values of these investments recognized in OI&E were not material in 2014, and were $5 million and $7 million in 2013 and 2012, respectively� 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� We utilize a third-party data service to provide Level 2 valuations� We verify 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� Tex as In sTru menTs • 2014 F Orm 10 -K 4 7 The following are our assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2014 and 2013� We had no Level 3 assets or liabilities as of December 31, 2014 and 2013� 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, 2014 Level 1 Level 2 Assets: Money market funds � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Corporate obligations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � U�S� Government agency and Treasury securities � � � � � � � � � � � � � � � � � � � � Mutual funds � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 522 487 2,317 185 $ 3,511 $ 522 — 1,762 185 $ 2,469 $ — 487 555 — $ 1,042 Liabilities: Deferred compensation� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ $ 202 202 $ $ 202 202 $ — $ — F o r m 1 0 - k Fair Value December 31, 2013 Level 1 Level 2 Assets: Money market funds � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Corporate obligations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � U�S� Government agency and Treasury securities � � � � � � � � � � � � � � � � � � � � Mutual funds � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 500 340 2,772 179 $ 3,791 $ 500 — 2,107 179 $ 2,786 $ — 340 665 — $ 1,005 Liabilities: Deferred compensation� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ $ 197 197 $ $ 197 197 $ — $ — 10. Goodwill and acquisition-related intangibles The following table summarizes goodwill, net, by segment for the years ended December 31, 2014 and 2013� Analog � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Embedded Processing � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Goodwill $ 4,158 172 32 $ 4,362 We perform our annual goodwill impairment test as of October 1 and determine whether the fair value of each of our reporting units is in excess of its carrying value� Determination of fair value is 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� For the years ended December 31, 2014 and 2013, we determined no impairment was indicated� See Note 9 for additional information� In November 2012, as a result of unsuccessful efforts to divest certain Wireless product lines and the subsequent decision to restructure and wind down those product lines, we reassessed the recoverability of the goodwill associated with the former Wireless segment� As a result, we recognized a non-cash, non-tax deductible impairment charge of $90 million for that goodwill� We recognized this impairment in Restructuring charges/other in the Consolidated Statements of Income, as discussed in Note 4� As of December 31, 2014 and 2013, the accumulated impairment of goodwill was $90 million� 4 8 Tex as In sTru me nTs • 2014 FO rm 10-K The components of acquisition-related intangible assets as of December 31, 2014 and 2013, are as follows: December 31, 2014 December 31, 2013 Acquisition-Related Intangibles Developed technology � � � � � Customer relationships � � � � � Other intangibles � � � � � � � � In-process R&D � � � � � � � � Total � � � � � � � � � � � � � � � � Amortization Period (Years) 5 - 10 8 5 n/a Gross Carrying Amount $ 2,135 810 3 — $ 2,948 Accumulated Amortization $ 714 330 2 n/a $ 1,046 Net $ 1,421 480 1 — $ 1,902 Gross Carrying Amount $ 2,157 821 5 8 $ 2,991 Accumulated Amortization $ 526 239 3 n/a $ 768 Net $ 1,631 582 2 8 $ 2,223 Amortization of acquisition-related intangibles was $321 million, $336 million and $342 million for 2014, 2013 and 2012, respectively, primarily related to developed technology� Fully amortized assets are written off against accumulated amortization� Future estimated amortization of acquisition-related intangibles for the years ended December 31 is as follows: 2015 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2016 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2017 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2018 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 11. Postretirement benefit plans Amortization of Acquisition-Related Intangibles $ 319 319 318 318 288 340 Plan descriptions We have various employee retirement plans, including defined contribution, defined benefit and retiree health care benefit plans� For qualifying employees, we offer deferred compensation arrangements� U.S. retirement plans Our principal retirement plans in the U�S� are a defined contribution plan; an enhanced defined contribution plan; and qualified and non-qualified defined benefit pension plans� The defined benefit plans were closed to new participants in 1997, and current participants were allowed to make a one-time election to continue accruing a benefit in the plans, or to cease accruing a benefit and instead to participate in the enhanced defined contribution plan described below� 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, 2014 and 2013, as a result of employees’ elections, TI’s U�S� defined contribution plans held shares of TI common stock totaling 14 million shares and 15 million shares valued at $740 million and $678 million, respectively� Dividends paid on these shares for 2014 and 2013 were $19 million and $18 million, respectively� Our aggregate expense for the U�S� defined contribution plans was $60 million in 2014, $62 million in 2013 and $70 million in 2012� 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� 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� 4 9 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-k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, 2014 and 2013, as a result of employees’ elections, TI’s non-U�S� defined contribution plans held TI common stock valued at $17 million and $15 million, respectively� Dividends paid on these shares of TI common stock for 2014 and 2013 were not material� F o r m 1 0 - k Effects on the Consolidated Statements of Income and Balance Sheets Expense related to defined benefit and retiree health care benefit plans was as follows: Service cost � � � � � � � � � � � � � � � � � � � � � Interest cost � � � � � � � � � � � � � � � � � � � � � Expected return on plan assets � � � � � � � � � � � � Amortization of prior service cost (credit) � � � � � � � Recognized net actuarial loss � � � � � � � � � � � � � Net periodic benefit costs � � � � � � � � � � � � � � Settlement losses (a) (b) � � � � � � � � � � � � � � � Curtailment gain � � � � � � � � � � � � � � � � � � � Special termination benefit gains (b) � � � � � � � � � Total, including other postretirement U.S. Defined Benefit U.S. Retiree Health Care Non-U.S. Defined Benefit 2014 $ 21 45 (42) — 26 50 5 — — 2013 $ 26 45 (48) 1 21 45 41 — — 2012 $ 24 44 (50) 1 16 35 — — (1) 2014 4 $ 22 (20) 4 7 17 — — — 2013 $ 5 20 (24) 4 11 16 — — — 2012 $ 5 25 (23) 3 13 23 — (1) — 2014 $ 39 68 (80) (2) 24 49 1 (2) — 2013 $ 41 61 (67) (3) 31 63 4 (7) — 2012 $ 45 75 (78) (4) 41 79 193 — (337) losses (gains) � � � � � � � � � � � � � � � � � � $ 55 $ 86 $ 34 $ 17 $ 16 $ 22 $ 48 $ 60 $ (65) (a) Includes non-restructuring and restructuring-related settlement losses� (b) Transfer of Japan substitutional pension in 2012: 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, as shown in Note 4� 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 of $533 million and the assets transferred from the pension trust to the government of Japan of $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 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 the fair value adjusted by a smoothing technique whereby certain gains and losses are phased in over a period of three years� 5 0 Tex as In sTru me nTs • 2014 FO rm 10-K 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 loss (gain) � � � � � � � � � � � � � � � � � � � � � � � Settlements � � � � � � � � � � � � � � � � � � � � � � � � � � � Curtailments � � � � � � � � � � � � � � � � � � � � � � � � � � � Effects of exchange rate changes � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 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 � � � � � � � � � � � � � � � � � � � � � Benefits paid � � � � � � � � � � � � � � � � � � � � � � � � � � � Medicare subsidy � � � � � � � � � � � � � � � � � � � � � � � � Settlements � � � � � � � � � � � � � � � � � � � � � � � � � � � Effects of exchange rate changes � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Fair value of plan assets at end of year (FVPA) � � � � � � � � � � � � k - 0 1 m r o F U.S. Defined Benefit U.S. Retiree Health Care Non-U.S. Defined Benefit 2014 2013 2014 2013 2014 2013 $ 955 21 45 — (66) — 133 (12) — — — $ 1,076 $ 1,098 26 45 — (9) — (27) (178) — — — $ 955 $ 941 132 75 $ 1,071 1 43 12 — (66) — (12) — — $ 1,082 13 — (9) — (178) — — $ 941 $ 472 4 22 19 (45) 4 37 — — — — $ 513 $ 485 24 10 — 19 (45) 4 — — — $ 497 $ 509 5 20 18 (47) 3 (36) — — — — $ 472 $ 517 41 — — 18 (45) — — — (46) $ 485 $ 2,276 39 68 5 (84) — 275 (7) (11) (245) — $ 2,316 $ 2,414 41 61 1 (81) — 96 (30) (28) (237) 39 $ 2,276 $ 2,179 295 64 $ 2,218 201 62 — 5 (84) — (7) (239) — $ 2,213 — 1 (81) — (30) (232) 40 $ 2,179 Funded status (FVPA – BO) at end of year � � � � � � � � � � � � � � $ 6 $ (14) $ (16) $ 13 $ (103) $ (97) Amounts recognized on the Consolidated Balance Sheet as of December 31, 2014, were as follows: Overfunded retirement plans � � � � � � � � � � � � � � � � � � � � � � � � � Accrued expenses and other liabilities � � � � � � � � � � � � � � � � � � � � Underfunded retirement plans � � � � � � � � � � � � � � � � � � � � � � � � Funded status (FVPA – BO) at end of year � � � � � � � � � � � � � � � � � � U.S. Defined Benefit $ 72 (9) (57) 6 $ U.S. Retiree Health Care $ — — (16) $ (16) Non-U.S. Defined Benefit $ 55 (6) (152) $ (103) Total $ 127 (15) (225) $ (113) Amounts recognized on the Consolidated Balance Sheet as of December 31, 2013, were as follows: Overfunded retirement plans � � � � � � � � � � � � � � � � � � � � � � � � � � Accrued expenses and other liabilities � � � � � � � � � � � � � � � � � � � � � Underfunded retirement plans � � � � � � � � � � � � � � � � � � � � � � � � � Funded status (FVPA – BO) at end of year � � � � � � � � � � � � � � � � � � � U.S. Defined Benefit $ 44 (7) (51) $ (14) U.S. Retiree Health Care $ 16 — (3) $ 13 Non-U.S. Defined Benefit $ 70 (5) (162) $ (97) Total $ 130 (12) (216) $ (98) Contributions to the plans meet or exceed all minimum funding requirements� We expect to contribute about $100 million to our retirement benefit plans in 2015� The amounts shown for underfunded U�S� defined benefit plans were for non-qualified pension plans, which we do not fund because contributions to them are not tax deductible� Tex as In sTru menTs • 2014 F Orm 10 -K 5 1  Accumulated benefit obligations, which are generally less than the projected benefit obligations as they exclude the impact of future salary increases, were $968 million and $882 million at December 31, 2014 and 2013, respectively, for the U�S� defined benefit plans, and $2�15 billion and $2�12 billion at December 31, 2014 and 2013, respectively, for the non-U�S� defined benefit plans� The amounts recorded in AOCI for the years ended December 31, 2014 and 2013, are detailed below by plan type: U.S. Defined Benefit U.S. Retiree Health Care Net Actuarial Loss Prior Service Credit Net Actuarial Loss Prior Service Cost Non-U.S. Defined Benefit Net Actuarial Loss Prior Service Credit Total Net Actuarial Loss Prior Service Credit F o r m 1 0 - k AOCI balance, net of taxes, December 31, 2013 � � � � � � � � � � � $ 149 $ (2) $ 71 $ 10 $ 305 $ (9) $ 525 $ (1) Changes in AOCI by category Adjustments � � � � � � � � � � � � � � � Recognized within Net income � � � � � Tax effect � � � � � � � � � � � � � � � � Total change to AOCI � � � � � � � � � � AOCI balance, net of taxes, December 31, 2014 � � � � � � � � � � � 37 (31) (2) 4 — 3 (1) 2 29 (7) (8) 14 — (3) 1 (2) 5 (25) 6 (14) 1 — — 1 71 (63) (4) 4 1 — — 1 $ 153 $ — $ 85 $ 8 $ 291 $ (8) $ 529 $ — The estimated amounts of net actuarial loss and unrecognized prior service cost (credit) included in AOCI as of December 31, 2014, that are expected to be amortized into net periodic benefit cost over the next fiscal year are: $19 million and none for the U�S� defined benefit plans; $9 million and $6 million for the U�S� retiree health care benefit plan; and $22 million and ($2) 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, 2014 and 2013, using the same three-level hierarchy of fair-value inputs described in Note 9� Assets of U�S� defined benefit plan Fixed income securities and cash equivalents � � � � � � � � � � � � � � � � � Equity securities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Assets of U�S� retiree health care plan Fixed income securities and cash equivalents � � � � � � � � � � � � � � � � � Equity securities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Assets of non-U�S� defined benefit plans Fixed income securities and cash equivalents � � � � � � � � � � � � � � � � � Equity securities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Fair Value December 31, 2014 Level 1 Level 2 Level 3 $ 707 375 — $ 1,082 $ $ 243 254 497 $ 1,608 600 5 $ 2,213 $ — — — $ — $ 200 — $ 200 $ 430 6 — $ 436 $ 707 375 — $ 1,082 $ $ 43 254 297 $ 1,178 594 — $ 1,772 $ — — — $ — $ — — $ — $ — — 5 $ 5 5 2 Tex as In sTru me nTs • 2014 FO rm 10-K Assets of U�S� defined benefit plan Fixed income securities and cash equivalents � � � � � � � � � � � � � � � � � � Equity securities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Assets of U�S� retiree health care plan Fixed income securities and cash equivalents � � � � � � � � � � � � � � � � � � Equity securities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Assets of non-U�S� defined benefit plans Fixed income securities and cash equivalents � � � � � � � � � � � � � � � � � � Equity securities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Fair Value December 31, 2013 Level 1 Level 2 Level 3 $ $ $ $ 607 297 37 941 238 247 485 $ 1,521 650 8 $ 2,179 $ — — — $ — $ 193 — $ 193 $ 397 6 — $ 403 $ $ $ $ 607 297 — 904 45 247 292 $ 1,124 644 — $ 1,768 $ — — 37 $ 37 $ — — $ — $ — — 8 $ 8 The investments in our major benefit plans largely consist of low-cost, broad-market index funds to mitigate risks of concentration within market sectors� Our investment policy is designed to better match 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 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 for the periods presented are private equity limited partnerships in our U�S� pension plan, which were sold in 2014, and a diversified property fund 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, 2014 and 2013: Balance, December 31, 2012 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Redemptions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Unrealized loss � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Balance, December 31, 2013 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Redemptions and sales � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Unrealized gain (loss) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Balance, December 31, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Level 3 Plan Assets U.S. Defined Benefit $ 37 — — 37 (45) 8 $ — Non-U.S. Defined Benefit $ 19 (10) (1) 8 (2) (1) 5 $ 5 3 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-kF o r m 1 0 - k Assumptions and investment policies Defined Benefit U.S. Retiree Health Care 2014 2013 2014 2013 Weighted average assumptions used to determine benefit obligations: U�S� discount rate � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Non-U�S� discount rate � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 4.23% 5�11% 4.07% 4�83% 2.34% 3�01% U�S� average long-term pay progression � � � � � � � � � � � � � � � � � � � � � � � � � � � Non-U�S� average long-term pay progression � � � � � � � � � � � � � � � � � � � � � � � � � 3.30% 3�50% 3.27% 3�11% Weighted average assumptions used to determine net periodic benefit cost: U�S� discount rate � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Non-U�S� discount rate � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 5.11% 4�59% 4.83% 3�94% 3.01% 2�74% U�S� long-term rate of return on plan assets � � � � � � � � � � � � � � � � � � � � � � � � � Non-U�S� long-term rate of return on plan assets � � � � � � � � � � � � � � � � � � � � � � � 5.25% 5�25% 4.50% 4�75% 3.75% 3�34% U�S� average long-term pay progression � � � � � � � � � � � � � � � � � � � � � � � � � � � Non-U�S� average long-term pay progression � � � � � � � � � � � � � � � � � � � � � � � � � 3.50% 3�60% 3.11% 3�01% 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 United States, 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� 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 Fixed income securities and cash equivalents � � � � � � � � � � � � � � � � � � � � � � Equity securities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � U.S. Defined Benefit 65% 35% U.S. Retiree Health Care 50% 50% Non-U.S. Defined Benefit 60% - 100% 0% - 40% We rebalance the plans’ investments when they are not within the target allocation ranges� Weighted average asset allocations as of December 31, are as follows: Asset Category Fixed income securities and cash equivalents � � � � � � � � � � � � � � � � � � Equity securities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � U.S. Defined Benefit 2014 65% 35% 2013 65% 35% U.S. Retiree Health Care 2014 49% 51% 2013 49% 51% Non-U.S. Defined Benefit 2013 2014 70% 73% 30% 27% 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, 2014, we do not expect to return any of the defined benefit pension plans’ assets to TI in the next 12 months� 5 4 Tex as In sTru me nTs • 2014 FO rm 10-K The following table shows the benefits we expect to pay to participants from the plans in the next 10 years and assumes that retirement eligible participants take their benefits immediately� Almost all of the payments will be made from plan assets and not from company assets� 2015 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2016 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2017 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2018 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2020 - 2024 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � U.S. Defined Benefit $ 217 95 91 93 93 435 U.S. Retiree Health Care $ 36 37 39 40 40 194 Medicare Subsidy $ (4) (4) (4) (5) (5) (9) Non-U.S. Defined Benefit $ 76 78 82 85 89 501 Assumed health care cost trend rates for the U�S� retiree health care benefit plan at December 31 are as follows: Assumed health care cost trend rate for next year � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Ultimate trend rate � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Year in which ultimate trend rate is reached � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2014 2013 7.0% 7�0% 5.0% 5�0% 2022 2023 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 benefit plan at December 31, 2014, by $27 million or $22 million, respectively� The service cost and interest cost components of 2014 plan expense would have increased or decreased by $1 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, 2014, our liability to participants of the deferred compensation plans was $202 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� As of December 31, 2014, we held $185 million in mutual funds related to these plans that are recorded in Long-term investments on our Consolidated Balance Sheets, and serve as an economic hedge against changes in fair values of our other deferred compensation liabilities� We record changes in the fair value of the liability and the related investment in SG&A as discussed in Note 9� k - 0 1 m r o F 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, 2014, we had a variable-rate revolving credit facility from a consortium of investment-grade banks that allows us to borrow up to $2 billion through March 2019� 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, 2014, our credit facility was undrawn and we had no commercial paper outstanding� Long-term debt In March 2014, we issued an aggregate principal amount of $500 million of fixed-rate long-term debt, with $250 million due in 2017 and $250 million due in 2021� We incurred $3 million of issuance and other related costs, which are being amortized to Interest and debt expense over the term of the debt� The proceeds of the offering were $498 million, net of the original issuance discount and were used toward the repayment of the $1�0 billion of debt that matured in May 2014� In May 2013, we issued an aggregate principal amount of $1�0 billion of fixed-rate long-term debt, with $500 million due in 2018 and $500 million due in 2023� We incurred $6 million of issuance and other related costs that are being amortized to Interest and debt expense over the term of the debt� The proceeds of the offering were $986 million, net of the original issuance discount and were used toward the repayment of $1�5 billion of maturing debt, including floating-rate notes� In connection with this repayment, we settled a floating-to-fixed interest rate swap associated with the maturing debt� Tex as In sTru menTs • 2014 F Orm 10 -K 5 5 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 and other related costs that are being amortized to Interest and debt expense over the term of the debt� Long-term debt outstanding as of December 31, 2014 and 2013 is as follows: F o r m 1 0 - k 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 2017 at 0�875% � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Notes due 2018 at 1�00% � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Notes due 2019 at 1�65% � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Notes due 2021 at 2�75% � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Notes due 2023 at 2�25% � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Net unamortized premium � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Current portion of long-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Long-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � December 31, 2014 2013 $ — $ 1,000 250 750 1,000 375 — 500 750 — 500 5,125 33 (1,000) $ 4,158 250 750 1,000 375 250 500 750 250 500 4,625 17 (1,001) $ 3,641 Interest and debt expense was $94 million in 2014, $95 million in 2013 and $85 million in 2012� This was net of the amortization of the debt premium and other debt issuance costs� Cash payments for interest on long-term debt were $102 million in both 2014 and 2013 and $97 million in 2012� Capitalized interest was not material� 13. Commit ments 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 $113 million, $120 million and $124 million in 2014, 2013 and 2012, 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� Purchase commitments Some of our purchase commitments entered in the ordinary course of business provide for minimum payments� As of December 31, 2014, we had committed to make the following minimum payments under our non-cancellable operating leases, capitalized software licenses and purchase commitments: 2015 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2016 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2017 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2018 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Operating Leases $ 87 66 45 33 21 80 Capitalized Software Licenses $ 39 27 — — — — Purchase Commitments $ 96 52 35 14 10 2 5 6 Tex as In sTru me nTs • 2014 FO rm 10-K 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 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� 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, 2014, 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. Supplemental financial information Other income (expense), net For Years Ended December 31, 2014 2013 2012 Interest income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Tax interest income (expense) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Net gains on investments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other (a) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 7 6 5 3 $ 21 $ 10 (10) 18 (1) $ 17 $ 8 32 18 (11) $ 47 (a) Includes lease income of approximately $15 million per year, primarily from the purchaser of a former business� As of December 31, 2014, the aggregate amount of non-cancellable future lease payments to be received from these leases is $51 million� These leases contain renewal options� Other also includes miscellaneous non-operational items such as losses related to former businesses, including settlements in 2012; gains and losses from currency exchange rate changes; and gains and losses from our derivative financial instruments, primarily forward foreign currency exchange contracts� Prepaid expenses and other current assets December 31, 2013 2014 Prepaid taxes on intercompany inventory profits � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other prepaid expenses and current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ 693 157 $ 850 $ 667 196 $ 863 Property, plant and equipment at cost Depreciable Lives (Years) December 31, 2014 2013 Land � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Buildings and improvements � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Machinery and equipment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � n/a 5 - 40 3 - 10 $ 137 2,801 3,328 $ 6,266 $ 175 2,913 3,468 $ 6,556 5 7 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-k Accrued expenses and other liabilities Customer incentive programs and allowances � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Severance and related expenses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Accumulated other comprehensive income (loss), net of taxes December 31, 2013 2014 $ 101 60 337 $ 498 $ 143 158 350 $ 651 December 31, 2014 2013 F o r m 1 0 - k Postretirement benefit plans: Net actuarial loss � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Prior service credit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Cash flow hedge derivative � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $ (529) — (3) $ (532) $ (525) 1 (4) $ (528) Details on amounts reclassified out of Accumulated other comprehensive income (loss), net of taxes to Net income Our Consolidated Statements of Comprehensive Income include items that have been recognized within Net income during the years ended December 31, 2014 and 2013� The table below details where on the Consolidated Statements of Income these transactions are recorded� Details about AOCI Components Net actuarial gains (losses) of defined benefit plans: For Years Ended December 31, 2013 2014 Impact to Related Statement of Income Line Recognized net actuarial loss and Settlement losses (a) � � � � � � � Tax effect � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Recognized within Net income, net of taxes � � � � � � � � � � � � � $ 63 (21) $ 42 $ 108 (37) $ 71 Increase to Pension expense (b) Decrease to Provision for income taxes Decrease to Net income Prior service cost of defined benefit plans: Amortization of prior service cost (credit) and Curtailment gain (a) � � � � � � � � � � � � � � � � � � � � � � � Tax effect � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Recognized within Net income, net of taxes � � � � � � � � � � � � � $ — $ — $ — $ Derivative instruments: Amortization of treasury rate locks � � � � � � � � � � � � � � � � � � Tax effect � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Recognized within Net income, net of taxes � � � � � � � � � � � � � $ $ 2 (1) 1 $ $ (5) 2 (3) 2 (1) 1 Decrease to Pension expense (b) Increase to Provision for income taxes Increase to Net income Increase to Interest and debt expense Decrease to Provision for income taxes Decrease to Net income (a) Detailed in Note 11� (b) Pension expense is included in COR, R&D, SG&A and Restructuring charges/other in the Consolidated Statements of Income� 5 8 Tex as In sTru me nTs • 2014 FO rm 10-K 15. Quarterly financial data (unaudited) 2014 Revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Gross profit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Included in Operating profit: Acquisition charges � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Restructuring charges/other � � � � � � � � � � � � � � � � � � � � � � � � � � � � Operating profit� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Net income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Quarter 1st 2nd 3rd 4th $ 2,983 1,607 $ 3,292 1,881 $ 3,501 2,044 $ 3,269 1,895 83 (11) 690 487 82 (4) 982 683 83 (9) 1,175 826 82 (27) 1,100 825 Earnings per common share: Basic earnings per common share � � � � � � � � � � � � � � � � � � � � � � � � � Diluted earnings per common share � � � � � � � � � � � � � � � � � � � � � � � � $ 0.44 0.44 $ 0.63 0.62 $ 0.77 0.76 $ 0.78 0.76 k - 0 1 m r o F 2013 Revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Gross profit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Included in Operating profit: Acquisition charges � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Restructuring charges/other � � � � � � � � � � � � � � � � � � � � � � � � � � � � Operating profit� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Net income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � Quarter 1st 2nd 3rd 4th $ 2,885 1,374 $ 3,047 1,570 $ 3,244 1,779 $ 3,028 1,640 86 15 395 362 86 (282) 906 660 86 16 844 629 84 62 687 511 Earnings per common share: Basic earnings per common share � � � � � � � � � � � � � � � � � � � � � � � � � Diluted earnings per common share � � � � � � � � � � � � � � � � � � � � � � � � $ 0�32 0�32 $ 0�59 0�58 $ 0�56 0�56 $ 0�46 0�46 Tex as In sTru menTs • 2014 F Orm 10 -K 5 9  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, 2014 and 2013, 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, 2014. 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. F o r m 1 0 - k 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, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, 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, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2015, expressed an unqualified opinion thereon. Dallas, Texas February 24, 2015 6 0 Tex as In sTru me nTs • 2014 FO rm 10-K ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. ITEM 9A. Controls and Procedures. Disclosure controls and procedures An evaluation as of the end of the period covered by this report was carried out under the supervision and with the participation of TI’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of TI’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that those disclosure controls and procedures were effective. Internal control over financial reporting 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 2014 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, 2014. