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ANNUAL
REPORT
TEXAS INSTRUMENTS 2012 ANNUAL REPORT • 15
Fair-value methods and assumptions
We account for all awards granted under our various stock-based compensation plans at fair value. We estimate the fair values for
non-qualified stock options under long-term incentive and director compensation plans using the Black-Scholes option-pricing model
with the following weighted average assumptions.
2012 2011 2010
Weighted average grant date fair value, per share . . . . . . . . . . . . . . . . . . . . . . . . . . . $8.31 $10.37 $6.61
Weighted average assumptions used:
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30% 30% 32%
Expected lives (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 6.9 6.4
Risk-free interest rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.40% 2.61% 2.83%
Expected dividend yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.10% 1.51% 2.08%
We determine expected volatility on all options granted after July 1, 2005, using available implied volatility rates. We believe that
market-based measures of implied volatility are currently the best available indicators of the expected volatility used in these estimates.
We determine expected lives of options based on the historical option exercise experience of our optionees using a rolling ten-year
average. We believe the historical experience method is the best estimate of future exercise patterns currently available.
Risk-free interest rates are determined using the implied yield currently available for zero-coupon U.S. government issues with a
remaining term equal to the expected life of the options.
Expected dividend yields are based on the approved annual dividend rate in effect and the current market price of our common
stock at the time of grant. No assumption for a future dividend rate change is included unless there is an approved plan to change the
dividend in the near term.
The fair value per share of RSUs that we grant is determined based on the closing price of our common stock on the date of grant.
Our employee stock purchase plan is a discount-purchase plan and consequently the Black-Scholes option-pricing model is not
used to determine the fair value per share of these awards. The fair value per share under this plan equals the amount of the discount.
Long-term incentive and director compensation plans
Stock option and RSU transactions under our long-term incentive and director compensation plans during 2012 were as follows:
Stock Options RSUs
Shares
Weighted
Average Exercise
Price per Share Shares
Weighted Average
Grant Date
Fair Value per
Share
Outstanding grants, December 31, 2011 . . . . . . . . . . . . . 113,273,394 $ 25.79 23,358,846 $ 25.09
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,508,034 32.35 5,617,150 31.60
Vested RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (4,182,928) 28.66
Expired and forfeited . . . . . . . . . . . . . . . . . . . . . . (4,732,514) 29.78 (1,417,834) 26.76
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,409,816) 20.32 — —
Outstanding grants, December 31, 2012 . . . . . . . . . . . . 99,639,098 $ 27.73 23,375,234 $ 25.91
The weighted average grant date fair value of RSUs granted during the years 2012, 2011 and 2010 was $31.60, $33.20 and $23.47 per
share, respectively. For the years ended December 31, 2012, 2011 and 2010, the total fair value of shares vested from RSU grants was
$120 million, $155 million and $51 million, respectively.
Summarized information about stock options outstanding at December 31, 2012, is as follows:
Stock Options Outstanding Options Exercisable
Range of
Exercise
Price
Number
Outstanding
(Shares)
Weighted Average
Remaining Contractual
Life (Years)
Weighted Average
Exercise Price per
Share
Number
Exercisable
(Shares)
Weighted Average
Exercise Price per
Share
$ 9.56 to 10.00 4,882 0.8 $ 9.56 4,882 $ 9.56
10.01 to 20.00 13,179,570 4.5 15.32 9,619,657 15.43
20.01 to 30.00 34,637,310 4.8 24.86 27,154,258 25.33
30.01 to 38.40 51,817,336 4.9 32.81 31,755,628 32.59
$ 9.56 to 38.40 99,639,098 4.8 $27.73 68,534,425 $27.30
During the years ended December 31, 2012, 2011 and 2010, the aggregate intrinsic value (i.e., the difference in the closing market
price and the exercise price paid by the optionee) of options exercised was $244 million, $231 million and $140 million, respectively.