Texas Instruments (TXN) 10-K risk factor changes: FY2017 vs FY2016

Certain [removed: of our] competitors possess sufficient financial, technical and management resources to develop and market products that may compete favorably against our products, and consolidation among our competitors may allow them to compete more effectively.

Our results of operations depend in part upon our ability to successfully develop, manufacture and market innovative [removed: products.][added: products in a timely manner.]

[removed: We make significant investments in research and development to develop new technologies and products to meet changing customer demands, and] [added: In some cases,] we might not realize a return on our investments because they are generally made before commercial viability can be assured.

If demand in one or more sectors within our end markets declines or [removed: grows at a significantly slower pace than management expects,] [added: the rate of growth slows,] our results of operations may be adversely affected.

The cyclical nature of the semiconductor market may lead to significant and [removed: often] rapid increases and decreases in product demand.

[added: Additionally, the loss or significant curtailment of purchases by one or more of our large 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.

Our operating results and our reputation could be adversely affected by breaches or disruptions of [removed: our] information technology systems.

Breaches or disruptions of our information technology systems [added: or the systems of our customers, vendors and other third parties] could be caused by [added: factors such as] computer viruses, system failures, [added: restricted network access,] unauthorized access, [removed: sabotage, vandalism] [added: terrorism, employee malfeasance,] or [removed: terrorism.][added: human error.]

These events [removed: could] [added: could, among other things,] compromise our information technology networks; result in [added: corrupt or] lost data or the unauthorized release of our, our customers’ or our suppliers’ confidential or proprietary information; cause a disruption to our manufacturing and other operations; result in the release of [removed: employee] personal data; or cause us to incur [added: costs associated with] increased [removed: information technology protection costs,] [added: protection, remediation or penalties,] any of which could adversely affect our operating results and our reputation.

Our access to needed goods and services may be adversely affected by potential disputes with suppliers or disruptions in our suppliers’ operations as a result of, for example: quality excursions; uncertainty regarding the stability of global credit and financial markets; domestic or international political, social, economic and other conditions; natural events in the locations in which our suppliers operate; or limited or delayed access to key raw materials, natural [removed: resources,] [added: resources] and utilities.

We are subject to complex laws, rules and regulations affecting our domestic and international operations relating to, for example, the environment, safety and health; exports and imports; bribery and corruption; tax; data privacy and protection; labor and employment; competition; [removed: and] [added: market access;] intellectual property ownership and [removed: infringement.][added: infringement; and the movement of currency.]

We could be subject to claims based on warranty, product liability, epidemic or delivery failures, or other grounds relating to our products, manufacturing, services, [removed: designs or] [added: designs,] communications [added: or cybersecurity] that could lead to significant expenses as we defend such claims or pay damage awards or settlements.

A number of factors could cause our [removed: taxes] [added: tax rate] to increase, including a change in the jurisdictions in which our profits are earned and taxed; a change in the mix of profits from those jurisdictions; changes in available tax credits; changes in applicable tax rates; changes in tariff regulations or surcharges; [added: changes in accounting principles;] or adverse resolution of audits by taxing authorities.

Changes in these laws and [removed: regulations] [added: regulations, including those that align with the Organisation for Economic Cooperation and Development’s Base Erosion and Profit Shifting recommendations,] could affect the locations where we are deemed to earn income, which could in turn affect our results of operations.

If in the future we repatriate any of [removed: these foreign earnings,] [added: the earnings represented by non-cash, operating assets such as inventory and fixed assets,] we might incur incremental [removed: U.S. income tax,] [added: non-U.S. taxes,] which could affect our results of operations.

In [removed: 2016,] [added: 2017,] about [removed: 60] [added: 65] percent of our revenue was generated from sales of our products through distributors.

Our profit margins may be adversely affected by a number of factors, including decreases in customer demand and shipment volume; obsolescence of our inventory; shifts in our product mix; [added: changes in tariffs; changes in our manufacturing processes;] and [added: new accounting pronouncements or] changes in [removed: tariffs.][added: existing accounting practices or standards.]

Access to worldwide markets depends in part on the continued strength of our intellectual property [removed: portfolio.][added: portfolio in all jurisdictions where we conduct business.]

There can be no assurance that, as our business [removed: expands into new areas,] [added: evolves,] we will [added: obtain the necessary intellectual property rights, or that 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.

However, our efforts cannot prevent all misappropriation or improper use of our protected [removed: technology,] [added: technology and information,] including, for example, third parties’ use of our patented [removed: technology] [added: or copyrighted technology, or our trade secrets] in their products without the right to do [removed: so] [added: so,] or third parties’ sale of counterfeit products bearing our trademark.

[removed: Moreover, the] [added: The] laws of countries where we operate may not protect our intellectual property rights to the same extent as U.S. laws.

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 [removed: the] [added: our] other risk [removed: factors described under Item 1A,] [added: factors,] many of which are beyond our control.

Cybersecurity threats are frequent and constantly evolving, thereby increasing the difficulty of defending against them.

We make significant investments in research and development to improve existing technology and products and develop new ones to meet changing customer demands.

Our initial estimates of the financial impact of the U.S. Tax Cuts and Jobs Act, enacted in December 2017, may change as we refine our analysis and as additional guidance becomes available.

We may also face infringement claims where we or our customers make, use or sell products and where the intellectual property laws may be less established or less predictable.

The risk of unfair copying or cloning may impede our ability to sell our products.

Additionally, the loss or significant curtailment of purchases by one or more of our large customers, including

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.

| | • | [removed: Industry’s broadest] [added: Broad] portfolio of differentiated analog and embedded processing semiconductors. Our customers need multiple chips for their systems. The breadth of our portfolio means we can solve more of these needs than [removed: can] our competitors, which gives us access to more customers and the opportunity to [added: sell more products and] generate more revenue per [added: customer] system. We invest more than $1 billion each year to develop new products for our [removed: portfolio.] [added: portfolio, which includes tens of thousands of products.] |

| | • | A strong foundation of manufacturing [removed: technology] and [removed: low-cost production.] [added: technology.] We invest in manufacturing technologies [removed: that differentiate the features of our semiconductors,] and [removed: we] do most of our [removed: own production in-house, as opposed to outsourcing it.] [added: manufacturing in-house.] This [removed: ability] [added: strategic decision] to directly control our manufacturing helps ensure a consistent supply of products for our [removed: customers. We produce billions of semiconductors each year on a mixture of 150-, 200- and 300-millimeter wafers,] [added: customers] and [removed: we are able] [added: also allows us] to [removed: keep costs low for manufacturing facilities and equipment because our Analog and much of our Embedded Processing semiconductors can be made using mature assets] [added: invest in technology] that [removed: we acquire ahead] [added: differentiates the features] of [removed: demand when their prices are most attractive. In 2016, we increased] [added: our products. We have focused on creating a competitive manufacturing cost advantage by increasing] factory loadings [removed: by about 15 percent for] [added: of] our [removed: Analog semiconductors on] [added: advanced analog] 300-millimeter wafers, which have [added: about] a 40 percent cost advantage per unpackaged chip over 200-millimeter wafers. [removed: The] [added: 300-millimeter wafers will support the] majority of our Analog growth [removed: will be produced on 300-millimeter wafers, which will be meaningful to the growth of] [added: going forward. Additionally, we keep] our [removed: cash flow over the long term.] [added: manufacturing costs low by using mature assets acquired ahead of demand when their prices are most attractive.] |

| | • | [removed: Industry’s largest] [added: Broadest reach of] market channels. [removed: Our global sales force is larger than those of] [added: Customers often begin their initial product selection process and design-in journey on] our [removed: competitors. The] [added: website, and the] breadth of our portfolio attracts [removed: an increasing number of visits] [added: more customers] to our [removed: website, where customers often begin their initial product searches and design-in journey.] [added: website than any of our competitors.] Our web presence, [removed: together] [added: combined] with our global sales [removed: force, provides] [added: force that is also greater in size than those of our competitors, are advantages that give] us unique access to about 100,000 [removed: customers.] [added: customers designing TI semiconductors into their end products.] |

| | • | Diversity and longevity [removed: in] [added: of] our [removed: products and in the] [added: products,] markets [removed: we serve.] [added: and customer positions.] Together, the attributes 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. |

The combined effect of these [removed: attributes] [added: sustainable competitive advantages] is that over time we have [removed: grown free cash flow and] gained market share in Analog and Embedded [removed: Processing.][added: Processing and have grown free cash flow.]

[removed: These attributes put] [added: Our business model puts] us in a unique class of companies with the ability to grow, generate cash, and return that cash to shareholders.

| | o | Over time, we have been allocating resources from areas like manufacturing support and SG&A into R&D activities. [removed: As a result, R&D expense will continue increasing in 2017.] |

| | • | In the [removed: fourth] [added: first] quarter of [removed: 2016,] [added: 2017,] we adopted ASU [removed: 2016-09] [added: 2017-07] related to [removed: stock compensation.] [added: certain pension and other retiree benefit costs.] We applied the new standard [removed: prospectively as of the beginning of 2016 for the Consolidated Statements of Income and] on a full retrospective basis for all periods [added: presented] in the Consolidated Statements of [removed: Cash Flows.] [added: Income, which have been recast as a result.] See Note 2 to the financial statements for more details. |

We continued to perform well in [removed: 2016,] [added: 2017,] reflecting our focus on Analog and Embedded [removed: Processing.][added: Processing, with a particular emphasis on the industrial and automotive markets.]

These products serve highly diverse markets with thousands of [removed: applications,] [added: applications] and [removed: we believe] have [removed: dependable] long-term growth opportunities.

In [removed: 2016,] [added: 2017,] Analog and Embedded Processing represented [removed: 86] [added: 90] percent of revenue.

Gross margin of [removed: 61.6] [added: 64.3] percent [removed: for the year reflects] [added: reflected] the quality of our product portfolio, as well as the efficiency of our manufacturing strategy.

Free cash flow [removed: in 2016] was [removed: 30.5] [added: $4.67 billion and represented 31.2] percent of revenue, up from [removed: 29.6] [added: 30.5] percent a year [removed: ago and consistent with our targeted range of 20-30 percent of revenue.][added: ago.]