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria) in Internal Control – Integrated Framework. Based on our assessment we believe that, as of December 31, 2014, 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. 6 1 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-kReport of independent registered public accounting firm on internal control over financial reporting The Board of Directors and Stockholders Texas Instruments Incorporated F o r m 1 0 - k We have audited Texas Instruments Incorporated’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (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, 2014, 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, 2014 and 2013, 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, 2014, and our report dated February 24, 2015, expressed an unqualified opinion thereon. Dallas, Texas February 24, 2015 6 2 Tex as In sTru me nTs • 2014 FO rm 10-K ITEM 9B. Other Information. Not applicable. PART III ITEM 10. Directors, Executive Officers and Corporate Governance. The information with respect to directors’ names, ages, positions, term of office and periods of service, which is contained under the caption “Election of directors” in our proxy statement for the 2015 annual meeting of stockholders, is incorporated herein by reference to such proxy statement. The information with respect to directors’ business experience, which is contained under the caption “Board diversity and nominee qualifications” in our proxy statement for the 2015 annual meeting of stockholders, is incorporated herein by reference to such proxy statement. k - 0 1 m r o F The information with respect to Section 16(a) beneficial ownership reporting compliance contained under the caption of the same name in our proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference to such proxy statement. A list of our executive officers and their biographical information appears in Part I, Item 1 of this report. Code of Ethics We have adopted the Code of Ethics for TI Chief Executive Officer and Senior Finance Officers. A copy of the Code can be found on our web site at www.ti.com/corporategovernance. We intend to satisfy the disclosure requirements of the SEC regarding amendments to, or waivers from, the Code by posting such information on the same web site. Audit Committee The information contained under the caption “Committees of the board” with respect to the audit committee and the audit committee financial expert in our proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference to such proxy statement. ITEM 11. Executive Compensation. The information contained under the captions “Director compensation” and “Executive compensation” in our proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference to such proxy statement, provided that the Compensation Committee report shall not be deemed filed with this Form 10-K. The information contained under the caption “Compensation committee interlocks and insider participation” in our proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference to such proxy statement. Tex as In sTru menTs • 2014 F Orm 10 -K 6 3 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Equity compens ation plan information The following table sets forth information about the company’s equity compensation plans as of December 31, 2014: F o r m 1 0 - k Plan Category Equity compensation plans approved by security holders . . . . . . . . . Equity compensation plans not approved by security holders . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) 66,347,238 (1) 9,114,448 (4) 75,461,686 (5) Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (b) $ 32.94 (2) $ 32.84 (2) $ 32.92 Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans ( excluding securities reflected in column (a)) (c) 85,231,008 (3) 0 85,231,008 (1) Includes shares of TI common stock to be issued under the Texas Instruments 2003 Director Compensation Plan (the “2003 Director Plan”), the Texas Instruments 2009 Long-Term Incentive Plan (the “2009 LTIP”) and predecessor stockholder - approved plans, the Texas Instruments 2009 Director Compensation Plan (the “2009 Director Plan”) and the TI Employees 2014 Stock Purchase Plan (the “2014 ESPP”). Also includes 283,825 shares of TI common stock to be issued upon settlement of outstanding awards granted under the National Semiconductor Corporation 2009 Incentive Award Plan, a plan approved by National stockholders. The company assumed the awards in connection with its acquisition of National. (2) Restricted stock units and stock units credited to directors’ deferred compensation accounts are settled in shares of TI common stock on a one-for-one basis. Accordingly, such units have been excluded for purposes of computing the weighted-average exercise price. (3) Shares of TI common stock available for future issuance under the 2009 LTIP, the 2009 Director Plan and the 2014 ESPP. 44,467,438 shares remain available for future issuance under the 2009 LTIP and 1,573,235 shares remain available for future issuance under the 2009 Director Plan. Under the 2009 LTIP and the 2009 Director Plan, shares may be granted in the form of restricted stock units, options or other stock-based awards such as restricted stock. (4) Includes shares to be issued under the Texas Instruments 2003 Long-Term Incentive Plan (the “2003 LTIP ”). The 2003 LTIP was replaced by the 2009 LTIP, which was approved by stockholders. No further grants may be made under the 2003 LTIP. Only non-management employees were eligible to receive awards under the 2003 LTIP. The 2003 LTIP authorized the grant of shares in the form of restricted stock units, options or other stock-based awards such as restricted stock. The plan is administered by a committee of independent directors (the Committee). The Committee had the sole discretion to grant to eligible participants one or more equity awards and to determine the number or amount of any award. Except in the case of awards made through assumption of, or in substitution for, outstanding awards previously granted by an acquired company, and except as a result of an adjustment event such as a stock split, the exercise price under any stock option, the grant price of any stock appreciation right, and the purchase price of any security that could be purchased under any other stock-based award under the 2003 LTIP could not be less than 100 percent of the fair market value of the stock or other security on the effective date of the grant of the option, right or award. Also includes shares to be issued under the Texas Instruments Directors Deferred Compensation Plan and the Texas Instruments Restricted Stock Unit Plan for Directors . These plans were replaced by the stockholder - approved 2003 Director Plan (which was replaced by the 2009 Director Plan), and no further grants may be made under them. (5) Includes 57,647,446 shares for issuance upon exercise of outstanding grants of options, 17,303,815 shares for issuance upon vesting of outstanding grants of restricted stock units, 374,703 shares for issuance under the 2014 ESPP and 135,722 shares for issuance in settlement of directors’ deferred compensation accounts. 6 4 Tex as In sTru me nTs • 2014 FO rm 10-K Security ownership of certain beneficial owners and management The information that is contained under the captions “Security ownership of certain beneficial owners” and “Security ownership of directors and management” in our proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference to such proxy statement. ITEM 13. Certain Relationships and Related Transactions, and Director Independence. The information contained under the caption “Related person transactions” in our proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference to such proxy statement. The information contained under the caption “Director independence” in our proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference to such proxy statement. k - 0 1 m r o F ITEM 14. Principal Accountant Fees and Services. The information with respect to principal accountant fees and services contained under the caption “Proposal to ratify appointment of independent registered public accounting firm” in our proxy statement for the 2015 annual meeting of stockholders is incorporated herein by reference to such proxy statement. PART IV ITEM 15. Exhibits, Financial Statement Schedules. The financial statements are listed in the index included in Item 8, “Financial Statements and Supplementary Data.” Designation of Exhibit in this Report 3(a) 3(b) 4(a) 4(b) 4(c) 4(d) 4(e) 4(f) 10(a) 10(b)(i) 10(b)(ii) Description of Exhibit Restated Certificate of Incorporation of the Registrant, dated April 18, 1985, as amended. † By-Laws of the Registrant. † Indenture (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed May 23, 2011). Officer’s Certificate (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed May 23, 2011). Officer’s Certificate (incorporated by reference to Exhibit 4.2 of the Registrant’s Report on Form 8-K filed August 6, 2012). Officer’s Certificate (incorporated by reference to Exhibit 4.2 of the Registrant’s Report on Form 8-K filed May 8, 2013). Officer’s Certificate (incorporated by reference to Exhibit 4.2 of the Registrant’s Report on Form 8-K filed March 12, 2014). The Registrant has omitted certain instruments defining the rights of holders of long-term debt of the Registrant and its subsidiaries pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). The Registrant undertakes to furnish a copy of such instruments to the Securities and Exchange Commission upon request. TI Deferred Compensation Plan, as amended. *† TI Employees Non-Qualified Pension Plan (formerly named the TI Employees Supplemental Pension Plan), effective January 1, 1998 (incorporated by reference to Exhibit 10(b)(i) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). * First Amendment to TI Employees Non-Qualified Pension Plan (formerly named the TI Supplemental Pension Plan), effective January 1, 2000 (incorporated by reference to Exhibit 10(b)(ii) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). * Tex as In sTru menTs • 2014 F Orm 10 -K 6 5 F o r m 1 0 - k Designation of Exhibit in this Report 10(b)(iii) 10(b)(iv) 10(b)(v) 10(c) 10(d) 10(e) 10(f) 10(g) 10(h) 10(i) 10( j) 10( k) 10( l) 10( m) 10( n) 10( o) 12 21 23 31(a) 31(b) 32(a) 32(b) 101.ins 101.sch 101.cal 101.Def 101.lab 101.pre Description of Exhibit Second Amendment to TI Employees Non-Qualified Pension Plan (formerly named the TI Supplemental Pension Plan), dated June 21, 2002 (incorporated by reference to Exhibit 10(b)(iii) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). * Third Amendment to TI Employees Non-Qualified Pension Plan (formerly named the TI Supplemental Pension Plan), dated July 16, 2002 (incorporated by reference to Exhibit 10(b)(iv) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). * Fourth Amendment to TI Employees Non-Qualified Pension Plan (formerly named the TI Supplemental Pension Plan), dated November 21, 2003 (incorporated by reference to Exhibit 10(b)(v) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). * TI Employees Non-Qualified Pension Plan II. *† Texas Instruments Long-Term Incentive Plan, adopted April 15, 1993 (incorporated by reference to Exhibit 10(c) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). * Texas Instruments 2000 Long-Term Incentive Plan as amended October 16, 2008. *† Texas Instruments 2003 Long-Term Incentive Plan as amended October 16, 2008. † Texas Instruments Executive Officer Performance Plan as amended September 17, 2009. *† Texas Instruments Restricted Stock Unit Plan for Directors, as amended, dated April 16, 1998 (incorporated by reference to Exhibit 10(h) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). Texas Instruments Directors Deferred Compensation Plan, as amended, dated April 16, 1998 (incorporated by reference to Exhibit 10(i) of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011). Texas Instruments 2003 Director Compensation Plan as amended January 19, 2012. † Form of Stock Option Agreement for Executive Officers under the Texas Instruments 2009 Long-Term Incentive Plan (incorporated by reference to Exhibit 10(l) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012). * Form of Restricted Stock Unit Agreement under the Texas Instruments 2009 Long-Term Incentive Plan (incorporated by reference to Exhibit 10(m) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012). * Texas Instruments 2009 Long-Term Incentive Plan as amended January 19, 2012. † Texas Instruments 2009 Director Compensation Plan as amended December 2, 2010 (incorporated by reference to Exhibit 10 to the Registrant’s Current Report on Form 8-K filed December 7, 2010). Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed April 4, 2011). Ratio of Earnings to Fixed Charges . † List of Subsidiaries of the Registrant. † Consent of Independent Registered Public Accounting Firm. † Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer. † Rule 13a-14(a)/15(d)-14(a) Certification of Chief Financial Officer. † Section 1350 Certification of Chief Executive Officer. † Section 1350 Certification of Chief Financial Officer. † Instance Document † XBRL Taxonomy Schema † XBRL Taxonomy Calculation Linkbase † XBRL Taxonomy Definitions Document † XBRL Taxonomy Labels Linkbase † XBRL Taxonomy Presentation Linkbase † * Management compensation plans and arrangements. † Filed or furnished herewith. 6 6 Tex as In sTru me nTs • 2014 FO rm 10-K k - 0 1 m r o F Notice regarding forward-looking statements 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 markets such as personal electronics and communications equipment; • 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 health epidemics, 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; • Compliance with or changes in the complex laws, rules and regulations to which TI is or may become subject, or actions of enforcement authorities, that restrict our ability to manufacture our products or operate our business, or subject us to fines, penalties, or other legal liability; • Losses or curtailments of purchases from key customers and the timing and amount of distributor and other customer inventory adjustments; • Financial difficulties of our distributors or their promotion of competing product lines to TI’s detriment; • A loss suffered by a customer or distributor of TI with respect to TI-consigned inventory; • Customer demand that differs from our forecasts; • The financial impact of inadequate or excess TI inventory that results from demand that differs from projections; • • Product liability or warranty claims, claims based on epidemic or delivery failure, recalls by TI customers for a product containing Impairments of our non-financial assets; a TI part or other legal proceedings; • 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 or those of our customers or suppliers. For a more detailed discussion of these factors see the Risk Factors discussion in Item 1A of this report. The forward-looking statements included in this report are made only as of the date of this report and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances. Tex as In sTru menTs • 2014 F Orm 10 -K 6 7 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. S IGNATURES TEXAS INSTRUMENTS INCORPORATED By: /s/ Kevin P. March Kevin P. March Senior Vice President, Chief Financial Officer and Chief Accounting Officer F o r m 1 0 - k Date: February 24, 2015 Each person whose signature appears below constitutes and appoints each of Richard K. Templeton, Kevin P. March, Joseph F. Hubach and Cynthia Hoff Trochu, or any of them, each acting alone, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such person and in his or her name, place and stead, in any and all capacities in connection with the annual report on Form 10-K of Texas Instruments Incorporated for the year ended December 31, 2014, to sign any and all amendments to the Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February 2015. Signature /s/ Ralph W. Babb, Jr. Ralph W. Babb, Jr. /s/ Mark A. Blinn Mark A. Blinn /s/ Daniel A. Carp Daniel A. Carp /s/ Carrie S. Cox Carrie S. Cox /s/ Ronald Kirk Ronald Kirk /s/ Pamela H. Patsley Pamela H. Patsley /s/ Robert E. Sanchez Robert E. Sanchez Title Director Director Director Director Director Director Director 6 8 Tex as In sTru me nTs • 2014 FO rm 10-K Signature /s/ Wayne R. Sanders Wayne R. Sanders /s/ Ruth J. Simmons Ruth J. Simmons /s/ Richard K. Templeton Richard K. Templeton /s/ Christine Todd Whitman Christine Todd Whitman /s/ Kevin P. March Kevin P. March Title Director Director Chairman of the Board; Director; President and Chief Executive Officer Director Senior Vice President; Chief Financial Officer; Chief Accounting Officer 6 9 Texas InsTrumenTs • 2014 FOrm 10-KForm 10-k(This page intentionally left blank.) 7 0 7 0 TEX AS IN STRU M EN TS TEX AS IN STRU M EN TS NOTICE OF ANNUAL MEETING OF STOCKHOLDERS April 16, 2015 Dear Stockholder: You are cordially invited to attend the 2015 annual meeting of stockholders on Thursday, April 16, 2015, at the cafeteria on our property at 12500 TI Boulevard, Dallas, Texas, at 9:00 a.m. (Central time). At the meeting we will consider and act upon the following matters: the election of directors for the next year, • • advisory approval of the company’s executive compensation, • ratification of the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2015, and • such other matters as may properly come before the meeting. Stockholders of record at the close of business on February 17, 2015, are entitled to vote at the annual meeting. We urge you to vote your shares as promptly as possible by: (1) accessing the Internet website, (2) calling the toll-free number or (3) signing, dating and mailing the enclosed proxy. Dallas, Texas March 4, 2015 Sincerely, Joseph F. Hubach Senior Vice President, Secretary and General Counsel T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 7 1 TABLE OF CONTENTS Voting procedures and quorum . . . . . . . . . . . . . . . . . . . . . . . . 72 Election of directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Nominees for directorship . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Director nomination process . . . . . . . . . . . . . . . . . . . . . . . . 75 Board diversity and nominee qualifications . . . . . . . . . . . . . 75 Communications with the board . . . . . . . . . . . . . . . . . . . . . 77 Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Annual meeting attendance . . . . . . . . . . . . . . . . . . . . . . . . 78 Director independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Board organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Board and committee meetings . . . . . . . . . . . . . . . . . . . . . 79 Committees of the board . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Board leadership structure . . . . . . . . . . . . . . . . . . . . . . . . . 81 Risk oversight by the board . . . . . . . . . . . . . . . . . . . . . . . . 82 Director compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 2014 director compensation . . . . . . . . . . . . . . . . . . . . . . . . 84 Executive compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Proposal regarding advisory approval of the company’s executive compensation . . . . . . . . . . . . 85 Compensation Discussion and Analysis . . . . . . . . . . . . . . . . 86 Compensation Committee report . . . . . . . . . . . . . . . . . . . . 97 2014 summary compensation table . . . . . . . . . . . . . . . . . . 98 Grants of plan-based awards in 2014 . . . . . . . . . . . . . . . . 100 Outstanding equity awards at fiscal year-end 2014 . . . . . . 101 2014 option exercises and stock vested . . . . . . . . . . . . . . 103 2014 pension benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 2014 non-qualified deferred compensation . . . . . . . . . . . 106 Potential payments upon termination or change in control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 Audit Committee report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Proposal to ratify appointment of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . 111 Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Voting securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Security ownership of certain beneficial owners . . . . . . . . 112 Security ownership of directors and management . . . . . . 113 Related person transactions . . . . . . . . . . . . . . . . . . . . . . . 114 Compensation committee interlocks and insider participation . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Cost of solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Stockholder proposals for 2016 . . . . . . . . . . . . . . . . . . . . 116 Benefit plan voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Section 16(a) beneficial ownership reporting compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Telephone and Internet voting . . . . . . . . . . . . . . . . . . . . . . 116 Stockholders sharing the same address . . . . . . . . . . . . . . 117 Electronic delivery of proxy materials and copies of our Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Notice regarding forward-looking statements . . . . . . . . . . . . 117 Directions and other annual meeting information . . . . . . . . . . 118 Appendix (Non-GAAP reconciliations) . . . . . . . . . . . . . . . . . . . 119 PROXY STATEMENT – MARCH 4, 2015 EXECUTIVE OFFICES 12500 TI BOULEVARD, DALLAS, TEXAS 75243 MAILING ADDRESS: P.O. BOX 660199, DALLAS, TEXAS 75266-0199 Voting procedures and quorum P R O X Y S T A T E M E N T TI’s board of directors requests your proxy for the annual meeting of stockholders on April 16, 2015. If you sign and return the enclosed proxy, or vote by telephone or on the Internet, you authorize the persons named in the proxy to represent you and vote your shares for the purposes mentioned in the notice of annual meeting. This proxy statement and related proxy are being distributed on or about March 4, 2015. If you come to the meeting, you can vote in person. If you do not come to the meeting, your shares can be voted only if you have returned a properly signed proxy or followed the telephone or Internet voting instructions, which can be found on the enclosed proxy. If you sign and return your proxy but do not give voting instructions, the shares represented by that proxy will be voted as recommended by the board of directors. You can revoke your authorization at any time before the shares are voted at the meeting. A quorum of stockholders is necessary to hold a valid meeting. If at least a majority of the shares of TI common stock issued and outstanding and entitled to vote are present in person or by proxy, a quorum will exist. Abstentions and broker non-votes are counted as present for purposes of establishing a quorum. Broker non-votes occur when a beneficial owner who holds company stock through a broker does not provide the broker with voting instructions as to any matter on which the broker is not permitted to exercise its discretion and vote without specific instruction. 7 2 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT Scheduled to be considered at the meeting are the election of directors, an advisory vote regarding approval of the company’s executive compensation and ratification of the appointment of our independent registered public accounting firm. Each of these matters is discussed elsewhere in this proxy statement. On each of these matters you may vote “for,” “against” or “abstain.” The vote required for the election of directors and approval of the other matters is shown in the table below. Matter Election of directors Required Vote Impact of Abstentions or Broker Non-Votes Majority of votes present in person or by proxy at the meeting and entitled to be cast in the election with respect to a nominee must be cast for that nominee. Abstentions have the same effect as votes against. Broker non-votes are not counted as votes for or against. Advisory vote to approve named executive officer compensation. Majority of votes present in person or by proxy at the meeting must be cast for the proposal. Abstentions and broker non-votes have the same effect as a vote against. Proposal to ratify appointment of independent registered public accounting firm. Majority of votes present in person or by proxy at the meeting must be cast for the proposal. Any other matter that may properly be submitted at the meeting. Majority of votes present in person or by proxy at the meeting must be cast for the proposal. Abstentions have the same effect as votes against. (Brokers are permitted to exercise their discretion and vote without specific instruction on this matter. Accordingly, there are no broker non-votes.) Abstentions and broker non-votes have the same effect as votes against. Election of directors Directors are elected at the annual meeting to hold office until the next annual meeting and until their successors are elected and qualified. The board of directors has designated the following persons as nominees: RALPH W. BABB, JR., MARK A. BLINN, DANIEL A. CARP, CARRIE S. COX, RONALD KIRK, PAMELA H. PATSLEY, ROBERT E. SANCHEZ, WAYNE R. SANDERS, RUTH J. SIMMONS, RICHARD K. TEMPLETON and CHRISTINE TODD WHITMAN. If you return a proxy that is not otherwise marked, your shares will be voted FOR each of the nominees. T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 7 3 Nominees for directorship All of the nominees for directorship are directors of the company. For a discussion of each nominee’s qualifications to serve as a director of the company, please see pages 75-77. If any nominee becomes unable to serve before the meeting, the persons named as proxies may vote for a substitute or the number of directors will be reduced accordingly. Directors RUTH J. SIMMONS Age 69 Director since 1999 Member, Audit Committee RICHARD K. TEMPLETON Age 56 Chairman since 2008 and director since 2003 CHRISTINE TODD WHITMAN Age 68 Director since 2003 Member, Compensation Committee RALPH W. BABB, JR. Age 66 Director since 2010 Chair, Audit Committee MARK A. BLINN Age 53 Director since 2013 Member, Audit Committee DANIEL A. CARP Age 66 Director since 1997 Member, Governance and Stockholder Relations Committee CARRIE S. COX Age 57 Director since 2004 Member, Governance and Stockholder Relations Committee RONALD KIRK Age 60 Director since 2013 Member, Governance and Stockholder Relations Committee PAMELA H. PATSLEY Age 58 Director since 2004 Member, Compensation Committee ROBERT E. SANCHEZ Age 49 Director since 2011 Chair, Compensation Committee WAYNE R. SANDERS Age 67 Director since 1997 Lead Director; Chair, Governance and Stockholder Relations Committee P R O X Y S T A T E M E N T 7 4 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT Director nomination process The board is responsible for approving nominees for election as directors. To assist in this task, the board has designated a standing committee, the Governance and Stockholder Relations Committee (the G&SR Committee), which is responsible for reviewing and recommending nominees to the board. The G&SR Committee is comprised solely of independent directors as defined by the rules of The NASDAQ Stock Market (NASDAQ) and the board’s corporate governance guidelines. Our board of directors has adopted a written charter for the G&SR Committee. It can be found on our website at www.ti.com/corporategovernance. It is a long-standing policy of the board to consider prospective board nominees recommended by stockholders. A stockholder who wishes to recommend a prospective board nominee for the G&SR Committee’s consideration can write to the Secretary of the G&SR Committee, Texas Instruments Incorporated, P.O. Box 655936, MS 8658, Dallas, TX 75265-5936. The G&SR Committee will evaluate the stockholder’s prospective board nominee in the same manner as it evaluates other nominees. In evaluating prospective nominees, the G&SR Committee looks for the following minimum qualifications, qualities and skills: • Outstanding achievement in the individual’s personal career. • Breadth of experience. • Soundness of judgment. • Ability to make independent, analytical inquiries. • Ability to contribute to a diversity of viewpoints among board members. • Willingness and ability to devote the time required to perform board activities adequately (in this regard, the G&SR Committee will consider the number of other boards on which the individual serves as a director, and in particular the board’s policy that directors should not serve on the boards of more than three other public companies). • Ability to represent the total corporate interests of TI (a director will not be selected to, nor will he or she be expected to, represent the interests of any particular group). Stockholders, non-employee directors, management and others may submit recommendations to the G&SR Committee. All nominees for directorship are directors of the company. The board believes its current size is within the desired range as stated in the board’s corporate governance guidelines. Board diversity and nominee qualifications As indicated by the criteria above, the board prefers a mix of background and experience among its members. The board does not follow any ratio or formula to determine the appropriate mix. Rather, it uses its judgment to identify nominees whose backgrounds, attributes and experiences, taken as a whole, will contribute to the high standards of board service at the company. The effectiveness of this approach is evidenced by the directors’ participation in the insightful and robust yet respectful deliberation that occurs at board and committee meetings and in shaping the agendas for those meetings. As it considered director nominees for the 2015 annual meeting, the board kept in mind that the most important issues it considers typically relate to the company’s strategic direction; succession planning for senior executive positions; the company’s financial performance; the challenges of running a large, complex enterprise, including the management of its risks; major acquisitions and divestitures; and significant research and development (R&D) and capital investment decisions. These issues arise in the context of the company’s operations, which primarily involve the manufacture and sale of semiconductors all over the world into industrial, automotive, personal electronics, communications equipment and enterprise systems markets. As described below, each of our director nominees has achieved an extremely high level of success in his or her career, whether at multi-billion dollar multinational corporate enterprises, major U.S. universities or significant governmental organizations. In these positions, each has been directly involved in the challenges relating to setting the strategic direction and managing the financial performance, personnel and processes of large, complex organizations. Each has had exposure to effective leaders and has developed the ability to judge leadership qualities. Ten of them have experience in serving on the board of directors of at least one other major corporation, and two have served in high political office, all of which provides additional relevant experience on which each nominee can draw. In concluding that each nominee should serve as a director, the board relied on the specific experiences and attributes listed below and on the direct personal knowledge, born of previous service on the board, that each of the nominees brings insight and the willingness to ask difficult questions to board deliberations. Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 7 5 T N E M E T A T S Y X O R P Mr. Babb • As chairman and CEO of Comerica Incorporated and Comerica Bank (2002-present) and through a long career in banking, has gained first-hand experience in managing large, complex institutions, as well as insight into financial markets. • As Audit Committee chair at the company (April 19, 2013-present), chief financial officer of Comerica Incorporated and Comerica Bank (1995-2002), controller and later chief financial officer of Mercantile Bancorporation (1978-1995), and auditor and later audit manager at the accounting firm of Peat Marwick Mitchell & Co. (1971-1978), has gained extensive audit knowledge and experience in audit- and financial control-related matters. Mr. Blinn • As CEO and a director of Flowserve Corporation (2009-present), has gained first-hand experience in managing a large, multinational corporation operating in global industrial markets, with ultimate management responsibility for the organization’s financial performance and significant capital and R&D investments. • As chief financial officer of Flowserve Corporation (2004-2009), chief financial officer of FedEx Kinko’s Office and Print Services Inc. (2003-2004) and vice president and controller of Centex Corporation (2000-2002), has developed a keen appreciation for audit- and financial control-related matters. Mr. Carp • As chairman and CEO (2000-2005) and president (1997-2001, 2002-2003) of Eastman Kodak Company, has gained first-hand experience in managing a large, multinational corporation focused on worldwide electronics markets, with ultimate management responsibility for the corporation’s financial performance and its significant investments in capital and R&D. • As chairman of the board of directors of Delta Air Lines, Inc. (2007-present), a director of Norfolk Southern Corporation (2006-present) and a director of Liz Claiborne, Inc. (2006-2009), has helped oversee the strategy and operations of major multinational corporations in various industries, including some that are capital-intensive. Ms. Cox • As chairman (2013-present), CEO and a director (2010-present) of Humacyte, Inc., executive vice president and president of Global Pharmaceuticals at Schering-Plough Corporation (2003-2009) and executive vice president and president of Global Prescription Business at Pharmacia Corporation (1997-2003), has gained first-hand experience in managing large, multinational organizations focused on medical-related markets, with responsibility for those organizations’ financial performance and significant capital and R&D investments. Is also a director of Cardinal Health, Inc. (2009-present) and Celgene Corporation (2009-present). Mr. Kirk • As U.S. Trade Representative (2009-2013), has gained first-hand experience in managing a complex organization that operates on an international scale and developed insight into issues bearing on global economic activity, international trade policies and strategies and the workings of foreign governments. • As Senior Of Counsel of Gibson, Dunn & Crutcher LLP (2013-present), and as a partner of Vinson & Elkins, LLP (2005-2009), has gained first-hand experience as an advisor to numerous multinational companies. • As a director of Brinker International, Inc. (1997-2009) and Dean Foods Company (1997-2009), has helped oversee the strategy and operations of other large corporations. ms. Patsley • As chairman and CEO (2009-present) of MoneyGram International, Inc., senior executive vice president of First Data Corporation (2000-2007) and president and CEO of Paymentech, Inc. (1991-2000), has gained first-hand experience in managing large, multinational organizations, including the application of technology in the financial services sector, with ultimate management responsibility for their financial performance and significant capital investments. • As Audit Committee chair at the company (2006-April 18, 2013), a member of the audit committee at Dr Pepper Snapple Group, Inc., chief financial officer of First USA, Inc. (1987-1994) and an auditor at KPMG Peat Marwick for almost six years before joining First USA, has developed a keen appreciation for audit- and financial control-related matters. • As a director of Dr Pepper Snapple Group, Inc. (2008-present) and a director of Molson Coors Brewing Company (2005-2009), has helped oversee the strategy and operations of other major multinational corporations. 7 6 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT P R O X Y S T A T E M E N T Mr. Sanchez • As chairman and CEO (2013-present), president (2012-2014) and chief operating officer (2012) of Ryder System, Inc., and as president of its Global Fleet Management Solutions business segment (2010-2012), has gained first-hand experience in managing a large, multinational, transportation-related organization, with responsibility for the organization’s financial performance and significant capital investments. • As executive vice president and chief financial officer (2007-2010) and as senior vice president and chief information officer (2003-2005) of Ryder System, Inc., has developed a keen appreciation for audit- and financial control-related issues and gained first-hand experience with all technology-related functions of a large, multinational corporation focused on transportation and logistics. Mr. Sanders • As chairman (1992-2003) and CEO (1991-2002) of Kimberly-Clark Corporation, has gained first-hand experience in managing a large, multinational consumer goods corporation, with ultimate management responsibility for its financial performance and its significant capital and R&D investments. • As chairman of Dr Pepper Snapple Group, Inc. (2008-present) and a director of Belo Corporation (2003-2013), has helped oversee the strategy and operations of other large corporations. Ms. Simmons • As president of Brown University (2001-2012) and president of Smith College (1995-2001), has gained first-hand experience in managing large, complex institutions, and developed deep insight into the development and training of professionals, including engineers, scientists and technologists, on whom the company relies for its next generation of employees. • As a director of Fiat Chrysler Automobiles N.V. (2014-present), Chrysler Group LLC (2012-2014) and Mondelez International, Inc. (2012-present) and as a former director of The Goldman Sachs Group, Inc. (2000-2010), has helped oversee the strategy and operations of other large corporations. Mr. Templeton • As a 34-year veteran of the semiconductor industry, serving the last 19 years at a senior level at the company, including as chairman since 2008, CEO since 2004 and director since 2003, has developed a deep knowledge of all aspects of the company and of the semiconductor industry. Ms. Whitman • As Administrator of the Environmental Protection Agency (2001-2003) and Governor of the state of New Jersey (1994-2000), has gained first-hand experience managing a large, complex organization and developed keen insight into the workings of government on the federal and state level and how they might impact company operations. • As a director of S.C. Johnson & Son, Inc. (2003-present) and United Technologies Corp. (2003-present), has helped oversee the strategy and operations of other large corporations. Communications with the board Stockholders and others who wish to communicate with the board, a board committee or an individual director, may write to them at: P.O. Box 655936, MS 8658, Dallas, TX 75265-5936. All communications sent to this address will be shared with the board, committee or individual director as applicable. Corporate governance The board has a long-standing commitment to responsible and effective corporate governance. We annually conduct extensive governance reviews and engage in investor outreach specific to governance and executive compensation matters. The board’s corporate governance guidelines (which include the director independence standards), the charters of each of the board’s committees, TI’s code of business conduct and our code of ethics for our CEO and senior financial officers are available on our website at www.ti.com/corporategovernance. Stockholders may request copies of these documents free of charge by writing to Texas Instruments Incorporated, P.O. Box 660199, MS 8657, Dallas, TX 75266-0199, Attn: Investor Relations. T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 7 7 Annual meeting attendance It is a policy of the board to encourage directors to attend each annual meeting of stockholders. Such attendance allows for direct interaction between stockholders and board members. In 2014, all directors attended TI’s annual meeting of stockholders. Director independence The board has determined that each of our directors is independent except for Mr. Templeton. In connection with this determination, information was reviewed regarding directors’ business and charitable affiliations, directors’ immediate family members and their employers, and any transactions or arrangements between the company and such persons or entities. The board has adopted the following standards for determining independence. A. In no event will a director be considered independent if: 1. He or she is a current partner of or is employed by the company’s independent auditors; 2. A family member of the director is (a) a current partner of the company’s independent auditors or (b) currently employed by the company’s independent auditors and personally works on the company’s audit; 3. Within the current or preceding three fiscal years he or she was, and remains at the time of the determination, a partner in or a controlling shareholder, an executive officer or an employee of an organization that in the current year or any of the past three fiscal years (a) made payments to, or received payments from, the company for property or services, (b) extended loans to or received loans from, the company, or (c) received charitable contributions from the company, in an amount or amounts which, in the aggregate in such fiscal year, exceeded the greater of $200,000 or 2 percent of the recipient’s consolidated gross revenues for that year (for purposes of this standard, “payments” excludes payments arising solely from investments in the company’s securities and payments under non-discretionary charitable contribution matching programs); or 4. Within the current or preceding three fiscal years a family member of the director was, and remains at the time of the determination, a partner in or a controlling shareholder or an executive officer of an organization that in the current year or any of the past three fiscal years (a) made payments to, or received payments from, the company for property or services, (b) extended loans to or received loans from the company, or (c) received charitable contributions from the company, in an amount or amounts which, in the aggregate in such fiscal year, exceeded the greater of $200,000 or 2 percent of the recipient’s consolidated gross revenues for that year (for purposes of this standard, “payments” excludes payments arising solely from investments in the company’s securities and payments under non-discretionary charitable contribution matching programs). B. In no event will a director be considered independent if, within the preceding three years: 1. He or she was employed by the company (except in the capacity of interim chairman of the board, chief executive officer or other executive officer, provided the interim employment did not last longer than one year); 2. He or she received more than $120,000 during any twelve-month period in compensation from the company (other than (a) compensation for board or board committee service, (b) compensation received for former service lasting no longer than one year as an interim chairman of the board, chief executive officer or other executive officer and (c) benefits under a tax-qualified retirement plan, or non-discretionary compensation); 3. A family member of the director was employed as an executive officer by the company; 4. A family member of the director received more than $120,000 during any twelve-month period in compensation from the company (excluding compensation as a non-executive officer employee of the company); 5. He or she was (but is no longer) a partner or employee of the company’s independent auditors and worked on the company’s audit within that time; 6. A family member of the director was (but is no longer) a partner or employee of the company’s independent auditors and worked on the company’s audit within that time; 7. He or she was an executive officer of another entity at which any of the company’s current executive officers at any time during the past three years served on that entity’s compensation committee; or 8. A family member of the director was an executive officer of another entity at which any of the company’s current executive officers at any time during the past three years served on that entity’s compensation committee. P R O X Y S T A T E M E N T C. No member of the Audit Committee may accept directly or indirectly any consulting, advisory or other compensatory fee from the company, other than in his or her capacity as a member of the board or any board committee. Compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the company (provided that such compensation is not contingent in any way on continued service). In addition, no member of the Audit Committee may be an affiliated person of the company except in his or her capacity as a director. 7 8 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT D. With respect to service on the Compensation Committee, the board will consider all factors that it deems relevant to determining whether a director has a relationship to the company that is material to that director’s ability to be independent from management in connection with the duties of a Compensation Committee member, including but not limited to: 1. The source of compensation of the director, including any consulting, advisory or compensatory fee paid by the company to the director; and 2. Whether the director is affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company. E. For any other relationship, the determination of whether it would interfere with the director’s exercise of independent judgment in carrying out his or her responsibilities, and consequently whether the director involved is independent, will be made by directors who satisfy the independence criteria set forth in this section. For purposes of these independence determinations, “company” and “family member” will have the same meaning as under NASDAQ rules. Board organization Board and committee meetings During 2014, the board held nine meetings. The board has three standing committees described below. The committees of the board collectively held 20 meetings in 2014. Each director attended at least 87 percent of the board and relevant committee meetings combined. Overall attendance at board and committee meetings was approximately 97 percent. Committees of the board Audit Committee The Audit Committee is a separately designated standing committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. All members of the Audit Committee are independent under NASDAQ rules and the board’s corporate governance guidelines. Since April 19, 2013, the committee members have been Mr. Babb (Chair), Mr. Blinn and Ms. Simmons. The Audit Committee is generally responsible for: • Appointing, compensating, retaining and overseeing TI’s independent registered public accounting firm. • Reviewing the annual report of TI’s independent registered public accounting firm related to quality control. • Reviewing TI’s annual and quarterly reports to the SEC, including the financial statements and the “Management’s Discussion and Analysis” portion of those reports, and recommending appropriate action to the board. • Reviewing TI’s audit plans. • Reviewing before issuance TI’s news releases regarding annual and interim financial results and discussing with management any related earnings guidance that may be provided to analysts and rating agencies. • Discussing TI’s audited financial statements with management and the independent registered public accounting firm, including a discussion with the firm regarding the matters required to be reviewed under applicable legal or regulatory requirements. • Reviewing relationships between the independent registered public accounting firm and TI. • Reviewing and discussing the adequacy of TI’s internal accounting controls and other factors affecting the integrity of TI’s financial reports with management and with the independent registered public accounting firm. • Creating and periodically reviewing TI’s whistleblower policy. • Reviewing TI’s risk assessment and risk management policies. • Reviewing TI’s compliance and ethics program. • Reviewing a report of compliance of management and operating personnel with TI’s code of business conduct, including TI’s conflict of interest policy. • Reviewing TI’s non-employee-related insurance programs. • Reviewing changes, if any, in major accounting policies of the company. • Reviewing trends in accounting policy changes that are relevant to the company. • Reviewing the company’s policy regarding investments and financial derivative products. T N E M E T A T S Y X O R P The board has determined that all members of the Audit Committee are financially sophisticated, as the board has interpreted such qualifications in its business judgment. In addition, the board has designated Mr. Babb as the audit committee financial expert as defined in the Securities Exchange Act of 1934, as amended. Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 7 9 The Audit Committee met six times in 2014. The Audit Committee holds regularly scheduled meetings and reports its activities to the board. The committee also continued its long-standing practice of meeting directly with our internal audit staff to discuss the audit plan and to allow for direct interaction between Audit Committee members and our internal auditors. Please see page 110 for a report of the committee. Compensation Committee All members of the Compensation Committee are independent. From April 19, 2013, to April 17, 2014, the committee members were Ms. Cox (Chair), Ms. Patsley and Mr. Sanchez. Since April 18, 2014, the committee members have been Mr. Sanchez (chair), Ms. Patsley and Ms. Whitman. The committee is responsible for: • Reviewing the performance of the CEO and determining his compensation. • Setting the compensation of the company’s other executive officers. • Overseeing administration of employee benefit plans. • Making recommendations to the board regarding: ○ Institution and termination of, revisions in and actions under employee benefit plans that (i) increase benefits only for officers of the company or disproportionately increase benefits for officers of the company more than other employees of the company, (ii) require or permit the issuance of the company’s stock or (iii) the board must approve. ○ Reservation of company stock for use as awards of grants under plans or as contributions or sales to any trustee of any employee benefit plan. • Taking action as appropriate regarding the institution and termination of, revisions in and actions under employee benefit plans that are not required to be approved by the board. • Appointing, setting the compensation of, overseeing and considering the independence of any compensation consultant or other advisor. The Compensation Committee met seven times in 2014. The Compensation Committee holds regularly scheduled meetings, reports its activities to the board, and consults with the board before setting annual executive compensation. Please see page 97 for a report of the committee. In performing its functions, the committee is supported by the company’s Human Resources organization. The committee has the authority to retain any advisors it deems appropriate to carry out its responsibilities. The committee retained Pearl Meyer & Partners as its compensation consultant for the 2014 compensation cycle. The committee instructed the consultant to advise it directly on executive compensation philosophy, strategies, pay levels, decision-making processes and other matters within the scope of the committee’s charter. Additionally, the committee instructed the consultant to assist the company’s Human Resources organization in its support of the committee in these matters with such items as peer-group assessment, analysis of the executive compensation market, and compensation recommendations. The Compensation Committee considers it important that its compensation consultant’s objectivity not be compromised by other engagements with the company or its management. In support of this belief, the committee has a policy on compensation consultants, a copy of which may be found on www.ti.com/corporategovernance. During 2014, the committee determined that its compensation consultant was independent of the company and had no conflict of interest. The Compensation Committee considers executive compensation in a multistep process that involves the review of market information, performance data and possible compensation levels over several meetings leading to the annual determinations in January. Before setting executive compensation, the committee reviews the total compensation and benefits of the executive officers and considers the impact that their retirement, or termination under various other scenarios, would have on their compensation and benefits. The CEO and the senior vice president responsible for Human Resources, who is an executive officer, are regularly invited to attend meetings of the committee. The CEO is excused from the meeting during any deliberations or vote on his compensation. No executive officer determines his or her own compensation or the compensation of any other executive officer. As members of the board, the members of the committee receive information concerning the performance of the company during the year and interact with our management. The CEO gives the committee and the board an assessment of his own performance during the year just ended. He also reviews the performance of the other executive officers with the committee and makes recommendations regarding their compensation. The senior vice president responsible for Human Resources assists in the preparation of and reviews the compensation recommendations made to the committee other than for her compensation. P R O X Y S T A T E M E N T 8 0 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT The Compensation Committee’s charter provides that it may delegate its power, authority and rights with respect to TI’s long-term incentive plans, employee stock purchase plan and employee benefit plans to (i) one or more committees of the board established or delegated authority for that purpose; or (ii) employees or committees of employees except that no such delegation may be made with respect to compensation of the company’s executive officers. Pursuant to that authority, the Compensation Committee has delegated to a special committee established by the board the authority to grant a limited number of stock options and restricted stock units under the company’s long-term incentive plans. The sole member of the special committee is Mr. Templeton. The special committee has no authority to grant, amend or terminate any form of compensation for TI’s executive officers. The Compensation Committee reviews the grant activity of the special committee. Governance and Stockholder Relations Committee All members of the G&SR Committee are independent. From April 19, 2013 to April 17, 2014, the committee members were Ms. Whitman (Chair), Mr. Carp and Mr. Sanders, with Mr. Kirk joining the committee on September 19, 2013. Since April 18, 2014, the committee members have been Mr. Sanders (chair), Mr. Carp, Ms. Cox and Mr. Kirk. The G&SR Committee is generally responsible for: • Making recommendations to the board regarding: The development and revision of our corporate governance principles. The size, composition and functioning of the board and board committees. ○ ○ ○ Candidates to fill board positions. ○ Nominees to be designated for election as directors. ○ Compensation of board members. ○ Organization and responsibilities of board committees. ○ ○ ○ ○ ○ ○ Responses to proposals submitted by stockholders. Succession planning by the company. Issues of potential conflicts of interest involving a board member raised under TI’s conflict of interest policy. Election of executive officers of the company. Topics affecting the relationship between the company and stockholders. Public issues likely to affect the company. • Reviewing: ○ Contribution policies of the company and the TI Foundation. ○ Revisions to TI’s code of ethics. • Electing officers of the company other than the executive officers. • Overseeing an annual evaluation of the board and the committee. The G&SR Committee met seven times in 2014. The G&SR Committee holds regularly scheduled meetings and reports its activities to the board. Please see page 75 for a discussion of stockholder nominations and page 77 for a discussion of communications with the board. Board leadership structure The board’s current leadership structure combines the positions of chairman and CEO, and includes a lead director who presides at executive sessions and performs the duties listed below. The board believes that this structure, combined with its other practices (such as (a) including on each board agenda an opportunity for the independent directors to comment on and influence the proposed strategic agenda for future meetings and (b) holding an executive session at each board meeting), allows it to maintain the active engagement of independent directors and appropriate oversight of management. The lead director is elected by the independent directors annually. The independent directors have elected Mr. Sanders to serve as lead director. The duties of the lead director are to: T N E M E T A T S Y X O R P • Preside at all meetings of the board at which the chairman is not present, including executive sessions of the independent directors; • Serve as liaison between the chairman and the independent directors; • Approve information sent to the board; • Approve meeting agendas for the board; • Approve meeting schedules to assure that there is sufficient time for discussion of all agenda items; and • If requested by major shareholders, ensure that he or she is available for consultation and direct communication. Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 8 1 In addition, the lead director has authority to call meetings of the independent directors. The board, led by its G&SR Committee, regularly reviews the board’s leadership structure. The board’s consideration is guided by two questions: would stockholders be better served and would the board be more effective with a different structure. The board’s views are informed by a review of the practices of other companies and insight into the preferences of top stockholders, as gathered from face-to-face dialogue and review of published guidelines. The board also considers how board roles and interactions would change if its leadership structure changed. The board’s goal is for each director to have an equal stake in the board’s actions and equal accountability to the corporation and its stockholders. The board continues to believe that there is no uniform solution for a board leadership structure. Indeed, the company has had varying board leadership models over its history, at times separating the positions of chairman and CEO and at times combining the two, and now utilizing a lead director. Risk oversight by the board It is management’s responsibility to assess and manage the various risks TI faces. It is the board’s responsibility to oversee management in this effort. In exercising its oversight, the board has allocated some areas of focus to its committees and has retained areas of focus for itself, as more fully described below. Management generally views the risks TI faces as falling into the following categories: strategic, operational, financial and compliance. The board as a whole has oversight responsibility for the company’s strategic and operational risks (e.g., major initiatives, competitive markets and products, sales and marketing, and research and development). Throughout the year the CEO discusses these risks with the board during strategy reviews that focus on a particular business or function. In addition, at the end of the year, the CEO provides a formal report on the top strategic and operational risks. TI’s Audit Committee has oversight responsibility for financial risk (such as accounting, finance, internal controls and tax strategy). Oversight responsibility for compliance risk is shared by the board committees. For example, the Audit Committee oversees compliance with the company’s code of conduct and finance- and accounting-related laws and policies, as well as the company’s compliance program itself; the Compensation Committee oversees compliance with the company’s executive compensation plans and related laws and policies; and the G&SR Committee oversees compliance with governance-related laws and policies, including the company’s corporate governance guidelines. The Audit Committee oversees the company’s approach to risk management as a whole. It reviews the company’s risk management process at least annually by means of a presentation by the CFO. The board’s leadership structure is consistent with the board and committees’ roles in risk oversight. As discussed above, the board has found that its current structure and practices are effective in fully engaging the independent directors. Allocating various aspects of risk oversight among the committees provides for similar engagement. Having the chairman and CEO review strategic and operational risks with the board ensures that the director most knowledgeable about the company, the industry in which it operates and the competition and other challenges it faces shares those insights with the board, providing for a thorough and efficient process. P R O X Y S T A T E M E N T Director compensation The G&SR Committee has responsibility for reviewing and making recommendations to the board on compensation for non-employee directors, with the board making the final determination. The committee has no authority to delegate its responsibility regarding director compensation. In carrying out this responsibility, it is supported by TI’s Human Resources organization. The CEO, the senior vice president responsible for Human Resources and the Secretary review the recommendations made to the committee. The CEO also votes, as a member of the board, on the compensation of non-employee directors. The compensation arrangements in 2014 for the non-employee directors were: • Annual retainer of $80,000 for board and committee service. • Additional annual retainer of $25,000 for service as the lead director. 