Our dividends represented [removed: 40] [added: 45] percent of free cash flow, underscoring their sustainability.

Revenue of $13.37 billion was up $370 million, or 3 percent, from [removed: 2015,] [added: 2015] due to higher revenue from Embedded Processing and Analog.

Gross profit was [removed: $8.24] [added: $8.26] billion, an increase of [removed: $680] [added: $682] million, or 9 percent, due to lower manufacturing costs and, to a lesser extent, higher revenue.

Gross profit margin was [removed: 61.6] [added: 61.8] percent compared with [removed: 58.2] [added: 58.3] percent.

Operating expenses were [removed: $1.37] [added: $1.36] billion for R&D and [removed: $1.77] [added: $1.74] billion for SG&A.

R&D expense increased [removed: $90] [added: $89] million, or 7 percent, due to a combination of our [removed: ongoing] allocation of resources into R&D activities and higher compensation-related costs.

SG&A expense increased [removed: $19] [added: $14] million, primarily due to higher compensation-related costs.

Restructuring charges/other was a [removed: net] credit of $15 million, which included a gain on the sale of intellectual property of $40 million that was partially offset by $25 million related to restructuring charges.

This compared with a [removed: net] credit of $71 million in 2015, which included gains on sales of assets of $83 million that were partially offset by $12 million related to restructuring charges and other credits.

Operating profit was [removed: $4.80] [added: $6.08] billion, or [removed: 35.9] [added: 40.7] percent of revenue, compared with [removed: $4.27] [added: $4.86] billion, or [removed: 32.9] [added: 36.3] percent of revenue.

EPS benefited $0.13 in 2016 due to the [removed: application] [added: adoption] of [removed: the new accounting standard related to] [added: a] stock [removed: compensation.][added: compensation accounting standard.]

| | | 2016 | | | | [added: |] 2015 | | | | [added: |] Change | | | [added: |]

| Revenue | | $ | [added: |] 8,536 | | | $ | [added: |] 8,339 | | | | [added: |] 2 | % |

| Operating profit % of revenue | | | [removed: 39.6] | [added: 45.1 |] % | | | [removed: 36.6] | [added: 40.0 |] % | | | | | [added: |]

Analog revenue increased [removed: primarily] due to [removed: SVA] [added: Power] and [removed: HPA.][added: Signal Chain.]

Embedded Processing [removed: (included Processors,] [added: (includes Connected] Microcontrollers and [removed: Connectivity] [added: Processors] product lines)

| Revenue | | $ | [added: |] 3,023 | | | $ | [added: |] 2,787 | | | | [added: |] 8 | % |

| Operating profit % of revenue | | | [removed: 26.5] | [added: 32.7 |] % | | | [removed: 21.4] | [added: 27.0 |] % | | | | | [added: |]

Embedded Processing revenue increased due [removed: to, in declining order, Processors, Microcontrollers and Connectivity.][added: to Processors and, to a lesser extent, Connected Microcontrollers.]

Other [removed: (included DLP] [added: (includes DLP®] products, [removed: calculators, custom ASICs] [added: calculators] and [removed: royalties)][added: custom ASIC products)]

| Revenue | | $ | [added: |] 1,811 | | | $ | [added: |] 1,874 | | | | [added: |] (3 | )% |

| Operating profit % of revenue | | | [removed: 34.1] | [added: 30.2 |] % | | | [removed: 33.6] | [added: 34.3 |] % | | | | | [added: |]

| * [removed: |] Includes Acquisition charges and Restructuring charges/other | [added: | | | | | | | | | | | | | | |]

Other revenue decreased due to, in declining order, [removed: lower] royalties, custom ASIC products and calculators.

[added: |] Free cash flow [removed: in 2015, was 29.6] [added: as a] percent of [removed: revenue, up from 28.1 percent in 2014.][added: revenue (non-GAAP) | | | 31.2 | % | | | | 30.5 | % | | | | 29.6 | % |]

Details of financial results – [removed: 2015] [added: 2017] compared with [removed: 2014][added: 2016]

Operating profit was [removed: $4.27] [added: $4.86] billion, or [removed: 32.9] [added: 36.3] percent of revenue, compared with [removed: $3.95] [added: $4.32] billion, or [removed: 30.3] [added: 33.2] percent of [removed: revenue, in 2014.][added: revenue.]

Our business model is designed around the following four sustainable competitive advantages, that we believe, in combination, put us in a unique class of companies:

Our strategic focus, and where we invest the majority of our resources, is on Analog and Embedded Processing, with a particular emphasis on designing and selling those products into the industrial and automotive markets, which we believe represent the best growth opportunities.

Analog and embedded processing products sold into industrial and automotive markets provide long product life cycles, intrinsic diversity, and less capital-intensive manufacturing, which we believe offer stability, profitability and strong cash generation.

This business model is the foundation of our capital management strategy, which is based on our belief that free cash flow growth, especially on a per share basis, is important for maximizing shareholder value over the long term.

We also believe that free cash flow will be valued only if it is productively invested in the business or returned to shareholders.

| | • | The recently enacted U.S. Tax Cuts and Jobs Act (the Tax Act) will reduce our annual operating tax rate, which does not include discrete tax items, from 31 percent in 2017 to an ongoing rate of about 18 percent starting in 2019, comprehending the benefits of exports and having manufacturing, R&D and intellectual property in the United States. In 2018, our annual operating tax rate is expected to be about 23 percent, 5 percentage points higher, primarily due to a transitional non-cash expense. For an explanation of the term “annual operating tax rate,” see the Non-GAAP financial information section after the Liquidity and capital resources section. |

| | • | As of January 1, 2017, we no longer recognize royalties as revenue; instead, they are recorded as OI&E. We continue to receive royalties from arrangements involving license rights to our patent portfolio. Although we expect royalties to continue for many years, they are of decreasing significance to our core operations. |

| --- | --- | --- |

Our cash flow from operations of $5.36 billion underscored the strength of our business model.

During 2017, we returned $4.66 billion to shareholders through a combination of stock repurchases and dividends, consistent with our strategy to return all of our free cash flow to shareholders.

See the Non-GAAP financial information section.

Revenue of $14.96 billion was up $1.59 billion, or 12 percent, due to higher revenue from Analog and Embedded Processing.

Gross profit of $9.61 billion was up $1.36 billion, or 16 percent, primarily due to higher revenue.

As a percentage of revenue, gross profit increased to 64.3 percent from 61.8 percent.

Operating expenses (R&D and SG&A) were $3.20 billion compared with $3.10 billion, as we continued our ongoing allocation of resources to R&D activities.

Acquisition charges of $318 million were non-cash.

Restructuring charges/other was a charge of $11 million compared with a credit of $15 million in 2016.

OI&E was $75 million of income compared with $155 million in 2016.

See Note 13 to the financial statements.

This change was due to tax adjustments made in 2017 as a result of the Tax Act.

Net income was $3.68 billion compared with $3.60 billion.

Analog (includes Power, Signal Chain and High Volume product lines)

| | | 2017 | | | | | 2016 | | | | | Change | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Revenue | | $ | | 9,900 | | | $ | | 8,536 | | | | | 16 | % |

| Operating profit | | | | 4,468 | | | | | 3,416 | | | | | 31 | % |

| | | 2017 | | | | | 2016 | | | | | Change | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Revenue | | $ | | 3,498 | | | $ | | 3,023 | | | | | 16 | % |

| Operating profit | | | | 1,143 | | | | | 817 | | | | | 40 | % |

Embedded Processing revenue increased due to growth in both product lines, led by Processors.

| | | 2017 | | | | | 2016 | | | | | Change | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Revenue | | $ | | 1,563 | | | $ | | 1,811 | | | | | (14 | )% |

| Operating profit * | | | | 472 | | | | | 622 | | | | | (24 | )% |

| | | | | | | | | | | | | | | | |

Other revenue declined $248 million primarily due to custom ASIC products and the move of royalties from revenue to OI&E, which began in the first quarter of 2017.

Operating profit decreased $150 million.

See Note 13 to the financial statements.

See Note 3 to the financial statements.

| --- | --- |

Our business model is carefully constructed around the following attributes:

| | o | Our effective tax rate (Provision for income taxes as a percentage of Income before income taxes) benefits from lower tax rates (compared to the U.S. statutory income tax 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. |

In 2016, cash flows from operations were $4.61 billion, up from $4.40 billion in 2015.

During the year, we returned $3.78 billion of cash to investors through a combination of stock repurchases and dividends.

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.

OI&E for 2016 was $211 million compared with $32 million.

Analog (included High Volume Analog & Logic (HVAL), Power Management (Power), High Performance Analog (HPA) and Silicon Valley Analog (SVA) product lines)

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Operating profit | | | 3,380 | | | | 3,048 | | | | 11 | % |

Power also grew, but to a lesser extent, while HVAL declined due to the mix of products shipped.

| Operating profit | | | 801 | | | | 596 | | | | 34 | % |

| Operating profit* | | | 618 | | | | 630 | | | | (2 | )% |

Prior results of operations

In 2015, Analog revenue grew 3 percent, and Embedded Processing revenue grew 2 percent.

Analog and Embedded Processing represented 86 percent of revenue in 2015, up from 83 percent in 2014.

Gross margin was 58.2 percent for 2015.

In 2015, cash flows from operations were $4.40 billion, up from $4.05 billion in 2014.

During 2015, we returned $4.19 billion of cash to investors through a combination of stock repurchases and dividends.

Revenue of $13.00 billion was about even with 2014, as higher revenue from Analog and Embedded Processing was offset by lower revenue from Other.

Our 2015 revenue was negatively affected by about $150 million from changes in foreign currency exchange rates.

Gross profit was $7.56 billion, an increase of $133 million, or 2 percent, due to lower manufacturing costs.

Gross profit margin was 58.2 percent of revenue compared with 56.9 percent.

Operating expenses were $1.28 billion for R&D and $1.75 billion for SG&A.

R&D expense decreased $78 million, or 6 percent, and SG&A decreased $95 million, or 5 percent.