8 2 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT • Additional annual retainer of $30,000 for service as chair of the Audit Committee; $20,000 for service as chair of the Compensation Committee; and $15,000 for service as chair of the G&SR Committee. • Annual grant of a 10-year option to purchase TI common stock pursuant to the terms of the Texas Instruments 2009 Director Compensation Plan (Director Plan), which was approved by stockholders in April 2009. The grant date value is $100,000, determined using a Black-Scholes option-pricing model (subject to the board’s ability to adjust the grant downward). These non-qualified options become exercisable in four equal annual installments beginning on the first anniversary of the grant and also will become fully exercisable in the event of termination of service following a change in control (as defined in the Director Plan) of TI. If a director’s service terminates due to death, disability or ineligibility to stand for re-election under the company’s by-laws, or after the director has completed eight years of service, then all outstanding options held by the director shall continue to full term. If a director’s service terminates for any other reason, all outstanding options held by the director shall be exercisable for 30 days after the date of termination, but only to the extent such options were exercisable on the date of termination. • Annual grant of restricted stock units pursuant to the Director Plan with a grant date value of $100,000 (subject to the board’s ability to adjust the grant downward). The restricted stock units vest on the fourth anniversary of their date of grant and upon a change in control as defined in the Director Plan. If a director is not a member of the board on the fourth anniversary of the grant, restricted stock units will nonetheless settle (i.e., the shares will issue) on such anniversary date if the director has completed eight years of service prior to termination or the director’s termination was due to death, disability or ineligibility to stand for re-election under the company’s by-laws. The director may defer settlement of the restricted stock units at his or her election. Upon settlement, the director will receive one share of TI common stock for each restricted stock unit. Dividend equivalents are paid on the restricted stock units at the same rate as dividends on TI common stock. The director may defer receipt of dividend equivalents. • $1,000 per day compensation for other activities designated by the chairman. • A one-time grant of 2,000 restricted stock units upon a director’s initial election to the board. The board has determined that annual grants of equity compensation to non-employee directors will be timed to occur when grants are made to our U.S. employees in connection with the annual compensation review process. Accordingly, such equity grants to non-employee directors are made in January. Please see the discussion regarding the timing of equity compensation grants on page 95. Directors are not paid a fee for meeting attendance, but we reimburse non-employee directors for their travel, lodging and related expenses incurred in connection with attending board, committee and stockholders meetings and other designated TI events. In addition, non-employee directors may travel on company aircraft to and from these meetings and other designated events. On occasion, directors’ spouses are invited to attend board events; the spouses’ expenses incurred in connection with attendance at those events are also reimbursed. Under the Director Plan, some directors have chosen to defer all or part of their cash compensation until they leave the board (or certain other specified times). These deferred amounts were credited to either a cash account or stock unit account. Cash accounts earn interest from TI at a rate currently based on Moody’s Seasoned Aaa Corporate Bonds. For 2014, that rate was 4.56 percent. Stock unit accounts fluctuate in value with the underlying shares of TI common stock, which will be issued after the deferral period. Dividend equivalents are paid on these stock units. Directors may also defer settlement of the restricted stock units they receive. We have arrangements with certain customers whereby our employees may purchase consumer products containing TI components at discounted pricing. In addition, the TI Foundation has an educational and cultural matching gift program. In both cases, directors are entitled to participate on the same terms and conditions available to employees. Non-employee directors are not eligible to participate in any TI-sponsored pension plan. T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 8 3 2014 director compensation The following table shows the compensation of all persons who were non-employee members of the board during 2014 for services in all capacities to TI in 2014. Name R. W. Babb, Jr. . . . . . . . . . . . . M. A. Blinn . . . . . . . . . . . . . . D. A. Carp . . . . . . . . . . . . . . C. S. Cox . . . . . . . . . . . . . . . R. Kirk . . . . . . . . . . . . . . . . P. H. Patsley . . . . . . . . . . . . . R. E. Sanchez . . . . . . . . . . . . . W. R. Sanders . . . . . . . . . . . . R. J. Simmons . . . . . . . . . . . . C. T. Whitman . . . . . . . . . . . . . Fees Earned or Paid in Cash ($) (1) $ 110,000 $ 80,000 $ 80,000 $ 95,000 $ 80,000 $ 80,000 $ 93,333 $ 106,667 $ 80,000 $ 85,000 Stock Awards ($) (2) $ 99,996 $ 99,996 $ 99,996 $ 99,996 $ 99,996 $ 99,996 $ 99,996 $ 99,996 $ 99,996 $ 99,996 Option Awards ($) (3) $ 99,993 $ 99,993 $ 99,993 $ 99,993 $ 99,993 $ 99,993 $ 99,993 $ 99,993 $ 99,993 $ 99,993 (1) Includes amounts deferred at the director’s election. Change in Pension Value and Nonqualified Deferred Compensation Earnings (4) Non-Equity Incentive Plan Compensation ($) — — — — — — — — — — — — — $ 2,352 — — — — $ 471 — All Other Compensation ($) (5) 40 $ 40 $ $ 779 $ 9,040 40 $ $ 40 $ 10,040 779 $ 40 $ 40 $ Total ($) $ 310,029 $ 280,029 $ 280,768 $ 306,381 $ 280,029 $ 280,029 $ 303,362 $ 307,435 $ 280,500 $ 285,029 (2) Shown is the aggregate grant date fair value of awards granted in 2014 calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification™ Topic 718, Compensation-Stock Compensation (ASC 718). The discussion of the assumptions used for purposes of calculating the grant date fair value appears in Note 5 to the financial statements contained in Item 8 (“Note 5 to the Financial Statements”) in TI’s annual report on Form 10-K for the year ended December 31, 2014. The table below shows the aggregate number of shares underlying outstanding restricted stock units held by the named individuals as of December 31, 2014. Name R. W. Babb, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M. A. Blinn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. A. Carp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. S. Cox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. Kirk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P. H. Patsley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. E. Sanchez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . W. R. Sanders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. J. Simmons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. T. Whitman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted Stock Units (in Shares) 13,293 4,268 29,957 23,293 4,268 13,293 10,406 20,893 29,293 20,793 Each restricted stock unit represents the right to receive one share of TI common stock. For restricted stock units granted prior to 2007, shares are issued at the time of mandatory retirement from the board (age 70) or upon the earlier of termination of service from the board after completing eight years of service or death or disability. For information regarding share issuances under restricted stock units granted after 2006, please see the discussion on page 83. (3) Shown is the aggregate grant date fair value of awards granted in 2014 calculated in accordance with ASC 718. The discussion of the assumptions used for purposes of calculating the grant date fair value appears in Note 5 to the Financial Statements in TI’s annual report on Form 10-K for the year ended December 31, 2014. P R O X Y S T A T E M E N T 8 4 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT The table below shows the aggregate number of shares underlying outstanding stock options held by the named individuals as of December 31, 2014. Name R. W. Babb, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M. A. Blinn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. A. Carp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. S. Cox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. Kirk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P. H. Patsley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. E. Sanchez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . W. R. Sanders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. J. Simmons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. T. Whitman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Options (in Shares) 49,206 12,299 92,206 92,206 12,299 92,206 39,204 64,206 49,206 92,206 The terms of these options are as set forth on page 83 except that for options granted before November 2006, the exercise price is the average of the high and low price of TI common stock on the date of grant, and for options granted before 2010, the grant becomes fully exercisable upon a change in control of TI. (4) SEC rules require the disclosure of earnings on deferred compensation to the extent that the interest rate exceeds a specified rate (Federal Rate), which is 120 percent of the applicable federal long-term interest rate with compounding. Under the terms of the Director Plan, deferred compensation cash amounts earn interest at a rate based on Moody’s Seasoned Aaa Corporate Bonds. For 2014, this interest rate exceeded the Federal Rate by 0.69 percentage points. Shown is the amount of interest earned on the directors’ deferred compensation accounts that was in excess of the Federal Rate. (5) Consists of (a) the annual cost ($40 per director) of premiums for travel and accident insurance policies, (b) contributions under the TI Foundation matching gift program of $10,000 for Mr. Sanchez and $9,000 for Ms. Cox and (c) for Messrs. Carp and Sanders, third-party administration fees for the Director Award Program. Each director whose service commenced prior to June 20, 2002, is eligible to participate in the Director Award Program, a charitable donation program under which we will contribute a total of $500,000 per eligible director to as many as three educational institutions recommended by the director and approved by us. The contributions are made following the director’s death. Directors receive no financial benefit from the program, and all charitable deductions belong to the company. In accordance with SEC rules, we have included the company’s annual costs under the program in All Other Compensation of the directors who participate. The cost attributable to each of Messrs. Carp and Sanders for their participation in this program was $739. Executive compensation We are providing the following advisory vote on named executive officer compensation as required by Section 14A of the Securities Exchange Act. The company holds this vote annually. Proposal regarding advisory approval of the company’s executive compensation The board asks the shareholders to cast an advisory vote on the compensation of our named executive officers. The “named executive officers” are the chief executive officer, chief financial officer and three other most highly compensated executive officers, as named in the compensation tables on pages 98-110. Specifically, we ask the shareholders to approve the following resolution: RESOLVED, that the compensation paid to the company’s named executive officers, as disclosed in this proxy statement pursuant to the Securities and Exchange Commission’s compensation disclosure rules, including the Compensation Discussion and Analysis, compensation tables and narrative discussion on pages 86-110 of this proxy statement, is hereby approved. We encourage shareholders to review the Compensation Discussion and Analysis section of the proxy statement, which follows. It discusses our executive compensation policies and programs and explains the compensation decisions relating to the named executive officers for 2014. We believe that the policies and programs serve the interests of our shareholders and that the compensation received by the named executive officers is commensurate with the performance and strategic position of the company. T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 8 5 Although the outcome of this vote is not binding on the company or the board, the Compensation Committee of the board will consider it when setting future compensation for the executive officers. The board of directors recommends a vote FOR the resolution approving the named executive officer compensation for 2014, as disclosed in this proxy statement. Compensation Discussion and Analysis This section describes TI’s compensation program for executive officers. It will provide insight into the following: • The elements of the 2014 compensation program, why we selected them and how they relate to one another; and • How we determined the amount of compensation for 2014. Currently, TI has 10 executive officers. These executives have the broadest job responsibilities and policy-making authority in the company. We hold them accountable for the company’s performance and for maintaining a culture of strong ethics. Details of compensation for our CEO, CFO and the three other highest paid individuals who were executive officers in 2014 (collectively called the “named executive officers”) can be found in the tables beginning on page 98. executive summary • TI’s compensation program is structured to pay for performance and deliver rewards that encourage executives to think and act in both the short- and long-term interests of our shareholders. The majority of total compensation for our executives each year comes in the form of variable cash and equity compensation. Variable cash is tied to the short-term performance of the company, and the value of equity is tied to the long-term performance of the company. We believe our compensation program holds our executive officers accountable for the financial and competitive performance of TI. • 2014 compensation decisions for the CEO: ○ Base salary was increased by 3.3 percent over 2013. ○ ○ The grant date fair value of equity compensation awarded in 2014 was 5 percent higher than in 2013. The bonus decision was based primarily on the following performance results in 2014: 2014 Absolute Performance 2014 Relative Performance ** Revenue Growth: Total TI Revenue Growth without legacy wireless products * Profit from Operations as a % of Revenue (PFO%) Total Shareholder Return (TSR) 6.9% 11.0% 30.3% 25.1% Median Above Median Above Median Above Median P R O X Y S T A T E M E N T Year-on-Year Change in CEO Bonus (2014 bonus compared to 2013) 15% change * Revenue growth for total TI excluding wireless products that we exited by year-end 2013. See note 3 on page 92. ** Relative to semiconductor competitors as outlined on page 91. Includes estimates and projections of certain competitors’ financial results. See pages 92-93 for details of the Compensation Committee’s assessment of TI’s performance. • Our executive compensation program is designed to encourage executive officers to pursue strategies that serve the interests of the company and shareholders, and not to promote excessive risk-taking by our executives. It is built on a foundation of sound corporate governance and includes: ○ ○ We have never repriced stock options. We do not grant reload options. We grant equity compensation with double-trigger Executive officers do not have employment contracts and are not guaranteed salary increases or bonus amounts. change-in-control terms, which accelerate the vesting of grants only if the grantee has been terminated involuntarily within a limited time after a change in control of the company. 8 6 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT  ○ Bonus and equity compensation awards are subject to clawback under the committee’s policy described on page 95. ○ We do not provide excessive perquisites. We provide no tax gross-ups for perquisites. ○ We do not guarantee a return or provide above-market returns on compensation that has been deferred. ○ Pension benefits are calculated on salary and bonus only; the proceeds earned on equity or other performance awards are not part of the pension calculation. The committee’s strategy for setting cash and non-cash compensation is described in the table that follows immediately below. Its compensation decisions for the named executive officers for 2014 are discussed on pages 89-94. Benefit programs in which the executive officers participate are discussed on pages 95-96. Perquisites are discussed on page 96. Detailed discussion Compensation philosophy and elements The Compensation Committee of TI’s board of directors is responsible for setting the compensation of all TI executive officers. The committee consults with the other independent directors and its compensation consultant, Pearl Meyer & Partners, before setting annual compensation for the executives. The committee chair regularly reports on committee actions at board meetings. The primary elements of our executive compensation program are as follows: Near-term compensation, paid in cash Element Base salary Profit sharing Purpose Strategy Basic, least variable form of compensation Pay below market median in order to weight total compensation to the performance-based elements described below in this chart. Terms Paid twice monthly Broad-based program designed to emphasize that each employee contributes to the company’s profitability and can share in it Pay according to a formula that focuses employees on a company goal, and at a level that will affect behavior. Profit sharing is paid in addition to any performance bonus awarded for the year. For the last ten years, the formula has been based on company-level annual operating profit margin. The formula was set by the TI board. The committee’s practice has been not to adjust amounts earned under the formula. Payable in a single cash payment shortly after the end of the performance year As in recent years, the formula for 2014 was: • Below 10% company-level annual operating profit as a percentage of revenue (“Margin”): no profit sharing • At 10% Margin: profit sharing = 2% of base salary • At Margin above 10%: profit sharing increases by 0.5% of base salary for each percentage point of Margin between 10% and 24%, and 1% of base salary for each percentage point of Margin above 24%. The maximum profit sharing is 20% of base salary. In 2014, TI delivered Margin of 30.3%. As a result, all eligible employees, including executive officers, received profit sharing of 15.3% of base salary. T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 8 7 Element Purpose Strategy Terms Performance bonus To motivate executives and reward them according to the company’s relative and absolute performance and the executive’s individual performance Determined by the committee and paid in a single payment after the performance year Determined primarily on the basis of one-year and three-year company performance on certain measures (revenue growth percent, operating margin and total shareholder return1) as compared to competitors and on our strategic progress in key markets and with customers. These factors have been chosen to reflect our near-term financial performance as well as our progress in building long-term shareholder value. The committee aims to pay total cash compensation (base salary, profit sharing and bonus) appropriately above median if company performance is above that of competitors, and pay total cash compensation appropriately below the median if company performance is below competitors. The committee does not rely on formulas or performance targets or thresholds. Instead it uses its judgment based on its assessment of the factors described above. Long-term compensation, awarded in equity Stock options and restricted stock units Alignment with shareholders; long-term focus; retention, particularly with respect to restricted stock units We grant a combination of nonqualified stock options and restricted stock units, generally targeted at the median level of equity compensation awarded to executives in similar positions at the Comparator Group. The terms and conditions of stock options and restricted stock units are summarized on pages 102-103. The committee’s grant procedures are described on page 95. Comparator group The Compensation Committee considers the market level of compensation when setting the salary, bonuses and equity compensation of the executive officers. The committee targets salary below market median in order to weight total compensation to performance-based elements. To estimate the market level of pay, the committee uses information provided by its compensation consultant and TI’s Compensation and Benefits organization about compensation paid to executives in similar positions at a peer group of companies (the “Comparator Group”). The committee sets the Comparator Group. In general, the Comparator Group companies (1) are U.S.-based, (2) engage in the semiconductor business or other electronics or information technology activities, (3) have executive positions comparable in complexity to those of TI and (4) use forms of executive compensation comparable to TI’s. Shown in the table below is the Comparator Group used for the compensation decisions for 2014. Analog Devices, Inc. Applied Materials, Inc. Broadcom Corporation Computer Sciences Corporation eBay Inc. EMC Corporation Emerson Electric Co. Intel Corporation Motorola Solutions, Inc. QUALCOMM Incorporated Seagate Technology TE Connectivity Ltd. Western Digital Corporation Xerox Corporation P R O X Y S T A T E M E N T 1 Total shareholder return refers to the percentage change in the value of a stockholder’s investment in a company over the relevant time period, as determined by dividends paid and the change in the company’s share price during the period. See page 93. 8 8 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT The committee set the Comparator Group in July 2013 for the base salary and equity compensation decisions it made in January 2014. For a discussion of the factors considered by the committee in setting the Comparator Group, please see page 72 of the company’s 2014 proxy statement. In July 2014, the committee conducted its regular review of the Comparator Group in terms of industry, revenue and market capitalization. With the advice of its compensation consultant, the committee determined that the group was still comparable overall to TI. Accordingly, it used the same Comparator Group for the bonus decisions in January 2015 relating to 2014 performance as it used to set salary and equity compensation in January 2014. The table below compares the group to TI in terms of revenue and market capitalization. Company Intel Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . QUALCOMM Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emerson Electric Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EMC Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Xerox Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . eBay Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Western Digital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TE Connectivity Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seagate Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computer Sciences Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Applied Materials, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Broadcom Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Motorola Solutions, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Analog Devices, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Median . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas Instruments Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue ($ billion) * Market Cap ($ billion) * 55.0 26.5 24.5 24.1 21.1 17.5 15.3 14.1 14.0 12.9 9.1 8.3 6.6 2.9 14.7 13.0 174.9 123.3 42.6 60.4 15.6 69.6 25.5 25.5 21.6 8.8 30.2 25.4 16.0 17.3 25.5 56.3 * Trailing four-quarter revenue as reported by Thomson Reuters on February 2, 2015. Market capitalization as of December 31, 2014. Analysis of compensation determinations for 2014 Total compensation Before finalizing the compensation of the executive officers, the committee reviewed all elements of compensation. The information included total cash compensation (salary, profit sharing and projected bonus), the grant date fair value of equity compensation, the impact that proposed compensation would have on other compensation elements such as pension, and a summary of benefits that the executives would receive under various termination scenarios. The review enabled the committee to see how various compensation elements relate to one another and what impact its decisions would have on the total earnings opportunity of the executives. In assessing the information, the committee did not target a specific level of total compensation or use a formula to allocate compensation among the various elements. Instead, it used its judgment in assessing whether the total was consistent with the objectives of the program. Based on this review, the committee determined that the level of compensation was appropriate. Base salary The committee set the 2014 rate of base salary for the named executive officers as follows: Officer R. K. Templeton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K. P. March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. T. Crutcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S. A. Anderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K. J. Ritchie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 Annual Rate $ 1,110,000 $ 630,000 $ 775,000 * $ 550,000 * $ 650,000 Change from 2013 Annual Rate 3.3% 3.3% 14.8% 20.9% 4.0% * 2014 annual rate for Mr. Crutcher and Mr. Anderson includes salary increase approved in June 2014. T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 8 9 The committee set the 2014 base-salary rate for each of the named executive officers in January 2014. In keeping with its strategy, the committee set the annual base-salary rates to be below the estimated median level of salaries expected to be paid to similarly situated executives of the Comparator Group in 2014. In June 2014, the committee increased the salary rate for Mr. Crutcher and Mr. Anderson as they assumed new leadership roles. The salary adjustments were consistent with the policy described in the preceding paragraph. The salary differences between the named executive officers were driven primarily by the market rate of pay for each officer, and not the application of a formula designed to maintain a differential between the officers. Equity compensation In 2014, the committee awarded equity compensation to each of the named executive officers. The grants are shown in the Grants of plan-based awards in 2014 table on page 100. The grant date fair value of the awards is reflected in that table and in the “Stock Awards” and “Option Awards” columns of the 2014 summary compensation table on page 98. The table below is provided to assist the reader in comparing the grant date fair values and number of shares for each of the years shown in the summary compensation table. Officer R. K. Templeton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K. P. March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. T. Crutcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year 2014 2013 2012 2014 2013 2012 2014 2013 2012 Grant Date Fair Value * Stock Options (in Shares) $ $ $ $ $ $ $ $ $ $ 9,800,034 9,299,374 9,074,035 2,700,039 2,656,964 2,865,478 4,500,008 3,985,446 3,581,848 2,760,000 ** 602,692 525,000 475,000 166,048 150,000 150,000 276,747 225,000 187,500 — Restricted Stock Units (in Shares) 111,137 175,000 158,334 30,620 50,000 50,000 51,032 75,000 62,500 100,000 ** S. A. Anderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 $ $ 2,700,039 2,000,003 *** 166,048 — 30,620 41,745 *** K. J. Ritchie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 2013 2012 $ $ $ 4,000,015 3,542,630 3,343,079 245,997 200,000 175,000 45,362 66,667 58,334 * See notes 2 and 3 to the summary compensation table on page 98 for information on how grant date fair value was calculated. ** Retention grant made in June 2012, when Mr. Crutcher assumed new responsibilities. *** Retention grant made in June 2014, when Mr. Anderson assumed new