Both comparisons reflect savings from ongoing efforts across the company to align costs with growth opportunities, including the completed restructuring actions in Embedded Processing and Japan.

These decreases were partially offset by higher compensation-related costs.

Acquisition charges were related to our 2011 acquisition of National Semiconductor and were $329 million, about even with 2014.

These non-cash charges were primarily from the amortization of intangible assets.

Restructuring charges/other was a net credit of $71 million, which included gains on sales of assets of $83 million that were partially offset by $12 million related to restructuring charges and other credits.

This compared with a net credit of $51 million in 2014, reflecting gains on sales of assets of $75 million that were partially offset by restructuring charges and other expenses of $24 million.

Net income was $2.99 billion, an increase of $165 million, or 6 percent, from 2014.

| Revenue | | $ | 8,339 | | | $ | 8,104 | | | | 3 | % |

| Operating profit | | | 3,048 | | | | 2,786 | | | | 9 | % |

Analog revenue increased primarily due to HVAL.

HPA declined due to the mix of products shipped.

| Revenue | | $ | 2,787 | | | $ | 2,740 | | | | 2 | % |

| Operating profit | | | 596 | | | | 384 | | | | 55 | % |

Embedded Processing revenue increased due about equally to Connectivity and Microcontrollers, which together offset a decline in Processors.

Operating profit increased primarily due to lower operating expenses.

Because most of the aggregate non-U.S. dollar balance sheet exposure is hedged by forward currency exchange contracts, based on year-end [removed: 2016] [added: 2017] balances and currency exchange rates, a hypothetical 10 percent plus or minus fluctuation in non-U.S. currency exchange rates relative to the U.S. dollar would result in a pre-tax currency exchange gain or loss of about [removed: $1] [added: $6] million.

For example, at year-end [removed: 2016,] [added: 2017,] we had forward currency exchange contracts outstanding with a notional value of [removed: $494] [added: $365] million to hedge net balance sheet exposures (including [removed: $158] [added: $140] million to sell Japanese [removed: yen] [added: yen, $59 million to sell British pound sterling] and [removed: $123] [added: $49] million to sell euros).

Similar hedging activities existed at year-end [removed: 2015.][added: 2016.]

As of December 31, [removed: 2016,] [added: 2017,] 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 [removed: $7] [added: $8] million and decrease the fair value of our long-term debt by [removed: $104] [added: $141] million.

Long-term investments at year-end [removed: 2016] [added: 2017] include the following:

In [removed: 2016,] [added: 2017,] we generated [removed: $13.37] [added: $14.96] billion of revenue.

[removed: We focus our resources on] Analog and [removed: Embedded Processing because we believe that these segments’] [added: embedded processing products sold into industrial and automotive markets provide] long product life cycles, intrinsic [removed: diversity] [added: diversity,] and [removed: need for] less capital-intensive [removed: manufacturing provide a combination of] [added: manufacturing, which we believe offer] stability, profitability and strong cash generation.

This business model is the foundation of our capital management strategy, which is based on our belief that free cash flow [removed: growth] [added: growth, especially on a per-share basis,] is important for maximizing shareholder value over the long term.

[added: Our] Analog [added: segment] generated [removed: $8.54] [added: $9.90] billion of revenue in [removed: 2016.][added: 2017.]

Our Analog products are used in many markets, particularly [removed: personal electronics] [added: industrial, automotive] and [removed: industrial.][added: personal electronics.]

Sales of our Analog products generated about [removed: 64] [added: 66] percent of our revenue in [removed: 2016.][added: 2017.]

According to external sources, the market for analog semiconductors was about [removed: $48] [added: $53] billion in [removed: 2016.][added: 2017.]

Our Analog segment’s revenue in [removed: 2016] [added: 2017] was about [removed: 18] [added: 19] percent of this fragmented market, the leading position.

[removed: In 2016, our] [added: Our] Analog segment [removed: included] [added: includes] the following major product lines: [removed: High Volume Analog & Logic (HVAL), Power Management (Power), High Performance Analog (HPA)] [added: Power, Signal Chain] and [removed: Silicon Valley Analog (SVA).][added: High Volume.]

Power [removed: included] [added: includes] products that help customers manage power in electronic systems.

Our broad portfolio [removed: of Power products] is designed to manage power requirements [added: across different voltage levels] using battery management solutions, portable [removed: power] components, power supply [removed: controls and] [added: controls,] point-of-load [added: products, switches and interfaces, integrated protection devices, high-voltage products, and mobile lighting and display] products.

[added: Our] Embedded Processing [added: segment] generated [removed: $3.02] [added: $3.50] billion of revenue in [removed: 2016.][added: 2017.]

Our Embedded Processing products are used in many markets, particularly [removed: industrial, automotive] [added: industrial] and [removed: communications equipment.][added: automotive.]

Sales of Embedded Processing products generated about 23 percent of our revenue in [removed: 2016.][added: 2017.]

According to external sources, the market for embedded processors was about [removed: $18] [added: $20] billion in [removed: 2016.][added: 2017.]

Our Embedded Processing segment’s revenue in [removed: 2016] [added: 2017] was about [removed: 17] [added: 18] percent of this fragmented market, among the leaders.

[removed: In 2016, our] [added: Our] Embedded Processing segment [removed: included] [added: includes] the following major product lines: [removed: Processors,] [added: Connected] Microcontrollers and [removed: Connectivity.][added: Processors.]

Processors [removed: included] [added: includes] digital signal processors (DSPs) and applications processors.

[added: Connected] Microcontrollers

Microcontrollers [removed: included] [added: are] 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 [removed: memory and] [added: memory,] program [removed: length, with no operating system] [added: length] and [removed: low] software complexity.

We report the results of our remaining business activities in Other, which [removed: included] [added: includes] operating segments that do not meet the quantitative thresholds for individually reportable segments and cannot be aggregated with other operating segments.

Other generated [removed: $1.81] [added: $1.56] billion of revenue in [removed: 2016] [added: 2017] and [removed: included] [added: includes] revenue from DLP® products (primarily used in projectors to create high-definition images), [removed: calculators,] [added: calculators and] certain custom semiconductors known as application-specific integrated circuits [removed: (ASICs) and royalties received from agreements involving license rights to our patent portfolio.][added: (ASICs).]

In Other, we also [removed: included] [added: include] items that are not used in evaluating the results of or in allocating resources to our segments.

The table below lists the major markets [removed: that used] [added: for] our products in [removed: 2016] [added: 2017] and the estimated percentage of our [removed: 2016] [added: 2017] revenue that the market represented.

| Industrial [removed: (33%] [added: (35%] of TI revenue) | | Factory automation and control [removed: Medical/healthcare/fitness] Building automation [added: Medical/healthcare/fitness] Grid infrastructure Test and measurement [removed: Space/avionics/defense] Motor drives [added: Space/avionics/defense Appliances Power delivery] Electronic point of sale [removed: Appliances Power delivery] Display Industrial transportation Lighting Industrial other |

| Automotive [removed: (18%] [added: (19%] of TI revenue) | | Infotainment and cluster Passive safety Advanced [removed: Driver Assistance Systems] [added: driver assistance systems] (ADAS) Hybrid/electric vehicle and powertrain Body electronics and lighting |

| Personal electronics [removed: (26%] [added: (25%] of TI revenue) | | Mobile phones Personal and notebook computers [removed: Storage] Portable electronics [added: Storage] Tablets [removed: Home theater and entertainment] Printers and other peripherals [removed: TV] [added: Home theater and entertainment] Wearables (non-medical) [added: TV] Gaming |

| Communications equipment [removed: (13%] [added: (12%] of TI revenue) | | Wireless infrastructure Telecom infrastructure Enterprise switching Residential |

| Enterprise systems (6% of TI revenue) | | Projectors Servers [removed: High-performance computing] Multi-function printers [added: High-performance computing] Thin client |

| Other [removed: (calculators, royalties] [added: (calculators] and other) [removed: (4%] [added: (3%] of TI revenue) | | |

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 its channels to market, technological innovation, product development execution, technical support, customer service, quality, reliability, [removed: price] [added: capacity] and [removed: scale.][added: price.]

Historically, our sequential revenue growth rate tends to be weaker in the first and fourth quarters when compared [removed: to] [added: with] the second and third quarters.

The entire process takes place in highly specialized facilities and requires an average of 12 weeks, with most products [removed: completing] [added: being completed] within [removed: 7] [added: 6] to [removed: 15] [added: 14] weeks.

We expect to [added: continue to] maintain sufficient internal manufacturing capacity to meet the vast majority of our production [removed: needs.][added: needs, and to obtain manufacturing equipment to support new technology developments and revenue growth.]

To supplement our manufacturing capacity and maximize our responsiveness to customer [removed: demand and return on capital,] [added: demand,] we [removed: utilize] [added: use] the capacity of outside suppliers, commonly known as foundries, and subcontractors.

In [removed: 2016,] [added: 2017,] we sourced about 20 percent of our total wafers from external foundries and about 40 percent of our assembly/test services from subcontractors.

We [removed: estimate that we] sell our products to about 100,000 customers.

Our customer base is diverse, with more than one-third of our revenue [removed: deriving] [added: derived] from customers outside our largest 100.

[removed: Sales] [added: Customers, sales] and distribution

Our business model is designed around four sustainable competitive advantages, that we believe, in combination, put us in a unique class of companies.

These advantages include (1) a strong foundation of manufacturing and technology, (2) a broad portfolio of differentiated analog and embedded processing products, (3) the broadest reach of market channels and (4) diversity and longevity of our products, markets and customer positions.

Our strategic focus, and where we invest the majority of our resources, is on Analog and Embedded Processing, with a particular emphasis on designing and selling those products into the industrial and automotive markets, which we believe represent the best growth opportunities.

The combined effect of these sustainable competitive advantages is that over time we have gained market share in Analog and Embedded Processing and have grown and returned free cash flow.

TI’s business model puts us in a unique class of companies with the ability to grow, generate cash, and return that cash to shareholders.

In 2017, we reorganized the product lines within our segments to align our business structure with the way our customers select and buy products.