responsibilities. In January 2014, the committee awarded equity compensation to each of the named executive officers. The committee’s objective was to award to those officers equity compensation that had a grant date fair value at approximately the median market level, in this case the 40th to 60th percentile of the 3-year average of equity compensation (including an estimate of amounts for 2014) granted by the Comparator Group. In assessing the market level, the committee considered information presented by TI’s Compensation and Benefits organization (prepared using data provided by the committee’s compensation consultant) on the estimated value of the awards expected to be granted by the Comparator Group to similarly situated executives. The award value was estimated using the same methodology used for financial accounting. For each officer, the committee set the desired grant value. The committee decided to allocate the value equally between restricted stock units and options for each officer, to give equal emphasis to promoting retention, motivating the executive and aligning his interests with those of shareholders. P R O X Y S T A T E M E N T 9 0 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT Before approving the grants, the committee reviewed the amount of unvested equity compensation held by the officers to assess its retention value. In making this assessment, the committee used its judgment and did not apply any formula, threshold or maximum. This review did not result in an increase or decrease of the awards. The exercise price of the options was the closing price of TI stock on January 23, 2014, the second trading day after the company released its annual and fourth quarter financial results for 2013. All grants were made under the Texas Instruments 2009 Long-Term Incentive Plan, which shareholders approved in April 2009. In addition to the January 2014 awards described above, the committee awarded restricted stock units to Mr. Anderson as he assumed new and broader responsibilities in June 2014. The award was intended to increase the retention value of his outstanding equity compensation. In setting the value, the committee applied its judgment following a review of the current retention value. All grants have the terms described on pages 102-103. The differences in the equity awards between the named executive officers were primarily the result of differences in the applicable estimated market level of equity compensation for their positions, and not the application of any formula designed to maintain differentials between the officers. Bonus In January 2015, the committee set the 2014 bonus compensation for executive officers based on its assessment of 2014 performance. In setting the bonuses, the committee used the following performance measures to assess the company: • The relative one-year and three-year performance of TI as compared with competitor companies, as measured by ○ ○ ○ revenue growth, operating profit as a percentage of revenue, total shareholder return; and • The absolute one-year and three-year performance of TI on the above measures. In addition, the committee considered our strategic progress by reviewing how competitive we are in key markets with our core products and technologies, as well as the strength of our relationships with customers. One-year relative performance on the three measures and one-year strategic progress were the primary considerations in the committee’s assessment of the company’s 2014 performance. In assessing performance, the committee did not use formulas, thresholds or multiples. Because market conditions can quickly change in our industry, thresholds established at the beginning of a year could prove irrelevant by year-end. The committee believes its approach, which assesses the company’s relative performance in hindsight after year-end, gives it the insight to most effectively and critically judge results and encourages executives to pursue strategies that serve the long-term interests of the company and its shareholders. In the comparison of relative performance, the committee used the following companies (the “competitor companies”):2 Advanced Micro Devices, Inc. Altera Corporation Analog Devices, Inc. Atmel Corporation Broadcom Corporation Fairchild Semiconductor International, Inc. Freescale Semiconductor, Ltd. Infineon Technologies AG Intel Corporation Intersil Corporation Linear Technology Corporation Marvell Technology Group Ltd. Maxim Integrated Products, Inc. Microchip Technology Incorporated NVIDIA Corporation NXP Semiconductors N.V. ON Semiconductor Corporation QUALCOMM Incorporated STMicroelectronics N.V. Xilinx, Inc. T N E M E T A T S Y X O R P This list includes both broad-based and niche suppliers that operate in our key markets or offer technology that competes with our products. The committee considers annually whether the list is still appropriate in terms of revenue, market capitalization and changes in business activities of the companies. In July 2014, the committee removed LSI Corporation from the list following its acquisition by another company. The committee made no other change to the list of competitor companies in 2014. 2 To the extent the companies had not released financial results for the year or most recent quarter, the committee based its evaluation on estimates and projections of the companies’ financial results for 2014. Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 9 1 Assessment of 2014 performance The committee spent extensive time in December and January assessing TI’s results and strategic progress for 2014. The committee considered both quantitative and qualitative measures and applied judgment in its assessment. The company’s performance improved from the prior year on both an absolute and relative basis (see list of competitor companies above), putting it in a stronger position for the near and long terms. Commensurate with this improvement, the committee set bonuses 15 percent higher than last year for the named executive officers, with two exceptions for promotions. The assessments for each measure are below. Revenue and margin • Annual performance ○ TI revenue grew 6.9 percent, consistent with the median growth rate as compared with competitor companies. However, this included a $445 million revenue decline in legacy wireless products, for which the company has had publicly stated exit plans under way for a number of years. Excluding legacy wireless products, TI’s revenue grew 11 percent, which was better than the median comparison with competitors.3 Revenues for the company’s core businesses of Analog and Embedded Processing were up 12.6 percent and 11.8 percent, respectively, resulting in share gains for each. These core businesses have gained share in each of the last five years. ○ Operating profit margin was 30.3 percent, above the median comparison with competitors. • Three-year performance ○ Compound annual revenue growth for 2012-2014 was -1.7 percent, which was below the median competitor comparison. Excluding the decline in legacy wireless products, compound annual revenue growth was 4.7 percent, which was above the median competitor comparison. Average operating profit for 2012-2014 was 23 percent, which was above the median competitor comparison. ○ Total shareholder return (TSR) • TSR was 25.1 percent, which was better than the median comparison with competitors. • The company again generated strong cash, with free cash flow at 26.9 percent of revenue.4 More than 100 percent of free cash flow was returned to shareholders in 2014 through share repurchases and dividends. Share repurchases of $2.8 billion reduced outstanding shares by 3.3 percent (net of stock issuances during the year). The quarterly dividend rate increased 13.3 percent (the 13th increase in eleven years). Share repurchases and dividend increases are important elements of TI’s capital management strategy. • The balance sheet remained robust, ending the year with cash and short-term investments of $3.5 billion. • The three-year compound annual growth rate for TSR was 25.8 percent, which was above the median competitor comparison. Strategic progress • The company’s strategic focus on Analog and Embedded Processing semiconductors continues to provide the foundation for strong results. These core businesses serve highly diverse markets with thousands of applications and have dependable long-term growth opportunities. In 2014, 83 percent of TI’s revenue came from Analog and Embedded Processing semiconductors, up 4 percentage points from the prior year. • TI again improved the diversity of its customer base in 2014 by increasing the percent of revenue from industrial and automotive applications by one point each, and by increasing the percentage of revenue that comes from small- to mid- sized customers. This was the third consecutive year of similar improvement. Diversity provides better stability because success does not depend on a single market or customer. P R O X Y S T A T E M E N T 3 Revenue excluding legacy wireless products (baseband products, and OMAP™ applications processors and connectivity products sold into smartphone and consumer tablet applications) is a non-GAAP financial measure. For a reconciliation to GAAP, see the Appendix to this proxy statement. 4 Free cash flow was calculated by subtracting Capital expenditures from the GAAP-based Cash flows from operating activities. Free cash flow and the ratios based on it are non-GAAP financial measures. For a reconciliation to GAAP, see the Appendix to this proxy statement. 9 2 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT • TI is the only competitor with in-house capability to produce high volumes of Analog semiconductors on 300-millimeter wafers. In 2014, the company initiated plans to increase Analog production on 300-millimeter wafers. Such production provides cost advantages that will further improve margins and cash generation over the long term. TI will leverage existing facilities along with equipment that has been strategically acquired at low price points, enabling the company to grow, yet keep capital spending levels at about 4 percent of revenue. • The committee determined in conclusion that TI’s strategic condition was strengthened by management’s decisions in 2014, noting sustainable advantages in the company’s manufacturing and technology, the breadth and differentiation of its product portfolio, and the diversity of markets and customers it serves. Performance summary Revenue growth: total TI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue growth without legacy wireless products . . . . . . . . . . . . . . . . . . . . . . . . . Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free cash flow as % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . % of free cash flow returned to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in quarterly dividend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholder return (TSR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-Year 6.9% 11.0% 30.3% 26.9% 118.4% 13.3% 25.1% 3-Year -1.7% CAGR 4.7% CAGR 23.0% average 24.7% average 115.1% average 100.0% 25.8% CAGR CAGR (compound annual growth rate) is calculated using the formula (Ending Value/Beginning Value)1/number of years-1. One-year TSR % = (adjusted closing price of the company’s stock at year-end 2014, divided by 2013 year-end adjusted closing price) minus 1. The adjusted closing price is as shown under Historical Prices for the company’s stock on Yahoo Finance and reflects stock splits and reinvestment of dividends. Three-year TSR CAGR % = (adjusted closing price of the company’s stock at year-end 2014, divided by 2011 year-end adjusted closing price)1/3 minus 1. Adjusted closing price is as described above. Before setting the bonuses for the named executive officers, the committee considered the officers’ individual performance. The performance of the CEO was judged according to the performance of the company. For the other officers, the committee considered the factors described below in assessing individual performance. In making this assessment, the committee did not apply any formula or performance targets. Mr. March is the chief financial officer. The committee noted the financial management of the company. In June 2014, Mr. Crutcher became responsible for all of the company’s product lines and sales activities. Previously he was responsible for the company’s analog semiconductor product lines. The committee noted the financial performance and strategic position of the product lines and activities for which he is responsible. In June 2014, Mr. Anderson became responsible for the company’s analog semiconductor product lines. Previously he was responsible for the company’s High Performance Analog product line. The committee noted the financial performance and strategic position of the product lines for which he is responsible. Mr. Ritchie is responsible for the company’s semiconductor manufacturing operations. The committee noted the performance of those operations, including their cost-competitiveness and inventory management. The bonuses awarded for 2014 performance are shown in the table on page 94. The differences in the amounts awarded to the named executive officers were primarily the result of differences in the officers’ level of responsibility and the applicable market level of total cash compensation expected to be paid to similarly situated officers in the Comparator Group. The bonus of each named executive officer was paid under the Executive Officer Performance Plan described on pages 97 and 100. Results of the compensation decisions Results of the compensation decisions made by the committee relating to the named executive officers for 2014 are summarized in the following table. This table is provided as a supplement to the summary compensation table on page 98 for investors who may find it T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 9 3 useful to see the data presented in this form. Although the committee does not target a specific level of total compensation, it considers information similar to that in the table to ensure that the sum of these elements is, in its judgment, in a reasonable range. The principal differences between this table and the summary compensation table are explained in footnote 5 below.5 Officer R. K. Templeton . . . . . . . . . . K. P. March . . . . . . . . . . . . B. T. Crutcher . . . . . . . . . . . Year 2014 2013 2012 2014 2013 2012 2014 2013 2012 S. A. Anderson . . . . . . . . . . 2014 K. J. Ritchie . . . . . . . . . . . 2014 2013 2012 * Annual rate effective July 2014. ** Annual rate effective June 2012. $ $ $ $ $ $ $ $ $ $ $ $ $ Salary (Annual Rate) 1,110,000 1,075,000 1,040,000 630,000 610,000 590,000 775,000 675,000 630,000 * ** Profit Sharing Bonus Equity Compensation (Grant Date Fair Value) $ $ $ $ $ $ $ $ $ 168,941 92,199 48,581 95,884 52,317 27,573 112,860 57,728 27,573 3,450,000 3,000,000 2,700,000 1,110,000 965,000 875,000 1,510,000 1,210,000 1,100,000 $ $ $ 9,800,034 9,299,374 9,074,035 $ $ $ $ $ $ 2,700,039 2,656,964 2,865,478 4,500,008 3,985,446 6,341,848 Total 14,528,975 13,466,573 12,862,616 4,535,923 4,284,281 4,358,051 6,897,868 5,928,174 8,099,421 $ $ $ $ $ $ $ $ $ 550,000 * $ 77,635 650,000 625,000 600,000 $ $ $ 98,872 53,571 27,945 925,000 $ 4,700,042 $ 6,252,677 1,265,000 1,100,000 1,000,000 $ $ $ 4,000,015 3,542,630 3,343,079 $ $ $ 6,013,887 5,321,201 4,971,024 $ $ $ $ $ $ $ $ $ $ $ $ $ For Mr. Templeton, the “Total” was higher for 2014 than for 2013 due about equally to the higher level of his bonus and the higher grant date fair value of his equity compensation. For Mr. March, the “Total” was higher for 2014 primarily due to the higher level of his bonus. For the other officers, the “Total” was higher for 2014 primarily due to the higher grant date fair value of their equity compensation. The compensation decisions shown above resulted in the following 2014 compensation mix for the named executive officers: CEO 8% Other NEOs * 20% 11% 2% 24% 1% 67% 67% Base Salary Equity Compensation Profit Sharing Bonus * Average data for the named executive officers other than Mr. Templeton. 5 This table shows the annual rate of base salary as set by the committee. In the summary compensation table, the “Salary” column shows the actual salary paid in the year. This table has separate columns for profit sharing and bonus. In the summary compensation table, profit sharing and bonus are aggregated in the column for “Non-Equity Incentive Plan Compensation,” in accordance with SEC requirements. Please see notes 2 and 3 to the summary compensation table for information about how grant date fair value was calculated. 9 4 Te x a s In sTru me nTs • 2015 PrOx Y sTaT em en T P R O X Y S T A T E M E N T Equity dilution The Compensation Committee’s goal is to keep net annual dilution from equity compensation under 2 percent. “Net annual dilution” means the number of shares under equity awards granted by the committee each year to all employees (net of award forfeitures) as a percentage of the shares of the company’s outstanding common stock. Equity awards granted in 2014 resulted in 1.4 percent net annual dilution. Process for equity grants The Compensation Committee makes grant decisions for equity compensation at its January meeting each year. The dates on which these meetings occur are generally set three years in advance. The January meetings of the board and the committee generally occur in the week or two before we announce our financial results for the previous quarter and year. On occasion, the committee may grant stock options or restricted stock units to executives at times other than January. For example, it has done so in connection with job promotions and for purposes of retention. We do not back-date stock options or restricted stock units. We do not accelerate or delay the release of information due to plans for making equity grants. If the committee meeting falls in the same month as the release of the company’s financial results, the committee’s practice is to make grants effective (i) after the results have been released or (ii) on the meeting day if later. In other months, its practice is to make them effective on the day of committee action. The exercise price of stock options is the closing price of TI stock on the effective date of the grant. Recoupment policy The committee has a policy concerning recoupment (“clawback”) of executive bonuses and equity compensation. Under the policy, in the event of a material restatement of TI’s financial results due to misconduct, the committee will review the facts and circumstances and take the actions it considers appropriate with respect to the compensation of any executive officer whose fraud or willful misconduct contributed to the need for such restatement. Such action may include (a) seeking reimbursement of any bonus paid to such officer exceeding the amount that, in the judgment of the committee, would have been paid had the financial results been properly reported and (b) seeking to recover profits received by such officer during the twelve months after the restated period under equity compensation awards. All determinations by the committee with respect to this policy are final and binding on all interested parties. Most recent stockholder advisory vote on executive compensation In April 2014, our shareholders cast an advisory vote on the company’s executive compensation decisions and policies as disclosed in the proxy statement issued by the company in March 2014. Approximately 97 percent of the shares voted on the matter were cast in support of the compensation decisions and policies as disclosed. The committee considered this result and determined that it was not necessary at this time to make any material changes to the company’s compensation policies and practices in response to the advisory vote. Benefits Retirement plans The executive officers participate in our retirement plans under the same rules that apply to other U.S. employees. We maintain these plans to have a competitive benefits program and for retention. Like other established U.S. manufacturers, we have had a U.S. qualified defined benefit pension plan for many years. At its origin, the plan was designed to be consistent with those offered by other employers in the diverse markets in which we operated, which at the time included consumer and defense electronics as well as semiconductors and materials products. In order to limit the cost of the plan, we closed the plan to new participants in 1997. We gave U.S. employees as of November 1997 the choice to remain in the plan, or to have their plan benefits frozen (i.e., no benefit increase attributable to years of service or change in eligible earnings) and begin participating in an enhanced defined contribution plan. Mr. Templeton and Mr. Crutcher chose not to remain in the defined benefit plan. As a result, their benefits under that plan were frozen in 1997 and they participate in the enhanced defined contribution plan. Mr. Anderson, who joined the company in 1999, participates in the enhanced defined contribution plan. The other named executive officers have continued their participation in the defined benefit pension plan. T N E M E T A T S Y X O R P The Internal Revenue Code (IRC) imposes certain limits on the retirement benefits that may be provided under a qualified plan. To maintain the desired level of benefits, we have non-qualified defined benefit pension plans for participants in the qualified pension plan. Under the non-qualified plans, participants receive benefits that would ordinarily be paid under the qualified pension plan but for the limitations under the IRC. For additional information about the defined benefit plans, please see pages 104-106. Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 9 5 Employees accruing benefits in the qualified pension plan, including the named executive officers other than Mr. Templeton, Mr. Crutcher and Mr. Anderson, also are eligible to participate in a qualified defined contribution plan that provides employer matching contributions. The enhanced defined contribution plan, in which Mr. Templeton, Mr. Crutcher and Mr. Anderson participate, provides for a fixed employer contribution plus an employer matching contribution. In general, if an employee who participates in the pension plan (including an employee whose benefits are frozen as described above) dies after having met the requirements for normal or early retirement, his or her beneficiary will receive a benefit equal to the lump-sum amount that the participant would have received if he or she had retired before death. Having already reached the age of 55 and at least 20 years of employment, Mr. Templeton, Mr. March and Mr. Ritchie are eligible for early retirement under the pension plans. Because benefits under the qualified and non-qualified defined benefit pension plans are calculated on the basis of eligible earnings (salary and bonus), an increase in salary or bonus may result in an increase in benefits under the plans. Salary or bonus increases for Mr. Templeton and Mr. Crutcher do not result in greater benefits for them under the company’s defined benefit pension plans because their benefits under those plans were frozen in 1997. Mr. Anderson does not participate in the company’s defined benefit pension plans. The committee considers the potential effect on the executives’ retirement benefits when it sets salary and performance bonus levels. Deferred compensation Any U.S. employee whose base salary and management responsibility exceed a certain level may defer the receipt of a portion of his or her salary, bonus and profit sharing. Rules of the U.S. Department of Labor require that this plan be limited to a select group of management or highly compensated employees. The plan allows employees to defer the receipt of their compensation in a tax-efficient manner. Eligible employees include, but are not limited to, the executive officers. We have the plan to be competitive with the benefits packages offered by other companies. The executive officers’ deferred compensation account balances are unsecured and all amounts remain part of the company’s operating assets. The value of the deferred amounts tracks the performance of investment alternatives selected by the participant. These alternatives are a subset of those offered to participants in the defined contribution plans described above. The company does not guarantee any minimum return on the amounts deferred. In accordance with SEC rules, no earnings on deferred compensation are shown in the summary compensation table on page 98 for 2014 because no “above market” rates were earned on deferred amounts in that year. Employee stock purchase plan We have an employee stock purchase plan. Under the plan, which our shareholders approved, all employees in the U.S. and certain other countries may purchase a limited number of shares of the company’s common stock at a 15 percent discount. The plan is designed to offer the broad-based employee population an opportunity to acquire an equity interest in the company and thereby align their interests with those of shareholders. Consistent with our general approach to benefit programs, executive officers are also eligible to participate. Health-related benefits Executive officers are eligible under the same plans as all other U.S. employees for medical, dental, vision, disability and life insurance. These benefits are intended to be competitive with benefits offered in the semiconductor industry. P R O X Y S T A T E M E N T Other benefits Executive officers receive only a few benefits that are not available to all other U.S. employees. The CEO is eligible for a company-paid physical and financial counseling. In addition, the board of directors has determined that for security reasons, it is in the company’s interest to require the CEO to use company aircraft for personal air travel. Please see pages 99 (footnote 6) and 108 for further details. The company provides no tax gross-ups for perquisites to any of the executive officers. Compensation following employment termination or change in control None of the executive officers has an employment contract. Executive officers are eligible for benefits on the same terms as other U.S. employees upon termination of employment or a change in control of the company. The current programs are described under the heading Potential payments upon termination or change in control, beginning on page 107. None of the few additional benefits that the executive officers receive continue after termination of employment, except the amount for financial counseling is provided in the following year in the event of retirement. The committee reviews the potential impact of these programs before finalizing the annual compensation for the named executive officers. The committee did not raise or lower compensation for 2014 based on this review. 9 6 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT The Texas Instruments 2009 Long-Term Incentive Plan generally establishes double-trigger change-in-control terms for grants made in 2010 and later years. Under those terms, options become fully exercisable and shares are issued under restricted stock unit awards (to the extent permitted by Section 409A of the IRC) if the grantee is involuntarily terminated within 24 months after a change in control of TI. These terms are intended to encourage employees to remain with the company through a transaction while reducing employee uncertainty and distraction in the period leading up to any such event. Stock ownership guidelines and policy against hedging Our board of directors has established stock ownership guidelines for executive officers. The guideline for the CEO is four times base salary or 125,000 shares, whichever is less. The guideline for other executive officers is three times base salary or 25,000 shares, whichever is less. Executive officers have five years from their election as executive officers to reach these targets. Directly owned shares and restricted stock units count toward satisfying the guidelines. Short sales of TI stock by our executive officers are prohibited. It is against TI policy for any employee, including an executive officer, to engage in trading in “puts” (options to sell at a fixed price on or before a certain date), “calls” (similar options to buy), or other options or hedging techniques on TI stock. Consideration of tax and accounting treatment of compensation Section 162(m) of the IRC generally denies a deduction to any publicly held corporation for compensation paid in a taxable year to the company’s CEO and three other highest compensated officers excluding the CFO, to the extent that the officer’s compensation (other than qualified performance-based compensation) exceeds $1 million. The Compensation Committee considers the impact of this deductibility limit on the compensation that it intends to award. The committee exercises its discretion to award compensation that does not meet the requirements of Section 162(m) when applying the limits of Section 162(m) would frustrate or be inconsistent with our compensation policies and/or when the value of the foregone deduction would not be material. The committee has exercised this discretion when awarding restricted stock units that vest over time, without performance conditions to vesting. The committee believes it is in the best interest of the company and our shareholders that restricted stock unit awards provide for the retention of our executive officers in all market conditions. The Texas Instruments Executive Officer Performance Plan is intended to ensure that performance bonuses under the plan are fully tax deductible under Section 162(m). The plan, which shareholders approved in 2002, is further described on page 100. The committee’s general policy is to award bonuses within the plan, although the committee reserves the discretion to pay a bonus outside the plan if it determines that it is in the best interest of the company and our shareholders to do so. The committee set the bonuses of the named executive officers for 2014 performance at the levels described on page 94. The bonuses were awarded within the plan. When setting equity compensation, the committee considers the cost for financial reporting purposes of equity compensation it intends to grant. Its consideration of the cost of grants made in 2014 is discussed on pages 90-91 above. Compensation Committee report The Compensation Committee of the board of directors has furnished the following report: The committee has reviewed and discussed the Compensation Discussion and Analysis (CD&A) with the company’s management. Based on that review and discussion, the committee has recommended to the board of directors that the CD&A be included in the company’s annual report on Form 10-K for 2014 and the company’s proxy statement for the 2015 annual meeting of stockholders. Robert E. Sanchez, Chair Pamela H. Patsley Christine Todd Whitman T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 9 7 2014 summary compensation table The table below shows the compensation of the company’s CEO, CFO and each of the other three most highly compensated individuals who were executive officers during 2014 (collectively called the “named executive officers”) for services in all capacities to the company in 2014. For a discussion of the amount of a named executive officer’s salary and bonus in proportion to his total compensation, please see the CD&A on pages 86-94. Name and Principal Position Year Salary ($) Bonus ($) (1) Stock Awards ($) (2) Option Awards ($) (3) Non-Equity Incentive Plan Compensation ($) (4) Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (5) All Other Compensation ($) (6) Total ($) Richard K. Templeton . . . . 