Signal Chain

Signal Chain includes products that sense, condition and measure real-world signals to allow information to be transferred or converted for further processing and control.

Our Signal Chain products, which serve a variety of end markets, include amplifiers, data converters, interface products, motor drives, clocks and sensing products.

High Volume

High Volume includes integrated analog and standard products that are primarily sold into markets such as personal electronics, industrial and automotive.

These products support applications like touch screens and automotive safety systems.

Connected Microcontrollers includes microcontrollers, microcontrollers with integrated wireless capabilities and stand-alone wireless connectivity solutions.

Our products are used in a wide range of applications and incorporate both wired and wireless communication with integrated analog functions to enable electronic equipment to sense, connect, log and transfer data.

In addition, manufacturing process technologies that provide differentiated levels of performance are a competitive factor for our Analog products and customers’ prior investments in software development is a competitive factor for our Embedded Processing products.

We do most of our manufacturing in-house.

This strategic decision to directly control our manufacturing helps ensure a consistent supply of products for our customers and also allows us to invest in technology that differentiates the features of our products.

We have focused on creating a competitive manufacturing cost advantage by increasing factory loadings of our advanced analog 300-millimeter wafers, which have about a 40 percent cost advantage per unpackaged chip over 200-millimeter wafers.

300-millimeter wafers will support the majority of our Analog growth going forward.

Additionally, we keep our manufacturing costs low by using mature assets acquired ahead of demand when their prices are most attractive.

We continually grow and strengthen our broad Analog and Embedded Processing portfolios through disciplined allocation of R&D resources.

We invest in R&D to develop differentiated products, with a particular emphasis on designing for the industrial and automotive markets.

Our long-term inventory strategy is to maintain high levels of customer service and stable lead times, minimize inventory obsolescence and improve manufacturing asset utilization.

To capitalize on manufacturing efficiencies, we build in advance of demand low-volume, long-lived devices with a broad customer base and a low risk of obsolescence.

Further, we have improved insight into demand and are better able to manage our factory loadings because over time we have increased consignment inventory programs with our customers and distributors.

About 60 percent of TI revenue is fulfilled from consignment programs.

Our strategy and expected customer demand will cause our inventory levels to fluctuate over time.

Longer term, we expect to carry more inventory than we have in the past as we move towards higher consignment levels and more long-lived, low-volume devices to serve industrial customers, a growing portion of our business.

From time to time we consider acquisitions and divestitures.

We focus on transactions that are a strategic fit and strengthen our portfolio, and that also meet our financial objectives.

* On January 18, 2018, Mr. Crutcher was appointed to succeed Mr. Templeton as president and chief executive officer, effective June 1, 2018.

Mr. Templeton will continue as chairman of the board.

Messrs.

Anderskouv, Ilan and Lizardi and Mses.

Barker and Van Haren became executive officers of the company in 2017.

Mr. Anderskouv was previously an executive officer of the company from 2012 to 2014.

| --- | --- |

Additional information regarding each segment follows.

HVAL

HVAL included high-volume integrated products that support applications like automotive safety systems, touchscreen controllers, low-voltage motor drivers and integrated motor controllers.

HPA

HPA included products that we market to many different customers who use them in manufacturing a wide range of end products.

HPA products included high-speed data converters, amplifiers, sensors, high-reliability products, interface products and precision products that are typically used in systems that require high performance.

HPA products generally have long life cycles, often more than 10 years.

SVA

SVA included a broad portfolio of industrial, high-voltage power management, data converter, interface and operational amplifier products used in manufacturing a wide range of electronic systems.

SVA products support applications like video and data interface products, high voltage power conversion, and mobile lighting and display systems.

SVA products generally have long life cycles, often more than 10 years.

SVA consisted primarily of products that we acquired through our purchase of National Semiconductor Corporation in 2011.

Analog components that control or interface with sensors and other systems are often integrated into microcontrollers.

Connectivity

Connectivity included products that enable electronic equipment to connect and transfer data wirelessly, with the requirements for speed, data capability, distance, power and security varying depending on the application.

Our Connectivity products support many wireless technologies to meet these requirements, including low-power wireless network standards like Sub-1GHz, Zigbee® and other technologies like Bluetooth® and WiFi.

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, the installed base of software, software expertise, applications and sales support, and a product’s performance, integration and power characteristics.

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 much of our manufacturing capacity; therefore, a significant portion of our operating cost is fixed and changes in factory loadings can cause short-term variations in profit margins.

When factory loadings decrease, our fixed costs are spread over reduced output and, absent other circumstances, our profit margins decrease.

Conversely, as factory loadings increase, our fixed costs are spread over increased output and, absent other circumstances, our profit margins increase.

Our operating focus is more on

maximizing long-term free cash flow than minimizing short-term variations in profit margins caused by factory loadings.

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.

Customers

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.

About 60 percent of TI revenue is fulfilled from consignment inventory programs that we have in place for our large customers and distributors.

With these programs, we own inventory that is stored at our customers’ and distributors’ locations, and we recognize revenue when the product is pulled from consigned inventory.

These consignment programs give us improved insight into demand, allowing us to better manage our factory loadings.

About 65 percent of our distributor revenue is generated from sales of consigned inventory.

From time to time we consider acquisitions and divestitures that may strengthen our strategic position.

We also make investments directly or indirectly in private companies.

Investments are focused primarily on next-generation technologies and markets strategic to us.

Our primary areas of R&D investment are Analog and Embedded Processing products.

| Kevin P. March | 59 | Senior Vice President, Principal Financial Officer and Chief Accounting Officer |

| Bing Xie | 49 | Senior Vice President |

10-K 1 [removed: txn-10k_20161231.htm FORM] [added: txn-10k_20171231.htm] 10-K

for the fiscal year ended December 31, [removed: 2016][added: 2017]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [removed: or] a smaller reporting [added: company, or an emerging growth] company.

See the definitions of “large accelerated filer,” “accelerated filer,” [removed: and] “smaller reporting [added: company,” and “emerging growth] company” in Rule 12b-2 of the Exchange Act.

The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately [removed: $62,805,040,210] [added: $76,179,967,734] as of June 30, [removed: 2016.][added: 2017.]

[removed: 999,639,733] [added: 983,787,502] (Number of shares of common stock outstanding as of February [removed: 21, 2017)][added: 20, 2018)]

Part III hereof incorporates information by reference to the Registrant’s proxy statement for the [removed: 2017] [added: 2018] annual meeting of stockholders.

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

| † | Portions of the facilities are leased and owned. This may include land [removed: leases, particularly for our non-U.S. sites.] [added: leases.] |

Our facilities in the United States contained approximately 13.1 million square feet at December 31, [removed: 2016,] [added: 2017,] of which approximately 0.7 million square feet were leased.

Our facilities outside the United States contained approximately [removed: 10.2] [added: 10.0] million square feet at December 31, [removed: 2016,] [added: 2017,] of which approximately 1.5 million square feet were leased.

At the end of [removed: 2016,] [added: 2017,] we occupied substantially all of the space in our facilities.

We believe our current properties are suitable and adequate for [removed: both] their intended [removed: purpose and our current and foreseeable future needs.][added: purpose.]

The information concerning the number of stockholders of record at December 31, [removed: 2016,] [added: 2017,] is contained in Item 6, “Summary of Selected Financial Data.”

| 2016 | | High | | [removed: $] | 58.37 | | | [removed: $] | 63.30 | | | [removed: $] | 71.42 | | | [removed: $] | 74.87 | |

| 2016 | | | | [removed: $] | 0.38 | | | [removed: $] | 0.38 | | | [removed: $] | 0.38 | | | [removed: $] | 0.50 | |

The following table contains information regarding our purchases of our common stock during the fourth quarter of [removed: 2016.][added: 2017.]

| (1) | All [added: open-market] purchases during the quarter were made under the authorization from our board of directors to purchase up to $7.5 billion of additional shares of TI common stock announced September 17, 2015. [added: On September 21, 2017, our board of directors authorized the purchase of an additional $6.0 billion of our common stock.] |

| (3) | As of December 31, [removed: 2016,] [added: 2017,] this amount consisted of the remaining portion of the $7.5 billion authorized in September [removed: 2015.] [added: 2015 and the $6.0 billion authorized in September 2017.] No expiration date has been specified for [removed: this authorization.] [added: these authorizations.] |

| 2017 | | High | | $ | 82.20 | | | $ | 84.34 | | | $ | 89.65 | | | $ | 104.82 | |

| | | Low | | | 72.92 | | | | 76.90 | | | | 76.41 | | | | 89.65 | |

| 2017 | | | | $ | 0.50 | | | $ | 0.50 | | | $ | 0.50 | | | $ | 0.62 | |

| October 1, 2017 through October 31, 2017 | | | 2,575,154 | | | | $ | 93.49 | | | | 2,560,953 | | | | $ | 9.71 billion | |

| November 1, 2017 through November 30, 2017 | | | 3,324,228 | | | | | 97.71 | | | | 3,324,228 | | | | | 9.39 billion | |

| December 1, 2017 through December 31, 2017 | | | 1,456,816 | | | | | 97.63 | | | | 1,456,816 | | | | | 9.24 billion | |

| Total | | | 7,356,198 | (2) | | | $ | 96.22 | (2) | | | 7,341,997 | | | | $ | 9.24 billion | (3) |

| (2) | In addition to open-market purchases, 14,201 shares of common stock were surrendered by employees to satisfy tax withholding obligations in connection with the vesting of restricted stock units. |

| 2015 | | High | | | 59.94 | | | | 58.73 | | | | 52.08 | | | | 58.98 | |

| | | Low | | | 51.78 | | | | 51.51 | | | | 43.52 | | | | 48.44 | |

| 2015 | | | | | 0.34 | | | | 0.34 | | | | 0.34 | | | | 0.38 | |

| October 1, 2016 through October 31, 2016 | | | 2,919,230 | | | | $ | 69.92 | | | | 2,919,230 | | | | $ | 6.07 billion | |

| November 1, 2016 through November 30, 2016 | | | 2,857,964 | | | | | 71.23 | | | | 2,857,964 | | | | | 5.87 billion | |

| December 1, 2016 through December 31, 2016 | | | 943,139 | | | | | 71.36 | | | | 943,139 | | | | | 5.80 billion | |

| Total | | | 6,720,333 | (2) | | | $ | 70.68 | | | | 6,720,333 | (2) | | | $ | 5.80 billion | (3) |

| (2) | All purchases during the quarter were open-market purchases. |

| | | For Years Ended December 31, | | | | | | | | | | | | | | | | | | | [added: | | | | |]

| (Millions of dollars, except share and per-share amounts) | | [added: 2017 | | | | |] 2016 | | | | [removed: 2015] | [added: 2015] | | | [removed: 2014] | | [added: 2014] | | [removed: 2013] | | | [added: 2013] | [removed: 2012] | | |

| Cash flow data: | | | | | | | | | | | | | | | | | | | | | [added: | | | | |]

| Cash flows from operating activities [removed: (a)] | | $ | [removed: 4,614] | [added: 5,363] | | [added: |] $ | [removed: 4,397] | [added: 4,614] | | [added: |] $ | [removed: 4,054] | [added: 4,397] | | [added: |] $ | [removed: 3,514] | [added: 4,054] | | [added: |] $ | [removed: 3,483] | [added: 3,514] | [added: |]

| Capital expenditures | | | [removed: 531] | [added: 695] | | | [removed: 551] | | [added: 531] | | [removed: 385] | | | [added: 551] | [removed: 412] | | | | [removed: 495] [added: 385] | | [added: | | | 412 | |]

| Free cash flow (a) [removed: (b)] | | | [removed: 4,083] | [added: 4,668] | | | [removed: 3,846] | | [added: 4,083] | | [removed: 3,669] | | | [added: 3,846] | [removed: 3,102] | | | | [removed: 2,988] [added: 3,669] | | [added: | | | 3,102 | |]

| Dividends paid | | | [removed: 1,646] | [added: 2,104] | | | [removed: 1,444] | | [added: 1,646] | | [removed: 1,323] | | | [added: 1,444] | [removed: 1,175] | | | | [removed: 819] [added: 1,323] | | [added: | | | 1,175 | |]

| Stock repurchases | | | [removed: 2,132] | [added: 2,556] | | | [removed: 2,741] | | [added: 2,132] | | [removed: 2,831] | | | [added: 2,741] | [removed: 2,868] | | | | [removed: 1,800] [added: 2,831] | | [added: | | | 2,868 | |]

| Income statement data: | | | | | | | | | | | | | | | | | | | | | [added: | | | | |]

| Revenue by segment: | | | | | | | | | | | | | | | | | | | | | [added: | | | | |]

| Analog | | | [removed: 8,536] | [added: 9,900] | | | [removed: 8,339] | | [added: 8,536] | | [removed: 8,104] | | | [added: 8,339] | [removed: 7,194] | | | | [removed: 6,998] [added: 8,104] | | [added: | | | 7,194 | |]

| Embedded Processing | | | [removed: 3,023] | [added: 3,498] | | | [removed: 2,787] | | [added: 3,023] | | [removed: 2,740] | | | [added: 2,787] | [removed: 2,450] | | | | [removed: 2,257] [added: 2,740] | | [added: | | | 2,450 | |]

| Other | | | [removed: 1,811] | [added: 1,563] | | | [removed: 1,874] | | [added: 1,811] | | [removed: 2,201] | | | [added: 1,874] | [removed: 2,561] | | | | [removed: 3,570] [added: 2,201] | | [added: | | | 2,561 | |]

| Revenue | | | [removed: 13,370] | [added: 14,961] | | | [removed: 13,000] | | [added: 13,370] | | [removed: 13,045] | | | [added: 13,000] | [removed: 12,205] | | | | [removed: 12,825] [added: 13,045] | | [added: | | | 12,205 | |]

| Acquisition charges | | | [removed: 319] | [added: 318] | | | [removed: 329] | | [added: 319] | | [removed: 330] | | | [added: 329] | [removed: 341] | | | | [removed: 450] [added: 330] | | [added: | | | 341 | |]

| Restructuring charges/other [added: (b)] | | | [removed: (15] | [removed: )] [added: 11] | | | [removed: (71] | [added: | (15 |] ) | | | [removed: (51] | [added: (71 |] ) | | | [removed: (189] | [added: (50 |] ) | | | [removed: 264] | [added: (192] | [added: ) |]

| Net income [removed: (c)] | | $ | [removed: 3,595] | [added: 3,682] | | [added: |] $ | [removed: 2,986] | [added: 3,595] | | [added: |] $ | [removed: 2,821] | [added: 2,986] | | [added: |] $ | [removed: 2,162] | [added: 2,821] | | [added: |] $ | [removed: 1,759] | [added: 2,162] | [added: |]

[added: |] 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: [added: | | | | | | | | | | | | | | | | | | | | | | | | | |]

| Income allocated to RSUs | | | [removed: (44] | [added: (33 |] ) | | | [removed: (42] | [added: (44 |] ) | | | [removed: (43] | [added: (42 |] ) | | | [removed: (36] | [added: (43 |] ) | | | [removed: (31] | [added: (36 |] ) |

| Income allocated to common shares for diluted EPS [removed: (c)] | | $ | [removed: 3,551] | [added: 3,649] | | [added: |] $ | [removed: 2,944] | [added: 3,551] | | [added: |] $ | [removed: 2,778] | [added: 2,944] | | [added: |] $ | [removed: 2,126] | [added: 2,778] | | [added: |] $ | [removed: 1,728] | [added: 2,126] | [added: |]

| Average diluted shares outstanding, in millions [removed: (c)] | | | [removed: 1,021] | [added: 1,012] | | | [removed: 1,043] | | [added: 1,021] | | [removed: 1,080] | | | [added: 1,043] | [removed: 1,113] | | | | [removed: 1,146] [added: 1,080] | | [added: | | | 1,113 | |]

| Diluted EPS [removed: (c)] | | $ | [removed: 3.48] | [added: 3.61] | | [added: |] $ | [removed: 2.82] | [added: 3.48] | | [added: |] $ | [removed: 2.57] | [added: 2.82] | | [added: |] $ | [removed: 1.91] | [added: 2.57] | | [added: |] $ | [removed: 1.51] | [added: 1.91] | [added: |]

| Cash dividends declared per common share | | $ | [removed: 1.64] | [added: 2.12] | | [added: |] $ | [removed: 1.40] | [added: 1.64] | | [added: |] $ | [removed: 1.24] | [added: 1.40] | | [added: |] $ | [removed: 1.07] | [added: 1.24] | | [added: |] $ | [removed: 0.72] | [added: 1.07] | [added: |]

| [removed: (a)] [added: (b)] | Prior periods reclassified to conform to the [removed: 2016] [added: 2017] presentation, having adopted ASU [removed: 2016-09.] [added: 2017-07.] See Note [removed: 2.] [added: 2 to the financial statements.] |

| [removed: (b)] [added: (a)] | Free cash flow is a non-GAAP measure derived by subtracting Capital expenditures from Cash flows from operating activities. |

| | | December 31, | | | | | | | | | | | | | | | | | | | [added: | | | | |]

| (Millions of dollars, except Other data items) | | [added: 2017 | | | | |] 2016 | | | | [removed: 2015] | [added: 2015] | | | [removed: 2014] | | [added: 2014] | | [removed: 2013] | | | [added: 2013] | [removed: 2012] | | |

| Balance sheet data: | | | | | | | | | | | | | | | | | | | | | [added: | | | | |]

| Cash, cash equivalents and short-term investments | | $ | [removed: 3,490] | [added: 4,469] | | [added: |] $ | [removed: 3,218] | [added: 3,490] | | [added: |] $ | [removed: 3,541] | [added: 3,218] | | [added: |] $ | [removed: 3,829] | [added: 3,541] | | [added: |] $ | [removed: 3,965] | [added: 3,829] | [added: |]

| Total assets | | | [removed: 16,431] | [added: 17,642] | | | [removed: 16,230] | | [added: 16,431] | | [removed: 17,372] | | | [added: 16,230] | [removed: 18,554] | | | | [removed: 19,565] [added: 17,372] | | [added: | | | 18,554 | |]

| Current portion of long-term debt [removed: and commercial paper borrowings] | | | [removed: 631] | [removed: |] [added: 500] | | [removed: 1,000] | | | [added: 631] | [removed: 1,001] | | | | 1,000 | | | | [removed: 1,500] | [added: 1,001] | [added: | | | | 1,000 | |]

| Long-term debt | | | [removed: 2,978] | [added: 3,577] | | | [removed: 3,120] | | [added: 2,978] | | [removed: 3,630] | | | [added: 3,120] | [removed: 4,145] | | | | [removed: 4,175] [added: 3,630] | | [added: | | | 4,145 | |]

| Other data - Number of: | | | | | | | | | | | | | | | | | | | | | [added: | | | | |]

| Employees | | | [removed: 29,865] | [added: 29,714] | | | [removed: 29,977] | | [added: 29,865] | | [removed: 31,003] | | | [added: 29,977] | [removed: 32,209] | | | | [removed: 34,151] [added: 31,003] | | [added: | | | 32,209 | |]

| Stockholders of record | | | [removed: 14,910] | [added: 14,260] | | | [removed: 15,563] | | [added: 14,910] | | [removed: 16,361] | | | [added: 15,563] | [removed: 17,213] | | | | [removed: 18,128] [added: 16,361] | | [added: | | | 17,213 | |]

See [removed: Notes to the financial statements and] Management’s [removed: discussion] [added: Discussion] and [removed: analysis] [added: Analysis] of [removed: financial condition] [added: Financial Condition] and [removed: results] [added: Results] of [removed: operations.][added: Operations and Financial Statements and Supplementary Data.]