2014 $ 1,107,083 — $ 4,900,030 $ 4,900,004 $ 3,618,941 $ 199,552 Chairman, President & Chief Executive Officer 2012 $ 1,035,841 — $ 5,123,688 $ 3,950,347 $ 2,748,581 $ 185,472 2013 $ 1,072,083 — $ 5,740,000 $ 3,559,374 $ 3,092,199 $ 318,084 $ 15,043,694 — $ 249,203 $ 13,712,859 $ 272,710 $ 13,316,639 Kevin P. March . . . . . . . 2014 $ 628,333 — $ 1,350,036 $ 1,350,003 $ 1,205,884 $ 1,621,825 Senior Vice President & Chief Financial Officer 2012 $ 587,917 — $ 1,618,000 $ 1,247,478 $ 902,573 $ 1,065,717 2013 $ 608,333 — $ 1,640,000 $ 1,016,964 $ 1,017,317 — $ $ 20,509 $ 6,176,590 8,243 $ 4,290,857 $ 20,244 $ 5,441,929 Brian T. Crutcher . . . . . . 2014 $ 739,583 — $ 2,250,001 $ 2,250,007 $ 1,622,860 $ Executive Vice President 2013 $ 671,250 — $ 2,460,000 $ 1,525,446 $ 1,267,728 2012 $ 587,917 $ 4,782,500 $ 1,559,348 $ 1,127,573 $ 1,112 $ 110,688 $ 6,974,251 — $ 106,655 $ 6,031,079 $ 95,375 $ 8,153,718 1,005 Stephen A. Anderson . . . . 2014 $ 508,750 — $ 3,350,039 $ 1,350,003 $ 1,002,635 — $ 74,202 $ 6,285,629 Senior Vice President Kevin J. Ritchie . . . . . . . 2014 $ 647,917 — $ 2,000,011 $ 2,000,004 $ 1,363,872 $ 2,146,473 Senior Vice President 2013 $ 622,917 — $ 2,186,678 $ 1,355,952 $ 1,153,571 2012 $ 595,835 — $ 1,887,688 $ 1,455,391 $ 1,027,945 $ 1,371,918 $ — $ 5,200 $ 8,163,477 7,427 $ 5,326,545 $ 19,847 $ 6,358,624 (1) Performance bonuses for 2014 were paid under the Texas Instruments Executive Officer Performance Plan. In accordance with SEC requirements, these amounts are reported in the Non-Equity Incentive Plan Compensation column. (2) Shown is the aggregate grant date fair value of restricted stock unit (RSU) awards calculated in accordance with ASC 718. The discussion of the assumptions used for purposes of the valuation of the awards granted in 2014 appears in Note 5 to the Financial Statements in TI’s annual report on Form 10-K for the year ended December 31, 2014. For a description of the grant terms, please see page 103. The discussion of the assumptions used for purposes of the valuation of the awards granted in 2013 and 2012 appears in Note 5 in Exhibit 13 to, respectively, TI’s annual report on Form 10-K for the year ended December 31, 2013, and TI’s annual report on Form 10-K for the year ended December 31, 2012. (3) Shown is the aggregate grant date fair value of options calculated in accordance with ASC 718. The discussion of the assumptions used for purposes of the valuation of options granted in 2014 appears in Note 5 to the Financial Statements in TI’s annual report on Form 10-K for the year ended December 31, 2014. For a description of the grant terms, please see page 102. The discussion of the assumptions used for purposes of the valuation of the awards granted in 2013 and 2012 appears in Note 5 in Exhibit 13 to, respectively, TI’s annual report on Form 10-K for the year ended December 31, 2013, and TI’s annual report on Form 10-K for the year ended December 31, 2012. P R O X Y S T A T E M E N T 9 8 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT (4) Consists of performance bonus and profit sharing for 2014. Please see page 94 for the amounts of bonus and profit sharing paid to each of the named executive officers for 2014. (5) The company does not pay above-market earnings on deferred compensation. Therefore, no amounts are reported in this column for deferred compensation. The amounts in this column represent the change in the actuarial value of the named executive officers’ benefits under the qualified defined benefit pension plan (TI Employees Pension Plan) and the non-qualified defined benefit pension plans (TI Employees Non-Qualified Pension Plan and TI Employees Non-Qualified Pension Plan II) from December 31, 2013, through December 31, 2014. This “change in the actuarial value” is the difference between the 2013 and 2014 present value of the pension benefit accumulated as of year-end by the named executive officer, assuming that benefit is not paid until age 65. Mr. Templeton’s and Mr. Crutcher’s benefits under the company’s pension plans were frozen as of December 31, 1997. Mr. Anderson does not participate in any of the company’s defined benefit pension plans. (6) Consists of (i) the amounts in the table below, which result from programs available to all eligible U.S. employees, and (ii) perquisites and personal benefits that meet the disclosure thresholds established by the SEC and are detailed in the paragraph below. Name R. K. Templeton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K. P. March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. T. Crutcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S. A. Anderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K. J. Ritchie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Defined Contribution Retirement Plan (a) $ 223,316 N/A $ 100,288 $ 58,289 N/A Unused Vacation Time (b) $ 16,125 $ 15,309 — $ 5,513 — 401(k) Contribution $ 10,400 $ 5,200 $ 10,400 $ 10,400 $ 5,200 (a) Consists of (i) contributions under the company’s enhanced defined contribution retirement plan of $5,200 and (ii) an additional amount of $218,116 for Mr. Templeton, $95,088 for Mr. Crutcher, and $53,089 for Mr. Anderson accrued by TI to offset IRC limitations on amounts that could be contributed to the enhanced defined contribution retirement plan, which amount is also shown in the non-qualified deferred compensation table on page 106. (b) Represents payments for unused vacation time that could not be carried forward. The perquisites and personal benefits are as follows: $68,243 for Mr. Templeton, consisting of personal use of company aircraft ($57,095), financial counseling and an executive physical. Financial counseling and an executive physical were made available to the other named executive officers, but the amounts attributable to those officers were below the disclosure thresholds. The amount shown for personal use of aircraft is the incremental cost, which we valued using a method that takes into account: landing, parking and flight planning services expenses; crew travel expenses; supplies and catering expenses; aircraft fuel and oil expenses per hour of flight; communications costs; a portion of ongoing maintenance; and any customs, foreign permit and similar fees. Because company aircraft are primarily used for business travel, this methodology excludes the fixed costs, which do not change based on usage, such as pilots’ salaries and the lease or purchase cost of the company-owned aircraft. T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 9 9 Grants of plan-based awards in 2014 The following table shows the grants of plan-based awards to the named executive officers in 2014. Name Grant Date Date of Committee Action R. K. Templeton . . . 1/23/14 (1) 1/16/14 1/23/14 (1) 1/16/14 K. P. March . . . . . 1/23/14 (1) 1/16/14 1/23/14 (1) 1/16/14 B. T. Crutcher . . . . 1/23/14 (1) 1/16/14 1/23/14 (1) 1/16/14 S. A. Anderson . . . . 1/23/14 (1) 1/16/14 1/23/14 (1) 1/16/14 6/19/14 6/19/14 K. J. Ritchie . . . . . 1/23/14 (1) 1/16/14 1/23/14 (1) 1/16/14 Estimated Possible Payouts under Non-Equity Incentive Plan Awards Target ($) Threshold ($) Maximum ($) Estimated Future Payouts under Equity Incentive Plan Awards Target (#) Threshold (#) Maximum (#) All Other Stock Awards: Number of Shares of Stock or Units (#) (2) All Other Option Awards: Number of Securities Underlying Options (#) (3) Exercise or Base Price of Option Awards ($/Sh) (4) Grant Date Fair Value of Stock and Option Awards (5) * * * * * * * * * * * * * * * — — — 111,137 602,692 $ 44.09 $ 4,900,004 $ 4,900,030 — — — 30,620 166,048 $ 44.09 $ 1,350,003 $ 1,350,036 — — — 51,032 276,747 $ 44.09 $ 2,250,007 $ 2,250,001 — — — 30,620 41,745 166,048 $ 44.09 $ 1,350,003 $ 1,350,036 $ 2,000,003 — — — 45,362 245,997 $ 44.09 $ 2,000,004 $ 2,000,011 * TI did not use formulas or pre-set thresholds or multiples to determine incentive awards. Under the terms of the Executive Officer Performance Plan, each named executive officer is eligible to receive a cash bonus equal to 0.5 percent of the company’s consolidated income (as defined in the plan). However, the Compensation Committee has the discretion to set bonuses at a lower level if it decides it is appropriate to do so. The committee decided to do so for 2014. (1) In accordance with the grant policy of the Compensation Committee of the board (described on page 95), the grants became effective on the second trading day after the company released its financial results for the fourth quarter and year 2013. The company released these results on January 21, 2014. (2) The stock awards granted to the named executive officers in 2014 were RSU awards. These awards were made under the company’s 2009 Long-Term Incentive Plan. For information on the terms and conditions of these RSU awards, please see the discussion on page 103. (3) The options were granted under the company’s 2009 Long-Term Incentive Plan. For information on the terms and conditions of these options, please see the discussion on page 102. (4) The exercise price of the options is the closing price of TI common stock on January 23, 2014. (5) Shown is the aggregate grant date fair value computed in accordance with ASC 718 for stock and option awards in 2014. The discussion of the assumptions used for purposes of the valuation appears in Note 5 to the Financial Statements in TI’s annual report on Form 10-K for the year ended December 31, 2014. None of the options or other equity awards granted to the named executive officers was repriced or modified by the company. For additional information regarding TI’s equity compensation grant practices, please see pages 88, 90-91, 95, 97 and 102-103. P R O X Y S T A T E M E N T 1 0 0 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT Outstanding equity awards at fiscal year-end 2014 The following table shows the outstanding equity awards for each of the named executive officers as of December 31, 2014. Option Awards Stock Awards Name R. K. Templeton . . . Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) — — — — — — — — — Option Expiration Date Number of Shares or Units of Stock Option That Have Not Exercise Price ($) Vested (#) $ 44.09 1/23/2024 111,137 (6) $ 32.80 1/25/2023 175,000 (7) $ 32.36 1/26/2022 158,334 (8) $ 34.63 1/27/2021 150,000 (9) $ 23.05 1/28/2020 $ 14.95 1/29/2019 $ 29.79 1/25/2018 $ 28.32 1/18/2017 $ 32.55 1/19/2016 — — — — — Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable — 602,692 (2) 393,750 (3) 237,500 (4) 112,500 (5) — — — — — 131,250 237,500 337,500 540,000 664,461 270,000 270,000 350,000 K. P. March . . . . . B. T. Crutcher . . . . S. A. Anderson . . . K. J. Ritchie . . . . — 166,048 (2) 112,500 (3) 75,000 (4) 34,375 (5) — 37,500 75,000 103,125 107,500 56,250 65,625 — 276,747 (2) 168,750 (3) 93,750 (4) — 40,625 (5) — 166,048 (2) 103,125 (3) 68,750 (4) 31,250 (5) 34,375 68,750 93,750 — 245,997 (2) — 150,000 (3) — 87,500 (4) — 40,625 (5) — — — — — — — — — — — — — — — — — 30,620 (6) 50,000 (7) 50,000 (8) 45,834 (9) $ 44.09 1/23/2024 $ 32.80 1/25/2023 $ 32.36 1/26/2022 $ 34.63 1/27/2021 $ 23.05 1/28/2020 $ 44.09 1/23/2024 $ 32.80 1/25/2023 $ 32.36 1/26/2022 $ 34.63 1/27/2021 $ 2,728,681 — 51,032 (6) $ 4,010,250 — 75,000 (7) $ 3,341,875 — 62,500 (8) 54,167 (9) $ 2,896,309 — 100,000 (10) $ 5,347,000 — $ 44.09 1/23/2024 $ 32.80 1/25/2023 $ 32.36 1/26/2022 $ 34.63 1/27/2021 $ 1,637,251 — 30,620 (6) $ 2,450,744 — 45,834 (7) $ 2,450,744 — 45,834 (8) 41,667 (9) $ 2,227,934 — 41,745 (11) $ 2,232,105 — $ 44.09 1/23/2024 $ 32.80 1/25/2023 $ 32.36 1/26/2022 $ 34.63 1/27/2021 45,362 (6) 66,667 (7) 58,334 (8) 54,167 (9) $ 2,425,506 — $ 3,564,684 — $ 3,119,119 — $ 2,896,309 — (1) Calculated by multiplying the number of RSUs by the closing price of TI common stock on December 31, 2014 ($53.47). (2) One-quarter of the shares became exercisable on January 23, 2015, and one-third of the remaining shares become exercisable on each of January 23, 2016, January 23, 2017, and January 23, 2018. (3) One-third of the shares became exercisable on January 25, 2015, and one-half of the remaining shares become exercisable on each of January 25, 2016, and January 25, 2017. Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 1 0 1 Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) (1) $ 5,942,495 — $ 9,357,250 — $ 8,466,119 — $ 8,020,500 — — — — — — — — — — — $ 1,637,251 — $ 2,673,500 — $ 2,673,500 — $ 2,450,744 — — Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) — — — — — — — — — — — — — — — — — — — — — — — — — — — — T N E M E T A T S Y X O R P (4) One-half of the shares became exercisable on January 26, 2015, and the remaining one-half become exercisable on January 26, 2016. (5) Became fully exercisable on January 27, 2015. (6) Vesting date is January 31, 2018. (7) Vesting date is January 31, 2017. (8) Vesting date is January 29, 2016. (9) Vested on January 30, 2015. (10) Vesting date is July 29, 2016. (11) Vesting date is July 31, 2018. The “Option Awards” shown in the table above are non-qualified stock options, each of which represents the right to purchase shares of TI common stock at the stated exercise price. For grants before 2007, the exercise price is the average of the high and low price of TI common stock on the grant date. For grants after 2006, the exercise price is the closing price of TI common stock on the grant date. The term of each option is ten years unless the option is terminated earlier pursuant to provisions summarized in the chart below and in the paragraph following the chart. Options vest (become exercisable) in increments of 25 percent per year beginning on the first anniversary of the date of the grant. The chart below shows the termination provisions relating to stock options outstanding as of December 31, 2014. The Compensation Committee of the board of directors established these termination provisions to promote employee retention while offering competitive terms. Employment Termination Due to Death or Permanent Disability Vesting continues; option remains in effect to end of term Employment Termination (at Least 6 Months after Grant) When Retirement Eligible * Vesting continues; option remains in effect to end of term Employment Termination (at Least 6 Months after Grant) with 20 Years of Credited Service, but Not Retirement Eligible ** Option remains in effect to the end of the term; vesting does not continue after employment termination Employment Termination for Cause Option cancels Other Circumstances of Employment Termination Option remains exercisable for 30 days * Defined for purposes of equity awards made after 2012 as at least age 55 with 10 or more years of TI service or at least age 65. For awards made before 2013, the definition of normal or early retirement eligibility in the relevant pension plan applies (see page 105). ** This provision is not applicable to grants made after 2012. Options may be cancelled if, during the two years after employment termination, the grantee competes with TI or solicits TI employees to work for another company, or if the grantee discloses TI trade secrets. In addition, for options received while the grantee was an executive officer, the company may reclaim (or “claw back”) profits earned under grants if the officer engages in such conduct. These provisions are intended to strengthen retention and provide a reasonable remedy to TI in case of competition, solicitation of our employees or disclosure of our confidential information. P R O X Y S T A T E M E N T Options granted after 2009 become fully vested if the grantee is involuntarily terminated from employment with TI (other than for cause) within 24 months after a change in control of TI. “Change in control” is defined as provided in the Texas Instruments 2009 Long-Term Incentive Plan and occurs upon (1) acquisition of more than 50 percent of the voting stock or at least 80 percent of the assets of TI or (2) change of a majority of the board of directors in a 12-month period unless a majority of the directors then in office endorsed the appointment or election of the new directors (“Plan definition”). These terms are intended to reduce employee uncertainty and distraction in the period leading up to a change in control, if such an event were to occur. For options granted before 2010, the stock option terms provide that upon a change in control of TI, the option becomes fully vested to the extent it is then outstanding; and if employment termination (except for cause) has occurred within 30 days before the change in control, the change in control is deemed to have occurred first. “Change in control” is defined in these pre-2010 options as (1) acquisition of 20 percent of TI common stock other than through a transaction approved by the board of directors, or (2) change of a majority of the board of directors in a 24-month period unless a majority of the directors then in office have elected or nominated the new directors (together, the “pre-2010 definition”). 1 0 2 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT The “Stock Awards” in the table of outstanding equity awards at fiscal year-end 2014 are RSU awards. Each RSU represents the right to receive one share of TI common stock on a stated date (the “vesting date”) unless the award is terminated earlier under terms summarized below. In general, the vesting date is approximately four years after the grant date. Each RSU includes the right to receive dividend equivalents, which are paid annually in cash at a rate equal to the amount paid to stockholders in dividends. The table below shows the termination provisions of RSUs outstanding as of December 31, 2014. Employment Termination Due to Death or Permanent Disability Vesting continues; shares are paid at the scheduled vesting date Employment Termination (at Least 6 Months after Grant) When Retirement Eligible For grants made after 2012: Grant stays in effect and pays out shares at the scheduled vesting date For grants made before 2013: Grant stays in effect and pays out shares at the scheduled vesting date. Number of shares reduced according to the duration of employment over the vesting period * Employment Termination for Cause Grant cancels; no shares are issued Other Circumstances of Employment Termination Grant cancels; no shares are issued * Calculated by multiplying the number of RSUs by a fraction equal to the number of whole 365-day periods from the grant date to the employment termination date (or first day of any bridge leave of absence leading to retirement), divided by the number of years in the vesting period. These termination provisions are intended to promote retention. All RSU awards contain cancellation and clawback provisions like those described above for stock options. The terms provide that, to the extent permitted by Section 409A of the IRC, the award vests upon involuntary termination of TI employment within 24 months after a change in control. Change in control is the Plan definition. These cancellation, clawback and change-in-control terms are intended to conform RSU terms with those of stock options (to the extent permitted by the IRC) and to achieve the objectives described above in the discussion of stock options. In addition to the “Stock Awards” shown in the outstanding equity awards at fiscal year-end 2014 table on pages 101 and 102, Mr. Templeton holds an award of RSUs that was granted in 1995. The award, for 120,000 shares of TI common stock, vested in 2000. Under the award terms, the shares will be issued to Mr. Templeton in March of the year after his termination of employment for any reason. These terms were designed to provide a tax benefit to the company by postponing the related compensation expense until it was likely to be fully deductible. In accordance with SEC requirements, this award is reflected in the 2014 non-qualified deferred compensation table on page 106. 2014 option exercises and stock vested The following table lists the number of shares acquired and the value realized as a result of option exercises by the named executive officers in 2014 and the value of any RSUs that vested in 2014. For option exercises, the value realized is calculated by multiplying the number of shares acquired by the difference between the exercise price and the market price of TI common stock on the exercise date. For RSUs, the value realized is calculated by multiplying the number of RSUs that vested by the market price of TI common stock on the vesting date. Name R. K. Templeton . . . . . . . . . . . . . . . . . . . . . . . . . . . K. P. March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. T. Crutcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . S. A. Anderson . . . . . . . . . . . . . . . . . . . . . . . . . . . K. J. Ritchie . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option Awards Stock Awards Number of Shares Acquired on Exercise (#) 500,000 318,750 150,000 70,000 606,250 Value Realized on Exercise ($) $ 13,460,000 $ 7,983,971 $ 2,282,377 $ 1,354,542 $ 10,747,804 Number of Shares Acquired on Vesting (#) 180,000 53,751 150,000 46,668 62,501 Value Realized on Vesting ($) $ 7,684,200 $ 2,294,630 $ 6,887,500 $ 1,992,257 $ 2,668,168 T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 1 0 3 2014 pension benefits The following table shows the present value as of December 31, 2014, of the benefit of the named executive officers under our qualified defined benefit pension plan (TI Employees Pension Plan) and non-qualified defined benefit pension plans (TI Employees Non-Qualified Pension Plan (which governs amounts earned before 2005) and TI Employees Non-Qualified Pension Plan II (which governs amounts earned after 2004)). In accordance with SEC requirements, the amounts shown in the table do not reflect any named executive officer’s retirement eligibility or any increase in benefits that may result from the named executive officer’s continued employment after December 31, 2014. Name (1) R. K. Templeton (2) . . . . . . . . . . . . . . . . K. P. March . . . . . . . . . . . . . . . . . . . . Plan Name TI Employees Pension Plan TI Employees Non-Qualified Pension Plan TI Employees Non-Qualified Pension Plan II Number of Years Credited Service (#) 16 (3) 16 (3) 16 (5) TI Employees Pension Plan TI Employees Non-Qualified Pension Plan TI Employees Non-Qualified Pension Plan II 29 (3) 19 (4) 29 (5) Present Value of Accumulated Benefit ($) (6) 654,426 $ 277,131 $ 205,199 $ 885,211 $ $ 169,888 $ 4,754,776 B. T. Crutcher (2) . . . . . . . . . . . . . . . . . TI Employees Pension Plan 0.9 (3) $ 4,221 K. J. Ritchie . . . . . . . . . . . . . . . . . . . TI Employees Pension Plan TI Employees Non-Qualified Pension Plan TI Employees Non-Qualified Pension Plan II 35 (3) 25 (4) 35 (5) $ 1,322,463 $ 501,132 $ 6,174,526 Payments During Last Fiscal Year ($) — — — — — — — — — — (1) Mr. Anderson does not participate in any of the company’s defined benefit pension plans because he joined TI after these plans were closed to new participants. (2) In 1997, TI’s U.S. employees were given the choice between continuing to participate in the defined benefit pension plans or participating in a new enhanced defined contribution retirement plan. Messrs. Templeton and Crutcher chose to participate in the defined contribution plan. Accordingly, their accrued pension benefits under the qualified and non-qualified plans were frozen (i.e., they will experience no increase attributable to years of service or change in eligible earnings) as of December 31, 1997. Contributions to the defined contribution plan for Mr. Templeton’s and Mr. Crutcher’s benefits are included in the 2014 summary compensation table. (3) For each of the named executive officers, credited service began on the date the officer became eligible to participate in the plan. For Mr. Crutcher, eligibility to participate began on the first day of the month following completion of one year of employment. For each of the other named executive officers, eligibility to participate began on the earlier of 18 months of employment, or January 1 following the completion of one year of employment. Accordingly, each of the named executive officers has been employed by TI for longer than the years of credited service shown above. (4) Credited service began on the date the named executive officer became eligible to participate in the TI Employees Pension Plan as described in note 3 above and ceased at December 31, 2004. (5) Credited service began on the date the named executive officer became eligible to participate in the TI Employees Pension Plan as described in note 3 above. (6) The assumptions and valuation methods used to calculate the present value of the accumulated pension benefits shown are the same as those used by TI for financial reporting purposes and are described in Note 11 to the financial statements contained in Item 8 in TI’s annual report on Form 10-K for the year ended December 31, 2014, except that a named executive officer’s retirement is assumed (in accordance with SEC rules) for purposes of this table to occur at age 65 and no assumption for termination prior to that date is used. The amount of the lump-sum benefit earned as of December 31, 2014, is determined using either (i) the Pension Benefit Guaranty Corporation (PBGC) interest assumption of 1.50 percent or (ii) the Pension Protection Act of 2006 (PPA) corporate bond yield interest assumption of 4.23 percent for the TI Employees Pension Plan and 4.26 percent for the TI Employees Non- Qualified Pension Plans, whichever rate produces the higher lump sum amount. A discount rate assumption of 4.23 percent for the TI Employees Pension Plan and 4.26 percent for the non-qualified pension plans was used to determine the present value of each lump sum. P R O X Y S T A T E M E N T 1 0 4 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT TI employees Pension Plan The TI Employees Pension Plan is a qualified defined benefit pension plan. Please see page 95 for a discussion of the origin and purpose of the plan. Employees who joined the U.S. payroll after November 30, 1997, are not eligible to participate in this plan. A plan participant is eligible for normal retirement under the terms of the plan if he is at least 65 years of age with one year of credited service. A participant is eligible for early retirement if he is at least 55 years of age with 20 years of employment or 60 years of age with five years of employment. As of December 31, 2014, Mr. Templeton, Mr. March and Mr. Ritchie were eligible for early or normal retirement. A participant may request payment of his accrued benefit at termination or any time thereafter. Participants may choose a lump sum payment or one of six forms of annuity. In order of largest to smallest periodic payment, the forms of annuity are: (i) single life annuity, (ii) 5-year certain and life annuity, (iii) 10-year certain and life annuity, (iv) qualified joint and 50 percent survivor annuity, (v) qualified joint and 75 percent survivor annuity, and (vi) qualified joint and 100 percent survivor annuity. If the participant does not request payment, he will begin to receive his benefit in April of the year after he reaches the age of 70½ in the form of annuity required under the IRC. The pension formula for the qualified plan is intended to provide a participant with an annual retirement benefit equal to 1.5 percent multiplied by the product of (i) years of credited service and (ii) the average of the five highest consecutive years of his base salary plus bonus up to a limit imposed by the IRS, less a percentage (based on his year of birth, when he elects to retire and his years of service with TI) of the amount of compensation on which his Social Security benefit is based. If an individual takes early retirement and chooses to begin receiving his annual retirement benefit at that time, such benefit is reduced by an early retirement factor. As a result, the annual benefit is lower than the one he would have received at age 65. If the participant’s employment terminates due to disability, the participant may choose to receive his accrued benefit at any time prior to age 65. Alternatively, the participant may choose to defer receipt of the accrued benefit until reaching age 65 and then take a disability benefit. The disability benefit paid at age 65 is based on salary and bonus, years of credited service the participant would have accrued to age 65 had he not become disabled and disabled status. The benefit payable in the event of death is based on salary and bonus, years of credited service and age at the time of death, and may be in the form of a lump sum or annuity at the election of the beneficiary. The earliest date of payment is the first day of the second calendar month following the month of death. Leaves of absence, including a bridge to retirement, are credited to years of service under the qualified pension plan. Please see the discussion of leaves of absence on page 108. TI employees non-qualified pension plans TI has two non-qualified pension plans: the TI Employees Non-Qualified Pension Plan (Plan I), which governs amounts earned before 2005; and the TI Employees Non-Qualified Pension Plan II (Plan II), which governs amounts earned after 2004. Each is a non-qualified defined benefit pension plan. Please see pages 95-96 for a discussion of the purpose of the plans. As with the qualified defined benefit pension plan, employees who joined the U.S. payroll after November 30, 1997, are not eligible to participate in Plan I or Plan II. Eligibility for normal and early retirement under these plans is the same as under the qualified plan (please see above). Benefits are paid in a lump sum. A participant’s benefits under Plan I and Plan II are calculated using the same formula as described above for the TI Employees Pension Plan. However, the IRS limit on the amount of compensation on which a qualified pension benefit may be calculated does not apply. Additionally, the IRS limit on the amount of qualified benefit the participant may receive does not apply to these plans. Once this non-qualified benefit amount has been determined using the formula described above, the individual’s qualified benefit is subtracted from it. The resulting difference is multiplied by an age-based factor to obtain the amount of the lump-sum benefit payable to an individual under the non-qualified plans. Amounts under Plan I will be distributed when payment of the participant’s benefit under the qualified pension plan commences. Amounts under Plan II will be distributed subject to the requirements of Section 409A of the IRC. Because the named executive officers are among the 50 most highly compensated officers of the company, Section 409A of the IRC requires that they not receive any lump sum distribution payment under Plan II before the first day of the seventh month following termination of employment. T N E M E T A T S Y X O R P Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 1 0 5 If a participant terminates due to disability, amounts under Plan I will be distributed when payment of the participant’s benefit under the qualified plan commences. For amounts under Plan II, distribution is governed by Section 409A of the IRC, and the disability benefit is reduced to reflect the payment of the benefit prior to age 65. In the event of death, payment under both plans is based on salary and bonus, years of credited service and age at the time of death and will be in the form of a lump sum. The earliest date of payment is the first day of the second calendar month following the month of death. Balances in the plans are unsecured obligations of the company. For amounts under Plan I, in the event of a change in control, the present value of the individual’s benefit would be paid not later than the month following the month in which the change in control occurred. For such amounts, the pre-2010 definition of a change in control (please see page 102) applies. For all amounts accrued under this plan, if a sale of substantially all of the assets of the company occurred, the present value of the individual’s benefit would be distributed in a lump sum as soon as reasonably practicable following the sale of assets. For amounts under Plan II, no distribution of benefits is triggered by a change in control. Leaves of absence, including a bridge to retirement, are credited to years of service under the non-qualified pension plans. For a discussion of leaves of absence, please see page 108. TI Employees Survivor Benefit Plan TI’s qualified and non-qualified pension plans provide that upon the death of a retirement-eligible employee, the employee’s beneficiary receives a payment equal to half of the benefit to which the employee would have been entitled under the pension plans had he retired instead of died. We have a survivor benefit plan that pays the beneficiary a lump sum that, when added to the reduced amounts the beneficiary receives under the pension plans, equals the benefit the employee would have been entitled to receive had he retired instead of died. Because Messers. Templeton, March and Ritchie were eligible for early retirement in 2014, their beneficiaries would be eligible for benefits under the survivor benefit plan if they were to die. 2014 non-qualified deferred compensation The following table shows contributions to the named executive officer’s deferred compensation account in 2014 and the aggregate amount of his deferred compensation as of December 31, 2014. Name R. K. Templeton . . . . . . . . . . . . . . . . K. P. March . . . . . . . . . . . . . . . . . . B. T. Crutcher . . . . . . . . . . . . . . . . . S. A. Anderson . . . . . . . . . . . . . . . . K. J. Ritchie . . . . . . . . . . . . . . . . . Executive Contributions in Last FY ($) (1) $ 153,169 — $ 79,954 $ 31,846 — Registrant Contributions in Last FY ($) (2) $ 218,116 — $ 95,088 $ 53,089 — Aggregate Earnings in Last FY ($) $ 1,333,056 (3) $ $ — 43,939 24,458 — Aggregate Withdrawals/ Distributions ($) $ 245,169 (4) Aggregate Balance at Last FYE ($) (5) $ 7,221,662 (6) — — $ 20,097 — $ $ — 820,284 435,908 — P R O X Y S T A T E M E N T (1) Amounts shown consist of portions of 2014 salary and portions of their bonus for 2013 performance, which was paid in 2014. (2) Company matching contributions pursuant to the defined contribution plan. These amounts are included in the All Other Compensation column of the 2014 summary compensation table on page 98. (3) Consists of: (a) $148,800 in dividend equivalents paid under the 120,000-share 1995 RSU award discussed on page 103, settlement of which has been deferred until after termination of employment; (b) a $1,147,200 increase in the value of the RSU award (calculated by subtracting the value of the award at year-end 2013 from the value of the award at year-end 2014 (in both cases, the number of RSUs is multiplied by the closing price of TI common stock on the last trading date of the year)); and (c) a $37,056 gain in Mr. Templeton’s deferred compensation account in 2014. Dividend equivalents are paid at the same rate as dividends on TI common stock. (4) Consists of dividend equivalents paid on the RSU award discussed in note 3 and a scheduled distribution of a portion of Mr. Templeton’s deferred compensation balance. (5) Includes amounts reported in the summary compensation table in the current or prior-year proxy statements as follows: Mr. Templeton, $805,262; Mr. Crutcher, $820,284; and Mr. Anderson $10,096. The remainder of the amount for Mr. Anderson was the deferral of his bonus for 2013, for which year he was not a named executive officer. (6) Of this amount, $6,416,400 is attributable to Mr. Templeton’s 1995 RSU award, calculated as described in note 3. The remainder is the balance of his deferred compensation account. 1 0 6 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT Please see page 96 for a discussion of the purpose of the plan. An employee’s deferred compensation account contains eligible compensation the employee has elected to defer and contributions by the company that are in excess of the IRS limits on (i) contributions the company may make to the enhanced defined contribution plan and (ii) matching contributions the company may make related to compensation the executive officer deferred into his deferred compensation account. Participants in the deferred compensation plan may choose to defer up to (i) 25 percent of their base salary, (ii) 90 percent of their performance bonus, and (iii) 90 percent of profit sharing. Elections to defer compensation must be made in the calendar year prior to the year in which the compensation will be earned. During 2014, participants could choose to have their deferred compensation mirror the performance of one or more of the following mutual funds, each of which is managed by a third party (these alternatives, which may be changed at any time, are a subset of those offered to participants in the defined contribution plans): Northern Trust Short Term Investment Fund, Northern Trust Aggregate Bond Index Fund-Lending, Northern Trust Russell 1000 Value Index Fund-Lending, Northern Trust Russell 1000 Growth Index Fund-Lending, Northern Trust Russell 2000 Index Fund-Lending, Northern Trust MidCap 400 Index Fund-Lending, Fidelity Puritan Fund, BlackRock Equity Index Fund F, BlackRock (EAFE) (Europe, Australia, Far East) Equity Index Fund F, BlackRock Lifepath Index 2020 Fund F, BlackRock Lifepath Index 2030 Fund F, BlackRock Lifepath Index 2040 Fund F, BlackRock Lifepath Index 2050 Fund F and BlackRock Lifepath Index Retirement Fund F. From among the available investment alternatives, participants may change their instructions relating to their deferred compensation daily. Earnings on a participant’s balance are determined solely by the performance of the investments that the participant has chosen for his plan balance. The company does not guarantee any minimum return on investments. A third party administers the company’s deferred compensation program. A participant may request distribution from the plan in the case of an unforeseeable emergency. To obtain an unforeseeable emergency withdrawal, a participant must meet the requirements of Section 409A of the IRC. Otherwise, a participant’s balance is paid pursuant to his distribution election and is subject to applicable IRC limitations. Amounts contributed by the company, and amounts earned and deferred by the participant for which there is a valid distribution election on file, will be distributed in accordance with the participant’s election. Annually participants may elect separate distribution dates for deferred compensation attributable to a participant’s (i) bonus and profit sharing and (ii) salary. Participants may elect that these distributions be in the form of a lump sum or annual installments to be paid out over a period of five or ten consecutive years. Amounts for which no valid distribution election is on file will be distributed three years from the date of deferral. In the event of the participant’s death, payment will be in the form of a lump sum and the earliest date of payment is the first day of the second calendar month following the month of death. Like the balances under the non-qualified defined benefit pension plans, deferred compensation balances are unsecured obligations of the company. For amounts earned and deferred prior to 2010, a change in control does not trigger a distribution under the plan. For amounts earned and deferred after 2009, distribution occurs, to the extent permitted by Section 409A of the IRC, if the participant is involuntarily terminated within 24 months after a change in control. Change in control is the Plan definition. Potential payments upon termination or change in control None of the named executive officers has an employment contract with the company. They are eligible for benefits on generally the same terms as other U.S. employees upon termination of employment or change in control of the company. TI does not reimburse executive officers for any income or excise taxes that are payable by the executive as a result of payments relating to termination or change in control. Termination The following programs may result in payments to a named executive officer whose employment terminates. Most of these programs have been discussed above. For a discussion of the impact of these programs on the compensation decisions for 2014, please see page 96. Bonus Our policies concerning bonus and the timing of payments are described on page 88. Whether a bonus would be awarded under other circumstances and in what amount would depend on the facts and circumstances of termination and is subject to the Compensation Committee’s discretion. If awarded, bonuses are paid by the company. Te x a s In sTru menTs • 2015 PrOxY sT aTem enT 1 0 7 T N E M E T A T S Y X O R P Qualified and non-qualified defined benefit pension plans The purposes of these plans are described on pages 95-96. The formula for determining benefits, the forms of benefit and the timing of payments are described on pages 105-106. The amounts disbursed under the qualified and non-qualified plans are paid, respectively, by the TI Employees Pension Trust and the company. Survivor benefit plan The purpose of this plan is described on page 106. The formula for determining the amount of benefit, the form of benefit and the timing of payments are described on page 106. Amounts distributed are paid by the TI Employees Health Benefit Trust. Deferred compensation plan The purpose of this plan is described on page 96. The amounts payable under this program depend solely on the performance of investments that the participant has chosen for his plan balance. The timing of payments is discussed on page 107. Amounts distributed are paid by the company. Equity compensation Depending on the circumstances of termination, grantees whose employment terminates may retain the right to exercise previously granted stock options and receive shares under outstanding RSU awards. Please see pages 102-103. RSU awards include a right to receive dividend equivalents. The dividend equivalents are paid annually by the company in a single cash payment after the last dividend payment of the year. Perquisites Financial counseling is available to executive officers in the year after retirement. Otherwise, no perquisites continue after termination of employment. In the case of a resignation pursuant to a separation arrangement, an executive officer (like other employees above a certain job grade level) will typically be offered a 12-month paid leave of absence before termination, in exchange for a non-compete and non-solicitation commitment and a release of claims against the company. The leave period will be credited to years of service under the pension plans described above. During the leave, the executive officer’s stock options will continue to become exercisable and his RSUs will continue to vest. Amounts paid to an individual during a paid leave of absence are not counted when calculating benefits under the qualified and non-qualified pension plans. In the case of a separation arrangement in which the paid leave of absence expires when the executive officer will be at least 50 years old and have at least 15 years of employment with the company, the separation arrangement will typically include an unpaid leave of absence, to commence at the end of the paid leave and end when the executive officer has reached the earlier of age 55 with at least 20 years of employment or age 60 (bridge to retirement). The bridge to retirement will be credited to years of service under the qualified and non-qualified pension plans described above. Stock options will continue to become exercisable and RSUs will remain in effect, but for grants made before 2014, the number of RSUs will be reduced as described in note * on page 103. Change in control P R O X Y S T A T E M E N T Our only program, plan or arrangement providing benefits triggered by a change in control is the TI Employees Non-Qualified Pension Plan. A change in control at December 31, 2014, would have accelerated payment of the balance under that plan. Please see page 106 for a discussion of the purpose of change in control provisions of that plan as well as the circumstances and the timing of payment. Upon a change in control there is no acceleration of vesting of stock options and RSUs granted after 2009. Only upon an involuntary termination (not for cause) within 24 months after a change in control of TI will the vesting of such stock options and RSUs accelerate. Please see pages 97 and 102-103 for further information concerning change in control provisions relating to stock options and RSUs. For a discussion of the impact of these programs on the compensation decisions for 2014, please see page 96. 1 0 8 Te x a s In sTru menTs • 2015 P rOxY sT aTem enT The table below shows the potential payments upon termination or change in control for each of the named executive officers. Qualified Defined Benefit Pension Plan Non- Qualified Defined Benefit Pension Plan Non- Qualified Defined Benefit Pension Plan II Deferred Compensation RSUs Stock Options Total R. K. Templeton (10) Disability . . . . . . . . . . . . . $ 948,016 (1) $ 609,677 (2) $ Death . . . . . . . . . . . . . . . $ 453,426 (5) $ 189,952 (5) $ Involuntary termination 235,673 (2) 140,399 (5) — $805,262 (6) $ 38,202,764 (3) $ 38,202,764 (3) $ 97,538,189 (4) $ 137,534,319 $ 97,538,189 (4) $ 138,092,137 (11) for cause . . . . . . . . . . . $ 894,339 (7) $ 374,379 (7) $ 277,204 (7) — $ 6,416,400 (8) — $ 7,962,322 Resignation; Involuntary termination (not for cause) . . . . . . . . $ 894,339 (7) $ 374,379 (7) $ Retirement . . . . . . . . . . . . $ 894,339 (7) $ 374,379 (7) $ Change in control . . . . . . . . . — $ 374,379 (7) 277,204 (7) 277,204 (7) — K. P. March (10) Disability . . . . . . . . . . . . . $ 1,643,934 (1) $ 349,792 (2) $ 6,826,893 (2) Death . . . . . . . . . . . . . . . $ 628,772 (5) $ 115,729 (5) $ 3,288,071 (5) Involuntary termination for cause . . . . . . . . . . . $ 1,203,189 (7) $ 224,695 (7) $ 6,288,683 (7) Resignation; Involuntary termination (not for cause) . . . . . . . . $ 1,203,189 (7) $ 224,695 (7) $ 6,288,683 (7) Retirement . . . . . . . . . . . . $ 1,203,189 (7) $ 224,695 (7) $ 6,288,683 (7) Change in control . . . . . . . . . — $ 224,695 (7) — B. T. Crutcher Disability . . . . . . . . . . . . . $ Death . . . . . . . . . . . . . . . $ Involuntary termination 10,783 (1) 1,881 (5) for cause . . . . . . . . . . . $ 3,728 (7) Resignation; Involuntary termination (not for cause) . . . . . . . . $ Change in control . . . . . . . . . 3,728 (7) — S. A. Anderson Disability . . . . . . . . . . . . . Death . . . . . . . . . . . . . . . Involuntary termination for cause . . . . . . . . . . . Resignation; Involuntary termination (not for cause) . . . . . . . . Change in control . . . . . . . . . K. J. Ritchie (10) — — — — — — — — — — — — — — — — — — — — — — — — — Disability . . . . . . . . . . . . . $ 2,065,069 (1) $ 926,549 (2) $ 8,387,202 (2) Death . . . . . . . . . . . . . . . $ 873,590 (5) $ 324,982 (5) $ 4,008,109 (5) Involuntary termination for cause . . . . . . . . . . . $ 1,717,320 (7) $ 639,440 (7) $ 7,878,647 (7) Resignation; Involuntary termination (not for cause) . . . . . . . . $ 1,717,320 (7) $ 639,440 (7) $ 7,878,647 (7) Retirement . . . . . . . . . . . . $ 1,717,320 (7) $ 639,440 (7) $ 7,878,647 (7) Change in control . . . . . . . . . — $ 639,440 (7) — — — — — — — — — — — $820,284 (6) — — — — $435,908 (6) — — — — — — — — — $ 31,964,580 (12) $ 97,538,189 (4) $ 131,048,691 $ 31,964,580 (12) $ 97,538,189 (4) $ 131,048,691 6,790,779 $ 6,416,400 (8) — $ $ 9,434,995 (3) $ 9,434,995 (3) $ 13,685,180 (4) $ 31,940,794 $ 13,685,180 (4) $ 30,836,743 (11) — — $ 7,716,567 $ 7,485,586 (12) $ 13,685,180 (4) $ 28,887,333 $ 7,485,586 (12) $ 13,685,180 (4) $ 28,887,333 224,695 — $ — $ 18,324,116 (3) $ 18,324,116 (3) $ 11,376,418 (4) $ 29,711,317 $ 11,376,418 (4) $ 30,522,699 — — — — $ 3,728 $ 2,548,031 (9) $ — 2,551,759 — $ 10,998,779 (3) $ 10,998,779 (3) $ 9,657,280 (4) $ 20,656,059 $ 9,657,280 (4) $ 21,091,967 — — — — — $ 3,928,094 (9) $ — 3,928,094 — $ 12,005,619 (3) $ 12,005,619 (3) $ 8,020,452 (4) $ 31,404,891 $ 8,020,452 (4) $ 30,261,478 (11) — — $ 10,235,407 $ 9,722,022 (12) $ 8,020,452 (4) $ 27,977,881 $ 9,722,022 (12) $ 8,020,452 (4) $ 27,977,881 639,440 — $ — (1) The amount shown is the lump-sum benefit payable at age 65 to the named executive officer in the event of termination as of December 31, 2014, due to disability, assuming the named executive officer does not request payment of his disability benefit until age 65. The assumptions used in calculating these amounts are the same as the age-65 lump-sum assumptions used for financial reporting purposes for the company’s audited financial statements for 2014 and are described in note 6 to the 2014 pension benefits table on page 104. 1 0 9 Texas InsTrumenTs • 2015 PrOxY sTaTemenTPROXY STATEMENT(2) The amount shown is the lump-sum benefit payable at age 65, in the case of the Non-Qualified Defined Benefit Pension Plan, or separation from service in the case of Plan II. The assumptions used are the same as those described in note 1 above. (3) Calculated by multiplying the number of outstanding RSUs by the closing price of TI common stock as of December 31, 2014 ($53.47). In the event of termination due to disability or death, all outstanding awards will continue to vest according to their terms. Please see the outstanding equity awards at fiscal year-end 2014 table on page 101 for the number of unvested RSUs as of December 31, 2014, and page 103 for a discussion of an additional outstanding RSU award held by Mr. Templeton. (4) Calculated as the difference between the grant price of all outstanding in-the-money options and the closing price of TI common stock as of December 31, 2014 ($53.47), multiplied by the number of shares under such options as of December 31, 2014. (5) Value of the benefit payable in a lump sum to the executive officer’s beneficiary calculated as required by the terms of the plan assuming the earliest possible payment date. The plan provides that in the event of death, the beneficiary receives 50 percent of the participant’s accrued benefit, reduced by the age-applicable joint and 50 percent survivor factor. (6) Balance as of December 31, 2014, under the non-qualified deferred compensation plan. (7) Lump-sum value of the accrued benefit as of December 31, 2014, calculated as required by the terms of the plans assuming the earliest possible payment date. (8) Calculated by multiplying 120,000 vested RSUs by the closing price of TI common stock as of December 31, 2014 ($53.47). See page 103 for further information about this award. (9) Calculated as the difference between the grant price of all exercisable in-the-money options and the closing price of TI common stock as of December 31, 2014 ($53.47), multiplied by the number of shares under such options as of December 31, 2014. (10) Messrs. Templeton, March and Ritchie were eligible to retire as of December 31, 2014. (11) Due to retirement eligibility, the total includes the value of the benefit payable in a lump sum under the Survivor Benefit Plan to the officer’s beneficiary in the following amounts: Mr. Templeton $762,145, Mr. March $3,683,996 and Mr. Ritchie $5,028,726. The amount of the benefit is calculated as required by the terms of the plan assuming the earliest possible payment date. (12) Due to retirement eligibility, calculated by multiplying the number of outstanding RSUs held at such termination by the closing price of TI common stock as of December 31, 2014 ($53.47). RSU awards stay in effect and pay out shares according to the vesting schedule, although for grants made before 2014, the number of shares is reduced according to the duration of employment over the vesting period. See page 103 for additional details. Audit Committee report The Audit Committee of the board of directors has furnished the following report: As noted in the committee’s charter, TI management is responsible for preparing the company’s financial statements. The company’s independent registered public accounting firm is responsible for auditing the financial statements. The activities of the committee are in no way designed to supersede or alter those traditional responsibilities. The committee’s role does not provide any special assurances with regard to TI’s financial statements, nor does it involve a professional evaluation of the quality of the audits performed by the independent registered public accounting firm. The committee has reviewed and discussed with management and the independent accounting firm, as appropriate, (1) the audited financial statements and (2) management’s report on internal control over financial reporting and the independent accounting firm’s related opinions. The committee has discussed with the independent registered public accounting firm, Ernst & Young, the required communications specified by auditing standards together with guidelines established by the SEC and the Sarbanes-Oxley Act. The committee has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board, regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with Ernst & Young the firm’s independence. Based on the review and discussions referred to above, the committee recommended to the board of directors that the audited financial statements be included in the company’s annual report on Form 10-K for 2014 for filing with the SEC. Ralph W. Babb, Jr., Chair Mark A. Blinn Ruth J. Simmons 1 1 0 Texas InsTrumenTs • 2015 Proxy sTaTemenTPROXY STATEMENTProposal to ratify appointment of independent registered public accounting firm The Audit Committee of the board has the authority and responsibility for the appointment, compensation, retention and oversight of the work of TI’s independent registered public accounting firm. The Audit Committee has appointed Ernst & Young LLP to be TI’s independent registered public accounting firm for 2015. TI has engaged Ernst & Young or a predecessor firm to serve as the company’s independent registered public accounting firm for over 60 years. In order to assure continuing auditor independence, the Audit Committee periodically considers whether the annual audit of TI’s financial statements should be conducted by another firm. The lead audit partner on the TI engagement serves no more than five consecutive years in that role, in accordance with SEC rules. The Audit Committee Chair and management have direct input into the selection of the lead audit partner. The members of the Audit Committee and the board believe that the continued retention of Ernst & Young to serve as the company’s independent registered public accounting firm is in the best interest of the company and its investors. Consequently, the board asks the stockholders to ratify the appointment of Ernst & Young. If the stockholders do not ratify the appointment, the Audit Committee will consider whether it should appoint another independent registered public accounting firm. Representatives of Ernst & Young are expected to be present, and to be available to respond to appropriate questions, at the annual meeting. They have the opportunity to make a statement if they desire to do so; they have indicated that, as of this date, they do not. The fees for services provided by Ernst & Young to the company are described below: Audit fees. Ernst & Young’s Audit Fees were $9,134,000 in 2014 and $8,662,000 in 2013. The services provided in exchange for these fees were our annual audit, including the audit of internal control over financial reporting, reports on Form 10-Q, assistance with public debt offerings, statutory audits required internationally and accounting consultations. Audit-related fees. Ernst & Young’s fees for Audit-related services were $797,000 in 2014 and $685,000 in 2013. The services provided in exchange for these fees included employee benefit plan audits, certification procedures relating to compliance with local-government or other regulatory standards for various non-U.S. subsidiaries, and access to Ernst & Young’s online research tool. Tax fees. Ernst & Young’s fees for professional services rendered for tax compliance (preparation and review of income tax returns and other tax-related filings) and tax advice on U.S. and foreign tax matters were $1,802,000 in 2014 and $1,836,000 in 2013. All other fees. Ernst & Young’s fees for all other professional services rendered were $32,000 in 2014 and $95,000 in 2013 for the TI Foundation audit, training and assistance with insurance claims. Pre-approval policy. The Audit Committee is required to pre-approve the audit and non-audit services to be performed by the independent registered public accounting firm in order to assure that the provision of such services does not impair the firm’s independence. Annually the independent registered public accounting firm and the director of internal audits present to the Audit Committee services expected to be performed by the firm over the next 12 months. The Audit Committee reviews and, as it deems appropriate, pre-approves those services. The services and estimated fees are presented to the Audit Committee for consideration in the following categories: Audit, Audit-related, Tax and All other (each as defined in Schedule 14A of the Securities Exchange Act). For each service listed in those categories, the committee receives detailed documentation indicating the specific services to be provided. The term of any pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee reviews on at least a quarterly basis the services provided to date by the firm and the fees incurred for those services. The Audit Committee may revise the list of pre-approved services and related fees from time to time, based on subsequent determinations. In order to respond to time-sensitive requests for services that may arise between regularly scheduled meetings of the Audit Committee, the committee has delegated pre-approval authority to its Chair (the Audit Committee does not delegate to management its responsibilities to pre-approve services). The Chair reports pre-approval decisions to the Audit Committee and seeks ratification of such decisions at the Audit Committee’s next scheduled meeting. The Audit Committee or its Chair pre-approved all services provided by Ernst & Young during 2014. The board of directors recommends a vote FOR ratification of the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2015. 1 1 1 Texas InsTrumenTs • 2015 PrOxY sTaTemenTPROXY STATEMENTAdditional information Voting securities As of February 17, 2015, 1,047,142,301 shares of TI common stock were outstanding. This is the only class of capital stock entitled to vote at the meeting. Each holder of common stock has one vote for each share held. As stated in the notice of annual meeting, holders of record of the common stock at the close of business on February 17, 2015, may vote at the meeting or any adjournment of the meeting. Security ownership of certain beneficial owners The following table shows the only persons who have reported beneficial ownership of more than 5 percent of the common stock of the company. Persons generally “beneficially own” shares if they have the right to either vote those shares or dispose of them. More than one person may be considered to beneficially own the same shares. Name and Address Capital Research Global Investors (1) 333 South Hope Street Los Angeles, CA 90071 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares Owned at December 31, 2014 Percent of Class 106,552,592 (2) 10.1% Capital World Investors (1) 333 South Hope Street Los Angeles, CA 90071 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,752,362 (3) 6.6% The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,900,408 (4) 6.42% PRIMECAP Management Company 225 South Lake Ave., #400 Pasadena, CA 91101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,436,034 (5) 5.44% BlackRock, Inc. 55 East 52nd Street New York, NY 10022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,462,724 (6) 5.4% (1) A division of Capital Research and Management Company (CRMC). (2) TI understands that Capital Research Global Investors is deemed to be the beneficial owner of these shares as a result of CRMC acting as an investment advisor to various investment companies. Capital Research Global Investors has sole dispositive power and sole voting power for these shares. (3) TI understands that Capital World Investors is deemed to be the beneficial owner of these shares as a result of CRMC acting as an investment advisor to various investment companies. Capital World Investors has sole voting power and sole dispositive power for these shares. (4) TI understands that The Vanguard Group has sole voting power for 1,841,355, sole dispositive power for 66,154,118 and shared dispositive power for 1,746,290 of these shares. (5) TI understands that PRIMECAP Management Company has sole voting power for 7,709,048 and sole dispositive power for all of these shares. (6) TI understands that BlackRock, Inc. has sole voting power for 46,667,433 and sole dispositive power for all of these shares. 