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| | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | |

| Gross profit (b) | | | | 9,614 | | | | | 8,257 | | | | | 7,575 | | | | | 7,447 | | | | | 6,400 | |

| Operating expenses (R&D and SG&A) (b) | | | | 3,202 | | | | | 3,098 | | | | | 2,995 | | | | | 3,164 | | | | | 3,329 | |

| Operating profit (b) | | | | 6,083 | | | | | 4,855 | | | | | 4,322 | | | | | 4,003 | | | | | 2,922 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | |

| Net income | | $ | | 3,682 | | | $ | | 3,595 | | | $ | | 2,986 | | | $ | | 2,821 | | | $ | | 2,162 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | |

| Gross profit | | | 8,240 | | | | 7,560 | | | | 7,427 | | | | 6,364 | | | | 6,368 | |

| Operating expenses (R&D and SG&A) | | | 3,137 | | | | 3,028 | | | | 3,201 | | | | 3,380 | | | | 3,681 | |

| Operating profit | | | 4,799 | | | | 4,274 | | | | 3,947 | | | | 2,832 | | | | 1,973 | |

| (c) | 2016 amounts reflect the adoption of ASU 2016-09. See Note 2. |

[removed: |] Income for each of the three years in the period ended December 31, [removed: 2016 |][added: 2017]

[removed: |] Comprehensive income for each of the three years in the period ended December 31, [removed: 2016 |][added: 2017]

[removed: |] Balance sheets at December 31, [removed: 2016] [added: 2017] and [removed: 2015 |][added: 2016]

[removed: |] Cash flows for each of the three years in the period ended December 31, [removed: 2016 |][added: 2017]

[removed: |] Stockholders’ equity for each of the three years in the period ended December 31, [removed: 2016 |][added: 2017]

| (Millions of dollars, except share and per-share amounts) | | [removed: 2016] [added: 2017] | | | | | [removed: 2015] [added: 2016] | | | | | [removed: 2014] [added: 2015] | | | |

| Revenue | | $ | | [removed: 13,370] [added: 14,961] | | | $ | | [removed: 13,000] [added: 13,370] | | | $ | | [removed: 13,045] [added: 13,000] | |

| Gross profit | | | [removed: |] 8,240 | | | | | [added: 8,257 | | | | |] 7,560 | | | | | [removed: 7,427] [added: 7,575] | |

| Selling, general and administrative (SG&A) | | | | [removed: 1,767] [added: 1,694] | | | | | [removed: 1,748] [added: 1,742] | | | | | [removed: 1,843] [added: 1,728] | |

| Acquisition charges | | | | [removed: 319] [added: 318] | | | | | [removed: 329] [added: 319] | | | | | [removed: 330] [added: 329] | |

| Restructuring charges/other | | | | [removed: (15] [added: 11] | [removed: )] | | | | [removed: (71] [added: (15] | ) | | | | [removed: (51] [added: (71] | ) |

| [removed: Operating] [added: Total operating] profit | | | [removed: |] 4,799 | | | | | [added: 4,855 | | | | |] 4,274 | | | | | [removed: 3,947] [added: 4,322] | |

| Other income (expense), net (OI&E) | | | | [removed: 211] [added: 75] | | | | | [removed: 32] [added: 155] | | | | | [removed: 21] [added: (16] | [added: )] |

| Interest and debt expense | | | | [removed: 80] [added: 78] | | | | | [removed: 90] [added: 80] | | | | | [removed: 94] [added: 90] | |

| Income before income taxes | | | | [removed: 4,930] [added: 6,080] | | | | | [removed: 4,216] [added: 4,930] | | | | | [removed: 3,874] [added: 4,216] | |

| Provision for income taxes | | | | [removed: 1,335] [added: 2,398] | | | | | [removed: 1,230] [added: 1,335] | | | | | [removed: 1,053] [added: 1,230] | |

| Net income | | $ | | [removed: 3,595] [added: 3,682] | | | $ | | [removed: 2,986] [added: 3,595] | | | $ | | [removed: 2,821] [added: 2,986] | |

| Basic | | $ | | [removed: 3.54] [added: 3.68] | | | $ | | [removed: 2.86] [added: 3.54] | | | $ | | [removed: 2.61] [added: 2.86] | |

| Diluted | | $ | | [removed: 3.48] [added: 3.61] | | | $ | | [removed: 2.82] [added: 3.48] | | | $ | | [removed: 2.57] [added: 2.82] | |

| Basic | | | | [removed: 1,003] [added: 991] | | | | | [removed: 1,030] [added: 1,003] | | | | | [removed: 1,065] [added: 1,030] | |

| Diluted | | | | [removed: 1,021] [added: 1,012] | | | | | [removed: 1,043] [added: 1,021] | | | | | [removed: 1,080] [added: 1,043] | |

| Cash dividends declared per common share | | $ | | [removed: 1.64] [added: 2.12] | | | $ | | [removed: 1.40] [added: 1.64] | | | $ | | [removed: 1.24] [added: 1.40] | |

| Income allocated to RSUs | | | | [removed: (44] [added: (33] | ) | | | | [removed: (42] [added: (44] | ) | | | | [removed: (43] [added: (42] | ) |

| Income allocated to common stock for diluted EPS | | $ | | [removed: 3,551] [added: 3,649] | | | $ | | [removed: 2,944] [added: 3,551] | | | $ | | [removed: 2,778] [added: 2,944] | |

| (Millions of dollars) | | [removed: 2016] [added: 2017] | | | | | [removed: 2015] [added: 2016] | | | | | [removed: 2014] [added: 2015] | | | |

| Net actuarial [removed: gains (losses)] [added: losses] of defined benefit plans: | | | | | | | | | | | | | | | |

| Adjustment, net of tax [removed: benefit (expense)] [added: effect] of [removed: $6, $36] [added: ($26), $6] and [removed: $25] [added: $36] | | | | [removed: (43] [added: 92] | [removed: )] | | | | [removed: (74] [added: (43] | ) | | | | [removed: (46] [added: (74] | ) |

| Recognized within Net income, net of tax [removed: benefit (expense)] [added: effect] of [removed: ($25),] [added: ($27),] ($25) and [removed: ($21)] [added: ($25)] | | | | [removed: 51] [added: 56] | | | | | [removed: 53] [added: 51] | | | | | [removed: 42] [added: 53] | |

| Prior service [removed: (cost)] credit of defined benefit plans: | | | | | | | | | | | | | | | |

| Adjustment, net of tax [removed: benefit (expense)] [added: effect] of [removed: $0, ($11) and] [added: $1,] $0 [added: and ($11)] | | | | [removed: —] [added: (2] | [added: )] | | | | [removed: 20] [added: —] | | | | | [removed: (1] [added: 20] | [removed: )] |

| Recognized within Net income, net of tax [removed: benefit (expense)] [added: effect] of [removed: $2, $0] [added: $1, $2] and $0 | | | | [removed: (3] [added: (5] | ) | | | | [removed: —] [added: (3] | [added: )] | | | | — | |

| Recognized within Net income, net of tax [removed: benefit (expense)] [added: effect] of $0, [removed: ($1)] [added: $0] and ($1) | | | | 1 | | | | | 1 | | | | | 1 | |

| Other comprehensive income (loss), net of taxes | | | | [removed: 6] [added: 142] | | | | | [removed: —] [added: 6] | | | | | [removed: (4] [added: —] | [removed: )] |

| Total comprehensive income | | $ | | [removed: 3,601] [added: 3,824] | | | $ | | [removed: 2,986] [added: 3,601] | | | $ | | [removed: 2,817] [added: 2,986] | |

| (Millions of dollars, except share amounts) | | [removed: 2016] [added: 2017] | | | | | [removed: 2015] [added: 2016] | | | |

| Cash and cash equivalents | | $ | | [removed: 1,154] [added: 1,656] | | | $ | | [removed: 1,000] [added: 1,154] | |

| Short-term investments | | | | [removed: 2,336] [added: 2,813] | | | | | [removed: 2,218] [added: 2,336] | |

| Accounts receivable, net of allowances of [removed: ($17)] [added: ($8)] and [removed: ($7)] [added: ($17)] | | | | [removed: 1,267] [added: 1,278] | | | | | [removed: 1,165] [added: 1,267] | |

| Raw materials | | | | [removed: 102] [added: 126] | | | | | [removed: 109] [added: 102] | |

| Work in process | | | | [removed: 954] [added: 1,089] | | | | | [removed: 846] [added: 954] | |

| Cost of revenue (COR) | | | | 5,347 | | | | | 5,113 | | | | | 5,425 | |

| Gross profit | | | | 9,614 | | | | | 8,257 | | | | | 7,575 | |

| Research and development (R&D) | | | | 1,508 | | | | | 1,356 | | | | | 1,267 | |

| Operating profit | | | | 6,083 | | | | | 4,855 | | | | | 4,322 | |

| Net income | | $ | | 3,682 | | | $ | | 3,595 | | | $ | | 2,986 | |

| Other long-term liabilities | | | | 1,303 | | | | | 554 | |

| Shares: 2017 – 757,657,217; 2016 – 744,831,978 | | | | (27,458 | ) | | | | (25,523 | ) |

| (Millions of dollars) | | 2017 | | | | | 2016 | | | | | 2015 | | | |

| Net income | | $ | | 3,682 | | | $ | | 3,595 | | | $ | | 2,986 | |

| Balance, December 31, 2017 | | $ | | 1,741 | | | $ | | 1,776 | | | $ | | 34,662 | | | $ | | (27,458 | ) | | $ | | (384 | ) |

Beginning January 2017, we reorganized the product lines within our reportable segments – Analog and Embedded Processing – to align our business structure with the way our customers select and buy products.

These changes had no effect on either our previously reported consolidated financial statements or our reportable segment amounts.

Other includes DLP® products, calculators and custom ASIC products.

As of January 1, 2017, we no longer recognize royalties as revenue; instead, they are now recorded as OI&E.