1 1 2 Texas InsTrumenTs • 2015 Proxy sTaTemenTPROXY STATEMENTSecurity ownership of directors and management The following table shows the beneficial ownership of TI common stock by directors, the named executive officers and all executive officers and directors as a group. Each director and named executive officer has sole voting power (except for shares obtainable within 60 days, shares subject to RSUs and shares credited to deferred compensation accounts as detailed in the footnotes to the table) and sole investment power with respect to the shares owned. The table excludes shares held by a family member if a director or executive officer has disclaimed beneficial ownership. No director or executive officer has pledged shares of TI common stock. Shares Owned at December 31, 2014 Percent of Class Name Directors (1) R. W. Babb, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M. A. Blinn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. A. Carp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. S. Cox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. Kirk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P. H. Patsley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. E. Sanchez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . W. R. Sanders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. J. Simmons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. K. Templeton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. T. Whitman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management (2) K. P. March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. T. Crutcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S. A. Anderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K. J. Ritchie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,003 11,076 139,990 100,162 7,342 133,870 31,969 77,995 78,198 4,464,438 110,277 828,106 677,625 544,087 420,910 All executive officers and directors as a group (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,384,904 * less than 1 percent (1) Included in the shares owned shown above are: * * * * * * * * * * * * * * * * Directors R. W. Babb, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . M. A. Blinn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D. A. Carp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. S. Cox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. Kirk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P. H. Patsley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. E. Sanchez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . W. R. Sanders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. J. Simmons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R. K. Templeton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. T. Whitman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shares Obtainable within 60 Days 29,567 3,074 72,567 72,567 3,074 72,567 19,565 44,567 29,567 3,313,999 72,567 Shares Credited to 401(k) Account — — — — — — — — — 12,800 — RSUs (in Shares) (a) 13,293 4,268 29,957 23,293 4,268 13,293 10,406 20,893 29,293 714,471 20,793 Shares Credited to Deferred Compensation Accounts (b) 14,143 3,734 37,466 1,163 — 38,010 1,998 1,535 19,338 — 8,417 (a) The non-employee directors’ RSUs granted before 2007 are settled in TI common stock generally upon the director’s termination of service provided he or she has served at least eight years or has reached the company’s retirement age for directors. RSUs granted after 2006 are settled in TI common stock generally upon the fourth anniversary of the grant date. (b) The shares in deferred compensation accounts are issued following the director’s termination of service. 1 1 3 Texas InsTrumenTs • 2015 PrOxY sTaTemenTPROXY STATEMENT(2) Included in the shares owned shown above are: Executive Officer K. P. March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. T. Crutcher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S. A. Anderson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . K. J. Ritchie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) Includes: (a) 6,943,668 shares obtainable within 60 days; (b) 33,646 shares credited to 401(k) accounts; Shares Obtainable within 60 Days 474,127 334,926 338,387 195,989 Shares Credited to 401(k) Account 2,063 — — — RSUs (in Shares) 176,454 342,699 205,700 224,530 (c) 2,595,665 shares subject to RSU awards; for the terms of these RSUs, please see pages 83 and 103; and (d) 125,804 shares credited to certain non-employee directors’ deferred compensation accounts; shares in deferred compensation accounts are issued following a director’s termination of service. Related person transactions The company has no reportable related person transactions. Because we believe that company transactions with directors and executive officers of TI or with persons related to TI directors and executive officers present a heightened risk of creating or appearing to create a conflict of interest, we have a written related person transaction policy that has been approved by the board of directors. The policy states that TI directors and executive officers should obtain the approvals specified below in connection with any related person transaction. The policy applies to transactions in which: 1. TI or any TI subsidiary is or will be a participant; 2. The amount involved exceeds or is expected to exceed $100,000 in a fiscal year; and 3. Any of the following (a “related person”) has or will have a direct or indirect interest: (a) A TI director or executive officer, or an Immediate Family Member of a director or executive officer; (b) A stockholder owning more than 5 percent of the common stock of TI or an Immediate Family Member of such stockholder, or, if the 5 percent stockholder is not a natural person, any person or entity designated in the Form 13G or 13D filed under the SEC rules and regulations by the 5 percent stockholder as having an ownership interest in TI stock (individually or collectively, a “5 percent holder”); or (c) An entity in which someone listed in (a) or (b) above has a 5 percent or greater ownership interest, by which someone listed in (a) or (b) is employed, or of which someone listed in (a) or (b) is a director, principal or partner. For purposes of the policy, an “Immediate Family Member” is any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law or any person (other than a tenant or employee) sharing the household of a TI director, executive officer or 5 percent holder. The policy specifies that a related person transaction includes, but is not limited to, any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions or arrangements. 1 1 4 Texas InsTrumenTs • 2015 Proxy sTaTemenTPROXY STATEMENTThe required approvals are as follows: Arrangement involving: Executive officer who is also a member of the TI board, an Immediate Family Member of such person, or an entity in which any of the foregoing has a 5 percent or greater ownership interest Approval required by: G&SR Committee Chair of the G&SR Committee, chief compliance officer, any of his or her Immediate Family Members, or an entity in which any of the foregoing has a 5 percent or greater ownership interest G&SR Committee Any other director or executive officer, an Immediate Family Member of such person, or an entity in which any of the foregoing has a 5 percent or greater ownership interest Chief compliance officer in consultation with the Chair of the G&SR Committee A 5 percent holder G&SR Committee No member of the G&SR Committee will participate in the consideration of a related person arrangement in which such member or any of his or her Immediate Family Members is the related person. The approving body or persons will consider all of the relevant facts and circumstances available to them, including (if applicable) but not limited to: the benefits to the company of the arrangement; the impact on a director’s independence; the availability of other sources for comparable products or services; the terms of the arrangement; and the terms available to unrelated third parties or to employees generally. The primary consideration is whether the transaction between TI and the related person (a) was the result of undue influence from the related person or (b) could adversely influence or appear to adversely influence the judgment, decisions or actions of the director or executive officer in meeting TI responsibilities or create obligations to other organizations that may come in conflict with responsibilities to TI. No related person arrangement will be approved unless it is determined to be in, or not inconsistent with, the best interests of the company and its stockholders, as the approving body or persons shall determine in good faith. The chief compliance officer will provide periodic reports to the committee on related person transactions. Any related person transaction brought to the attention of the chief compliance officer or of which the chief compliance officer becomes aware that is not approved pursuant to the process set forth above shall be terminated as soon as practicable. Compensation committee interlocks and insider participation During 2014, Mses. Cox, Patsley and Whitman and Mr. Sanchez served on the Compensation Committee. No committee member (i) was an officer or employee of TI, (ii) was formerly an officer of TI or (iii) had any relationship requiring disclosure under the SEC’s rules governing disclosure of related person transactions (Item 404 of Regulation S-K). No executive officer of TI served as a director or member of the compensation committee of another entity, one of whose directors or executive officers served as a member of our board of directors or a member of the Compensation Committee. Cost of solicitation The solicitation is made on behalf of our board of directors. TI will pay the cost of soliciting these proxies. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for reasonable expenses they incur in sending these proxy materials to you if you are a beneficial holder of our shares. Without receiving additional compensation, officials and regular employees of TI may solicit proxies personally, by telephone, fax or e-mail, from some stockholders if proxies are not promptly received. We have also hired Georgeson Inc. to assist in the solicitation of proxies at a cost of $12,000 plus out-of-pocket expenses. 1 1 5 Texas InsTrumenTs • 2015 PrOxY sTaTemenTPROXY STATEMENTStockholder proposals for 2016 If you wish to submit a proposal for possible inclusion in TI’s 2016 proxy material, we must receive your notice, in accordance with the rules of the SEC, on or before November 5, 2015. Proposals are to be sent to: Texas Instruments Incorporated, 12500 TI Boulevard, MS 8658, Dallas, TX 75243, Attn: Secretary. If you wish to submit a proposal at the 2016 annual meeting (but not seek inclusion of the proposal in the company’s proxy material), we must receive your notice, in accordance with the company’s by-laws, on or before January 17, 2016. All suggestions from stockholders concerning the company’s business are welcome and will be carefully considered by TI’s management. To ensure that your suggestions receive appropriate review, the G&SR Committee reviews correspondence from stockholders and management’s responses. Stockholders are thereby given access at the board level without having to resort to formal stockholder proposals. Generally, the board prefers you present your views in this manner rather than through the process of formal stockholder proposals. Please see page 77 for information on contacting the board. Benefit plan voting If you are a participant in the TI Contribution and 401(k) Savings Plan, or the TI 401(k) Savings Plan, you are a “named fiduciary” under the plans and are entitled to direct the voting of shares allocable to your accounts under these plans. The trustee administering your plan will vote your shares in accordance with your instructions. If you wish to instruct the trustee on the voting of shares held for your accounts, you should do so by April 13, 2015, in the manner described in the notice of annual meeting. Additionally, participants under the plans are designated as “named fiduciaries” for the purpose of voting TI stock held under the plans for which no voting direction is received. TI shares held by the TI 401(k) savings plans for which no voting instructions are received by April 13, 2015, will be voted in the same proportions as the shares in the plans for which voting instructions have been received by that date unless otherwise required by law. Section 16(a) beneficial ownership reporting compliance Section 16(a) of the Securities Exchange Act requires certain persons, including the company’s directors and executive officers, to file reports with the SEC regarding beneficial ownership of certain equity securities of the company. The company believes that all reports during 2014 were timely filed by its directors and executive officers. In 2015, a report of a 2012 gift by Mr. Templeton was filed; the gift was not previously reported due to administrative error. Telephone and Internet voting Registered stockholders and benefit plan participants. Stockholders with shares registered directly with Computershare (TI’s transfer agent) and participants who beneficially own shares in a TI benefit plan may vote telephonically by calling (800) 690-6903 (within the U.S. and Canada only, toll-free) or via the Internet at www.proxyvote.com. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ instructions have been recorded properly. TI has been advised by counsel that the telephone and Internet voting procedures, which have been made available through Broadridge Financial Solutions, Inc., are consistent with the requirements of applicable law. Stockholders with shares registered in the name of a brokerage firm or bank. A number of brokerage firms and banks offer telephone and Internet voting options. These programs may differ from the program provided to registered stockholders and benefit plan participants. Check the information forwarded by your bank, broker or other holder of record to see which options are available to you. Stockholders voting via the Internet should understand that there may be costs associated with electronic access, such as usage charges from telephone companies and Internet access providers, that must be borne by the stockholder. 1 1 6 Texas InsTrumenTs • 2015 Proxy sTaTemenTPROXY STATEMENTStockholders sharing the same address To reduce the expenses of delivering duplicate materials, we take advantage of the SEC’s “householding” rules which permit us to deliver only one set of proxy materials (or one Notice of Internet Availability of Proxy Materials) to stockholders who share an address unless otherwise requested. If you share an address with another stockholder and have received only one set of these materials, you may request a separate copy at no cost to you by calling Investor Relations at 214-479-3773 or by writing to Texas Instruments Incorporated, P.O. Box 660199, MS 8657, Dallas, TX 75266-0199, Attn: Investor Relations. For future annual meetings, you may request separate materials, or request that we send only one set of materials to you if you are receiving multiple copies, by calling (800) 542-1061 or writing to Investor Relations at the address given above. Electronic delivery of proxy materials and copies of our Form 10-K As an alternative to receiving printed copies of these materials in future years, we are pleased to offer stockholders the opportunity to receive proxy mailings electronically. To request electronic delivery, please vote via the Internet at www.proxyvote.com and, when prompted, enroll to receive or access proxy materials electronically in future years. After the meeting date, stockholders holding shares through a broker or bank may request electronic delivery by visiting www.icsdelivery.com/ti and entering information for each account held by a bank or broker. If you are a registered stockholder and would like to request electronic delivery, please visit www-us.computershare.com/investor or call TI Investor Relations at 214-479-3773 for more information. If you are a participant in a TI benefit plan and would like to request electronic delivery, please call TI Investor Relations for more information. Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on April 16, 2015. This 2015 proxy statement and the company’s 2014 annual report are accessible at: www.proxyvote.com. The company’s Annual Report to Stockholders, which contains consolidated financial statements for the year ended December 31, 2014, accompanies this Proxy Statement. You may also obtain a copy of the company’s Annual Report on Form 10-K for the year ended December 31, 2014, that was filed with the SEC without charge by writing to Investor Relations, P.O. Box 660199, MS 8657, Dallas, TX 75266-0199. Our Form 10-K is also available in the “Investor Relations” section of our website at www.TI.com. Sincerely, Joseph F. Hubach Senior Vice President, Secretary and General Counsel March 4, 2015 Dallas, Texas Notice regarding forward-looking statements This proxy statement includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Statements herein that describe TI’s business strategy, plans, goals, future capital spending levels and potential for growth, improved profit margins and cash generation are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results and amounts to differ materially from those in forward-looking statements. For a detailed discussion of the risks and uncertainties, see the Risk factors discussion in Item 1A of our annual report on Form 10-K for the year ended December 31, 2014. The forward-looking statements included in this proxy statement are made only as of the date of this proxy statement and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances. 1 1 7 Texas InsTrumenTs • 2015 PrOxY sTaTemenTPROXY STATEMENTDirections and other annual meeting information Directions From DFW airport: Take the North Airport exit to IH-635E. Take IH-635E to the Greenville Avenue exit. Turn right (South) on Greenville. Turn right (West) on Forest Lane. Texas Instruments will be on your right at the second traffic light. Please use the North entrance to the building. From Love Field airport: Take Mockingbird Lane East to US-75N (Central Expressway). Travel North on 75N to the Forest Lane exit. Turn right (East) on Forest Lane. You will pass two traffic lights. At the third light, the entrance to Texas Instruments will be on your left. Please use the North entrance to the building. Parking There will be reserved parking for all visitors at the North Lobby. Visitors with special needs requiring assistance will be accommodated at the South Lobby entrance. security Please be advised that TI’s security policy forbids weapons, cameras and audio/video recording devices inside TI buildings. All bags will be subject to search upon entry into the building. 1 1 8 Texas InsTrumenTs • 2015 Proxy sTaTemenTPROXY STATEMENTAppendix Non-GAAP reconciliations This proxy statement refers to (1) revenue excluding legacy wireless products (baseband products, and OMAP applications processors and connectivity products sold into smartphone and consumer tablet applications) and (2) ratios based on free cash flow. These are financial measures that were not prepared in accordance with generally accepted accounting principles in the U.S. (GAAP). Free cash flow is a non-GAAP measure calculated by subtracting Capital expenditures from the most directly comparable GAAP measure, Cash flows from operating activities (also referred to as Cash flow from operations). We believe revenue excluding legacy wireless products provides insight into our underlying business results. We believe free cash flow and these ratios based on it provide insight into our liquidity, our cash-generating capability and the amount of cash potentially available to return to investors, as well as insight into our financial performance. These non-GAAP measures are supplemental to the comparable GAAP measures and are reconciled in the tables below to the most directly comparable GAAP measures. Revenue Excluding Legacy Wireless Products 2014 2013 2012 2011 For Years Ended December 31, 2014 One-Year Growth 2014 Three-Year CAGR * (Millions of dollars) Revenue (GAAP) . . . . . . . . . . . . . . . . . . . . . Legacy wireless revenue . . . . . . . . . . . . . . . . . TI Revenue less legacy wireless revenue (non-GAAP) . . . $ 13,045 (25) $ 13,020 $ 12,205 (470) $ 11,735 $ 12,825 (1,200) $ 11,625 $ 13,735 (2,391) $ 11,344 6.9% -1.7% 11.0% 4.7% * CAGR (compound annual growth rate) is calculated using the formula: (Ending Value/Beginning Value)1/number of years-1. Free Cash Flow as a Percentage of Revenue (Millions of dollars) For Years Ended December 31, 2013 2012 2014 Percentage of Revenue Total For Years Ended December 31, 2012 2013 2014 Total Revenue . . . . . . . . . . . . . . . . . Cash flow from operations (GAAP) . . . . Capital expenditures . . . . . . . . . . . Free cash flow (non-GAAP) . . . . . . . . $ 13,045 $ 3,892 (385) $ 3,507 $ 12,205 $ 3,384 (412) $ 2,972 $ 12,825 $ 3,414 (495) $ 2,919 $ 38,075 $ 10,690 (1,292) $ 9,398 29.8% 27.7% 26.6% 28.1% 26.9% 24.4% 22.8% 24.7% Total Cash Returned to Shareholders as a Percentage of Free Cash Flow (Millions of dollars) For Years Ended December 31, 2013 2014 2012 Total Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cash returned to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . Percentage of Cash flow from operations (GAAP) . . . . . . . . . . . . . . . . . . . . Percentage of free cash flow (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . $ 1,323 2,831 $ 4,154 106.7% 118.4% $ 1,175 2,868 $ 4,043 119.5% 136.0% $ 819 1,800 $ 2,619 76.7% 89.7% $ 3,317 7,499 $ 10,816 101.2% 115.1% 1 1 9 Texas InsTrumenTs • 2015 PrOxY sTaTemenTPROXY STATEMENT (This page intentionally left blank.) 1 2 0 TEx aS In STru m En TS (This page intentionally left blank.) TExaS InSTru mEnT S 1 2 1 (This page intentionally left blank.) 1 2 2 TEx aS In STru m En TS OTHER INFORMATION Comparison of total shareholder return 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, 2009, and ending December 31, 2014. 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 $250 $200 $150 $100 $50 $0 12/09 Texas Instruments Incorporated S&P 500 S&P Information Technology 12/10 12/11 12/12 12/13 12/14 Texas Instruments Incorporated . . . . . . . . . . . . . . . . . . . S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S&P Information Technology . . . . . . . . . . . . . . . . . . . . . 100.00 100.00 100.00 127.09 115.06 110.19 115.79 117.49 112.84 125.85 136.30 129.57 184.08 180.44 166.41 230.28 205.14 199.89 12/09 12/10 12/11 12/12 12/13 12/14 TExaS InSTru mEnT S 1 2 3  OTHER INFORMATION (continued) Non-GAAP reconciliations Free cash flow is a non-GAAP financial measure. For a definition of and the reason for using this measure, see page 20 of this Annual Report. For Twelve Months Ended December 31, 2014 2013 Cash flows from operations (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Free cash flow (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,892 (385) $ 3,507 $ 3,384 (412) $ 2,972 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,045 $ 12,205 Cash flows from operations as a percent of revenue (GAAP) . . . . . . . . . . . . . . . . . . Free cash flow as a percent of revenue (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . 30% 27% 28% 24% Change 15% 18% For Twelve Months Ended December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 ten-year CAGR * . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flows From Operations (GAAP) $ 2,973 3,614 2,456 4,407 3,330 2,643 3,820 3,256 3,414 3,384 3,892 3% Capital Expenditures $ (1,260) (1,288) (1,272) (686) (763) (753) (1,199) (816) (495) (412) (385) Free Cash Flow (non-GAAP) $ 1,713 2,326 1,184 3,721 2,567 1,890 2,621 2,440 2,919 2,972 3,507 7% * CAGR (compound annual growth rate) is calculated using the formula: (Ending Value/Beginning Value) 1/number of years -1. Notice regarding forward-looking statements This Annual 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, ability to generate free cash flow in the future, 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. For a more detailed discussion of these factors see the risk factors discussion on page 8 of this report. Forward-looking statements in this report are made only as of the date of this report and we undertake no obligation to update them to reflect subsequent events or circumstances. 1 2 4 TEx aS In STru m En TS portfolio that can be built using long-lived equipment, continues to serve us well. It enables us to cost effectively maintain our capital expenditures at about 4 percent of revenue, while allowing us to become an exceptionally reliable supplier to our customers. In 2014, we initiated plans to increase Analog production on 300-millimeter wafers, which will provide cost advantages that will further improve margins and cash generation over the long term. Technology: Innovation is our lifeblood at TI, letting us deliver breakthrough technologies to the world’s design engineers. Our R&D investments allow us to create entirely new product categories, such as inductance-to-digital converters; expand our product portfolio into new areas, such as reinforced isolation, high-voltage and high-power density solutions with silicon and gallium nitride technologies; and improve existing capabilities, such as our InstaSPIN™ motor control technology. In 2014, we invested $1.4 billion in R&D, substantially more than our best competitors. Returns to shareholders: Our business model enables us to consistently generate more cash than we need to fund our future. In 2014, TI’s free cash flow of $3.5 billion was 27 percent of revenue, and in the years ahead we expect that rate can improve to 30 percent of revenue sustainably in good economic markets. This gets us to the final piece of our capital management strategy – returning cash to our shareholders. Through dividends and share repurchases, we are committed to returning 100 percent of our free cash flow plus proceeds from stock-option exercises except that which is needed for debt retirement. We have increased our dividends for 11 consecutive years, and we’ve reduced our shares outstanding by 39 percent since 2004. In 2014, we returned $4.2 billion to shareholders. In conclusion: Over the years, we have created a strong company. But our goal is to make TI stronger still. We do not intend to squander the unique position we’ve created, one that is anchored in the diversity of tens of thousands of products and customers for analog and embedded processing semiconductors, bolstered by an efficient manufacturing operation, and supported by the largest sales channels in the industry. We intend to deliver more value to our customers, to our shareholders and to society as we bring semiconductors to more markets than ever before. Executive officers Richard K. Templeton Chairman of the Board, President and Chief Executive Officer Stephen A. Anderson Senior Vice President Brian T. Crutcher Executive Vice President R. Gregory Delagi Senior Vice President Joseph F. Hubach Senior Vice President, Secretary and General Counsel Kevin P. March Senior Vice President and Chief Financial Officer Kevin J. Ritchie Senior Vice President Teresa L. West Senior Vice President Darla H. Whitaker Senior Vice President Bing Xie Senior Vice President Board of directors, executive officers 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 Ronald Kirk Senior Of Counsel, Gibson, Dunn & Crutcher LLP Pamela H. Patsley Chairman of the Board and Chief Executive Officer, MoneyGram International, Inc. Robert E. Sanchez Chairman of the Board 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 TI Fellows are engineers, scientists or technologists who are recognized by peers and TI management for outstanding performance. Fellows are elected or re-elected every five years based on exceptional technical contributions that significantly add to TI’s shareholder value. TI Fellows announced in 2014: • Timothy D. Anderson • Yevgen Barsukov • Clive Bittlestone • Tom Bonifield • Luigi Colombo • Mahesh Mehendale • Sandeep Oswal Stockholder and other information Stockholder records information Stockholder correspondence: Computershare P. O. Box 30170 College Station, TX 77842-3170 Toll free: 800-981-8676 Phone: 781-575-2000 Overnight correspondence: Computershare 211 Quality Circle, Suite 210 College Station, TX 77845 Website: www.computershare.com/investor For online inquiries: https://www-us.computershare.com/investor/contact SEC Form 10-K A copy of the company’s annual report to the Securities and Exchange Commission on Form 10-K is available on the Investor Relations website at www.ti.com/ir. Copies of the Form 10-K, including a list of exhibits and any exhibit specifically requested, are available without charge by writing to: Texas Instruments Investor Relations P.O. Box 660199, MS 8657 Dallas, TX 75266-0199 InstaSPIN, DLP, OMAP and the platform bar are trademarks of Texas Instruments. All other trademarks are the property of their respective owners. 279983_2014_TI_AR1_R2.indd 3 2/23/15 6:11 PM Manufacturing: Our strategy of acquiring manufacturing capacity opportunistically and ahead of demand, combined with a product Texas Instruments Incorporated P.O. Box 660199 Dallas, TX 75266-0199 www.ti.com An equal opportunity employer © 2015 Texas Instruments Incorporated TI-30003 

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