Prior period amounts were not material.

| Analog | $ | | 4,468 | | | $ | | 3,416 | | | $ | | 3,077 | |

| Embedded Processing | | | 1,143 | | | | | 817 | | | | | 611 | |

| Other | | | 472 | | | | | 622 | | | | | 634 | |

| Total operating profit | $ | | 6,083 | | | $ | | 4,855 | | | $ | | 4,322 | |

Operating profit in the prior periods has been recast as a result of our early adoption of a new accounting standard related to pension and other retiree benefit costs.

| Total revenue | $ | | 14,961 | | | $ | | 13,370 | | | $ | | 13,000 | |

| Net income | $ | | 3,682 | | | | | | | | | | | | $ | | 3,595 | | | | | | | | | | | | $ | | 2,986 | | | | | | | | | | |

| Net income | $ | | 3,682 | | | | | | | | | | | | $ | | 3,595 | | | | | | | | | | | | $ | | 2,986 | | | | | | | | | | |

Accounting Standards Update (ASU) No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory

This standard requires current and deferred taxes resulting from the intra-entity transfer of any assets other than inventory to be recognized for financial reporting purposes when the transfer occurs rather than postpone recognition until the asset has been sold to an outside party, as currently allowed.

This standard is required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings and is effective for interim and annual periods beginning January 1, 2018.

We elected to adopt this standard in the first quarter of 2017.

The effect on our financial position and results of operations was not material.

ASU No. 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

This standard amends the income statement presentation of the components of net periodic benefit cost for defined benefit pension and other postretirement plans.

This standard requires us to: (1) disaggregate the current service cost component from the other components of net periodic benefit cost (the “other components”) and present it in the same line items on the statement of income as other current compensation costs for related employees and (2) present the other components outside of operating profit (i.e., in OI&E).

We elected to adopt this standard as of January 1, 2017.

Adoption of this standard did not impact Revenue, Net income, Earnings per common share or Cash flows from operating activities.

The following components on the Consolidated Statements of Income were affected:

| COR | $ | | 5,130 | | | $ | | 5,113 | | | $ | | 5,440 | | | $ | | 5,425 | |

| R&D | | | 1,370 | | | | | 1,356 | | | | | 1,280 | | | | | 1,267 | |

| SG&A | | | 1,767 | | | | | 1,742 | | | | | 1,748 | | | | | 1,728 | |

| Operating profit: | | | | | | | | | | | | | | | | | | | |

| OI&E | | | 211 | | | | | 155 | | | | | 32 | | | | | (16 | ) |

We plan on adopting this standard using the cumulative-effect (i.e., modified retrospective) transition method, which will result in an adjustment to retained earnings for the cumulative effect of applying this guidance to contracts in process as of January 1, 2018.

| --- |

| Cost of revenue (COR) | | | | 5,130 | | | | | 5,440 | | | | | 5,618 | |

| Research and development (R&D) | | | | 1,370 | | | | | 1,280 | | | | | 1,358 | |

| Deferred income taxes | | | | 374 | | | | | 201 | |

| Deferred credits and other liabilities | | | | 554 | | | | | 376 | |

| Shares: 2016 – 744,831,978; 2015 – 729,547,527 | | | | (25,523 | ) | | | | (24,068 | ) |

| Deferred income taxes | | | | (202 | ) | | | | (55 | ) | | | | (61 | ) |

| Balance, December 31, 2013 | | $ | | 1,741 | | | $ | | 1,211 | | | $ | | 28,173 | | | $ | | (19,790 | ) | | $ | | (528 | ) |

| 2014 | | | | | | | | | | | | | | | | | | | | | | | | | |

Other includes DLP® products, calculators, custom ASICs and royalties received from agreements involving license rights to our patent portfolio.

The assets and liabilities associated with these organizations are included in Other.

| Total operating profit | $ | | 4,799 | | | $ | | 4,274 | | | $ | | 3,947 | |

In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).

This standard removes the requirement to categorize within the fair value hierarchy certain investments for which fair value is not readily available but measured using the net asset value per share.

This standard was effective beginning January 1, 2016, and prior period amounts have been retrospectively adjusted for consistency in presentation.

Our adoption of this standard only affects our presentation of fair values of postretirement plan assets in Note 10 and does not impact our financial position and results of operations.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

This standard provides for several changes to the accounting for stock compensation, including a requirement that certain income-tax effects of awards be recognized in Net income in the period in which the awards are settled or vested, rather than recognized as Paid-in capital in the equity section of the balance sheet.

The standard also changes the presentation of excess tax benefits and statutory tax withholdings in the statement of cash flows.

We elected to adopt this standard in the fourth quarter of 2016, which requires us to reflect any adjustments as of January 1, 2016, the beginning of the annual period that includes the adoption.

Each of the provisions within this standard has its own specified transition method; some have been applied prospectively and others have been applied on a retrospective basis.

The primary effects of early adoption on our financial statements are as follows:

| | • | Income statement effects: Prospective basis – Net excess tax benefits and deficiencies will now be included in Provision for income taxes, rather than in Paid-in capital. The new standard requires this to be adopted on a prospective basis, with an initial adjustment to interim periods in the year of adoption. We recorded adjustments within Provision for income taxes, rather than in Paid-in capital, for excess tax benefits of $43 million, $40 million and $50 million for the first, second and third quarters of 2016, respectively. Excess tax benefits for the fourth quarter of 2016 were $17 million, for a total of $150 million recognized for all of 2016. See Note 6 for more information on income taxes. This standard also affects the average shares outstanding used in the diluted EPS calculation. The effects of these adjustments are shown in the table below. Results for prior annual periods were not affected. |

| | • | Cash flow effects: Retrospective basis – Excess tax benefits are now included in Cash flows from operating activities rather than Cash flows from financing activities in our Consolidated Statements of Cash Flows. We elected to apply this change in presentation retrospectively, and thus, prior periods have been adjusted. Taxes paid for employee shares withheld upon the vesting of RSUs are now included in Cash flows from financing activities in our Consolidated Statements of Cash Flows. This change is required to be applied retrospectively, and thus, prior periods have been adjusted. |

Under this standard, entities are permitted to make an accounting policy election to either estimate forfeitures on stock compensation awards, as previously required, or to recognize forfeitures as they occur.

We elected not to change our policy on accounting for forfeitures and will continue to estimate forfeitures expected to occur in determining the amount of compensation cost to be recognized in each period.

The effects of our adoption of the new standard on our unaudited quarterly results for 2016 are as follows:

| | Quarter | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | 1st | | | | | | | | | | 2nd | | | | | | | | | | 3rd | | | | | | | | |

| | Reported | | | | | Recast | | | | | Reported | | | | | Recast | | | | | Reported | | | | | Recast | | | |

| Income statement data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Provision for income taxes | $ | | 282 | | | $ | | 239 | | | $ | | 323 | | | $ | | 283 | | | $ | | 413 | | | $ | | 363 | |

| Net income | | | 668 | | | | | 711 | | | | | 779 | | | | | 819 | | | | | 968 | | | | | 1,018 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Average diluted shares outstanding, in millions | | | 1,018 | | | | | 1,022 | | | | | 1,016 | | | | | 1,020 | | | | | 1,017 | | | | | 1,023 | |

| Basic EPS | $ | | 0.65 | | | $ | | 0.70 | | | $ | | 0.77 | | | $ | | 0.81 | | | $ | | 0.95 | | | $ | | 1.00 | |

| Diluted EPS | $ | | 0.65 | | | $ | | 0.69 | | | $ | | 0.76 | | | $ | | 0.79 | | | $ | | 0.94 | | | $ | | 0.98 | |

| Cash flow data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Cash flows from operating activities | $ | | 547 | | | $ | | 653 | | | $ | | 1,069 | | | $ | | 1,109 | | | $ | | 1,413 | | | $ | | 1,465 | |

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 [removed: principal] [added: 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 [removed: principal] [added: chief] financial officer concluded that those disclosure controls and procedures were effective.

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 [removed: 2016] [added: 2017] that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 [removed: deteriorate.][added: deteriorate]

TI management assessed the effectiveness of internal control over financial reporting as of December 31, [removed: 2016.][added: 2017.]

Based on our assessment, we believe that, as of December 31, [removed: 2016,] [added: 2017,] our internal control over financial reporting is effective based on the COSO criteria.

[removed: The] [added: To the Shareholders and the] Board of Directors [removed: and Stockholders][added: of Texas Instruments Incorporated]

We have audited Texas Instruments Incorporated’s internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal [removed: Control − Integrated] [added: Control—Integrated] Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

[removed: Texas Instruments Incorporated’s] [added: The Company’s] management is responsible for maintaining effective internal control over financial [removed: reporting,] [added: 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.

We conducted our audit in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

In our opinion, Texas Instruments Incorporated [added: (the Company)] maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (PCAOB),] the consolidated balance sheets of Texas Instruments Incorporated [removed: and subsidiaries] as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related consolidated statements of income, comprehensive income, [removed: stockholders’ equity,] [added: shareholders' equity] and cash flows for each of the three years in the period ended December 31, [removed: 2016,] [added: 2017,] and [added: the related notes, and] our report dated February [removed: 23, 2017,] [added: 22, 2018] expressed an unqualified opinion thereon.

[removed: ][added: ]

Opinion on Internal Control over Financial Reporting

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control Over Financial Reporting

February 22, 2018

Texas Instruments Incorporated

February 23, 2017

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 [removed: 2017] [added: 2018] 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 [removed: “Board diversity] [added: “Diversity] and [removed: nominee] qualifications” in our proxy statement for the [removed: 2017] [added: 2018] annual meeting of stockholders, is incorporated herein by reference to such proxy statement.

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 [removed: 2017] [added: 2018] annual meeting of stockholders is incorporated herein by reference to such proxy statement.

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 [removed: 2017] [added: 2018] annual meeting of stockholders is incorporated herein by reference to such proxy statement.

The information contained under the captions “Director compensation” and “Executive compensation” in our proxy statement for the [removed: 2017] [added: 2018] 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 [removed: 2017] [added: 2018] annual meeting of stockholders is incorporated herein by reference to such proxy statement.

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 [removed: 2017] [added: 2018] annual meeting of stockholders is incorporated herein by reference to such proxy statement.

The information contained under the caption “Equity compensation plan information” in our proxy statement for the 2018 annual meeting of stockholders is incorporated herein by reference to such proxy statement.

| --- | --- |

The following table sets forth information about the company’s equity compensation plans as of December 31, 2016.

| | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) | | | | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) | | | | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in column (a)) (c) | | | |

| Equity compensation plans approved by security holders | | | | 62,380,188 | (1) | | | $ | 42.01 | (2) | | | | 97,283,403 | (3) |

| Equity compensation plans not approved by security holders | | | | 2,645,024 | (4) | | | $ | 41.89 | (2) | | | | 0 | |

| Total | | | | 65,025,212 | (5) | | | $ | 42.00 | | | | | 97,283,403 | |

| (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”). |

| (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. 59,581,585 shares remain available for future issuance under the 2009 LTIP and 1,314,646 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 52,265,788 shares for issuance upon exercise of outstanding grants of options, 12,332,379 shares for issuance upon vesting of outstanding grants of restricted stock units, 283,400 shares for issuance under the 2014 ESPP and 143,645 shares for issuance in settlement of directors’ deferred compensation accounts. |

The information contained under the [removed: caption] [added: captions] “Related person transactions” [added: and “Director independence”] in our proxy statement for the [removed: 2017] [added: 2018] 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 2017 annual meeting of stockholders is incorporated herein by reference to such proxy statement.

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 [removed: 2017] [added: 2018] annual meeting of stockholders is incorporated herein by reference to such proxy statement.

| 3(a) | [removed: Restated] [added: [Restated] Certificate of Incorporation of the Registrant, dated April 18, 1985, as [removed: amended] [added: amended](http://www.sec.gov/Archives/edgar/data/97476/000009747615000003/txn-12312014xexhibit3a.htm)] | 10-K | 001-3761 | | February 24, 2015 | 3(a) | |

| 3(b) | [removed: By-Laws] [added: [By-Laws] of the [removed: Registrant] [added: Registrant](http://www.sec.gov/Archives/edgar/data/97476/000156459016030135/txn-ex3_6.htm)] | 8-K | 001-3761 | | December 12, 2016 | 3 | |

| 4(a) | [removed: Indenture] [added: [Indenture](http://www.sec.gov/Archives/edgar/data/97476/000119312511147104/dex42.htm)] | 8-K | 001-3761 | | May 23, 2011 | 4.2 | |

| 4(b) | [removed: Officer’s Certificate] [added: [Officer’s Certificate](http://www.sec.gov/Archives/edgar/data/97476/000119312511147104/dex43.htm)] | 8-K | 001-3761 | | May 23, 2011 | 4.3 | |

| 4(c) | [removed: Officer’s Certificate] [added: [Officer’s Certificate](http://www.sec.gov/Archives/edgar/data/97476/000119312513206195/d533359dex42.htm)] | 8-K | 001-3761 | | May 8, 2013 | 4.2 | |

| 4(d) | [removed: Officer’s Certificate] [added: [Officer’s Certificate](http://www.sec.gov/Archives/edgar/data/97476/000119312514094885/d691140dex42.htm)] | 8-K | 001-3761 | | March 12, 2014 | 4.2 | |

| 4(e) | [removed: Officer’s Certificate] [added: [Officer’s Certificate](http://www.sec.gov/Archives/edgar/data/97476/000119312515173382/d920775dex41.htm)] | 8-K | 001-3761 | | May 6, 2015 | 4.1 | |

| [removed: 4(f)] [added: 4(i)] | 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. | | | | | | |

| 10(a) | [removed: TI] [added: [TI] Deferred Compensation Plan, as [removed: amended*] [added: amended*](http://www.sec.gov/Archives/edgar/data/97476/000156459016013126/txn-ex10a_325.htm)] | 10-K | | 001-3761 | February 24, 2016 | 10(a) | |

| 10(b) | [removed: TI] [added: [TI] Employees Non-Qualified Pension Plan, effective January 1, 2009, as [removed: amended*] [added: amended*](http://www.sec.gov/Archives/edgar/data/97476/000156459016013126/txn-ex10b_263.htm)] | 10-K | | 001-3761 | February 24, 2016 | 10(b) | |

| 10(c) | [removed: TI] [added: [TI] Employees Non-Qualified Pension Plan [removed: II*] [added: II*](http://www.sec.gov/Archives/edgar/data/97476/000156459016013126/txn-ex10c_264.htm)] | 10-K | | 001-3761 | February 24, 2016 | 10(c) | |

| 10(d) | [removed: Texas] [added: [Texas] Instruments Long-Term Incentive Plan, adopted April 15, [removed: 1993*] [added: 1993*](http://www.sec.gov/Archives/edgar/data/97476/000009747612000010/txn-12312011xexhibit10c.htm)] | 10-K | | 001-3761 | February 24, 2012 | 10(c) | |

| 10(e) | [removed: Texas] [added: [Texas] Instruments 2000 Long-Term Incentive Plan as amended October 16, [removed: 2008*] [added: 2008*](http://www.sec.gov/Archives/edgar/data/97476/000009747615000003/txn-12312014xexhibit10e.htm)] | 10-K | | 001-3761 | February 24, 2015 | 10(e) | |

| 10(f) | [removed: Texas] [added: [Texas] Instruments 2003 Long-Term Incentive Plan as amended October 16, [removed: 2008] [added: 2008](http://www.sec.gov/Archives/edgar/data/97476/000009747615000003/txn-12312014xexhibit10f.htm)] | 10-K | | 001-3761 | February 24, 2015 | 10(f) | |

| 10(g) | [removed: Texas] [added: [Texas] Instruments Executive Officer Performance Plan as amended September 17, [removed: 2009*] [added: 2009*](http://www.sec.gov/Archives/edgar/data/97476/000009747615000003/txn-12312014xexhibit10g.htm)] | 10-K | | 001-3761 | February 24, 2015 | 10(g) | |

| 10(h) | [removed: Texas] [added: [Texas] Instruments Restricted Stock Unit Plan for Directors, as amended, dated April 16, [removed: 1998] [added: 1998](http://www.sec.gov/Archives/edgar/data/97476/000009747612000010/txn-12312011xexhibit10h.htm)] | 10-K | | 001-3761 | February 24, 2012 | 10(h) | |

| 10(i) | [removed: Texas] [added: [Texas] Instruments Directors Deferred Compensation Plan, as amended, dated April 16, [removed: 1998] [added: 1998](http://www.sec.gov/Archives/edgar/data/97476/000009747612000010/txn-12312011xexhibit10i.htm)] | 10-K | | 001-3761 | February 24, 2012 | 10(i) | |

| 10(j) | [removed: Texas] [added: [Texas] Instruments 2003 Director Compensation Plan as amended January 19, [removed: 2012] [added: 2012](http://www.sec.gov/Archives/edgar/data/97476/000009747615000003/txn-12312014xexhibit10j.htm)] | 10-K | | 001-3761 | February 24, 2015 | 10(j) | |

| 10(k) | [removed: Form] [added: [Form] of Non-Qualified Stock Option Agreement for Executive Officers under the Texas Instruments 2009 Long-Term Incentive [removed: Plan*] [added: Plan*](http://www.sec.gov/Archives/edgar/data/97476/000156459017002142/txn-ex10k_1019.htm)] | [added: 10-K] | | [added: 001-3761] | [added: February 23, 2017] | [added: 10(k)] | [removed: X] |

| 10(l) | [removed: Form] [added: [Form] of Restricted Stock Unit Award Agreement for Executive Officers under the Texas Instruments 2009 Long-Term Incentive [removed: Plan*] [added: Plan*](http://www.sec.gov/Archives/edgar/data/97476/000156459017002142/txn-ex10l_1018.htm)] | [added: 10-K] | | [added: 001-3761] | [added: February 23, 2017] | [added: 10(l)] | [removed: X] |

| 10(m) | [removed: Texas] [added: [Texas] Instruments 2009 Long-Term Incentive Plan as amended April 21, [removed: 2016 *] [added: 2016*](http://www.sec.gov/Archives/edgar/data/97476/000119312516497866/d117862ddef14a.htm)] | DEF 14A | | 001-3761 | March 9, 2016 | Appendix B | |

| | • | Market demand for semiconductors, particularly in [removed: TI’s] [added: our] end markets; |

| | • | [removed: TI’s] [added: Our] ability to compete in products and prices in an intensely competitive industry; |

| | • | Customer demand that differs from forecasts and the financial impact of inadequate or excess [removed: TI] [added: company] inventory that results from demand that differs from projections; |

| | • | [removed: TI’s] [added: Our] ability to develop, manufacture and market innovative products in a rapidly changing technological environment; |

| | • | Economic, social and political conditions in the countries in which [removed: TI,] [added: we,] our customers or our suppliers operate, including security risks; global trade policies; political and social instability; health conditions; possible disruptions in transportation, communications and information technology networks; and fluctuations in foreign currency exchange rates; |

| | • | Natural events such as severe weather, geological events or health epidemics in the locations in which [removed: TI,] [added: we,] our customers or our suppliers operate; |

| | • | [removed: Breaches or disruptions of TI’s] [added: Evolving cybersecurity threats to our] information technology systems or those of our customers or suppliers; |

| | • | Timely implementation of new manufacturing technologies and installation of manufacturing equipment, [removed: or] [added: and] the ability to obtain needed third-party foundry and assembly/test subcontract services; |

| | • | Compliance with or changes in the complex laws, rules and regulations to which [removed: TI is] [added: we are] or may become subject, or actions of enforcement authorities, that restrict [removed: TI’s] [added: our] ability to manufacture or ship our products or operate our business, or subject [removed: TI] [added: us] to fines, [removed: penalties,] [added: penalties] or other legal liability; |

| | • | Product liability or warranty claims, claims based on epidemic or delivery failure, or other claims relating to [removed: TI] [added: our] products, manufacturing, services, design or communications, or recalls by [removed: TI] [added: our] customers for a product containing [removed: a TI part;] [added: one of our parts;] |

| | • | Changes in [added: tax law and accounting standards that can impact] the tax rate applicable to [removed: TI as the result of changes in tax law,] [added: us,] the jurisdictions in which profits are determined to be earned and taxed, adverse resolution of tax audits, increases in tariff rates, and the ability to realize deferred tax assets; |