EX-13 3 txn-12312013xexhibit13.htm EXHIBIT 13 TXN - 12.31.2013 - Exhibit 13


 
 
For Years Ended
December 31,
Consolidated Statements of Income
 
2013
 
2012
 
2011
[Millions of dollars, except share and per-share amounts]
 
 
 
 
 
 
Revenue
 
$
12,205

 
$
12,825

 
$
13,735

Cost of revenue (COR)
 
5,841

 
6,457

 
6,963

Gross profit
 
6,364

 
6,368

 
6,772

Research and development (R&D)
 
1,522

 
1,877

 
1,715

Selling, general and administrative (SG&A)
 
1,858

 
1,804

 
1,638

Acquisition charges
 
341

 
450

 
315

Restructuring charges/other
 
(189
)
 
264

 
112

Operating profit
 
2,832

 
1,973

 
2,992

Other income (expense), net (OI&E)
 
17

 
47

 
5

Interest and debt expense
 
95

 
85

 
42

Income before income taxes
 
2,754

 
1,935

 
2,955

Provision for income taxes
 
592

 
176

 
719

Net income
 
$
2,162

 
$
1,759

 
$
2,236

 
 
 
 
 
 
 
Earnings per common share:
 
 

 
 

 
 

Basic
 
$
1.94

 
$
1.53

 
$
1.91

Diluted
 
$
1.91

 
$
1.51

 
$
1.88

 
 
 
 
 
 
 
Average shares outstanding (millions):
 
 

 
 

 
 

Basic
 
1,098

 
1,132

 
1,151

Diluted
 
1,113

 
1,146

 
1,171

 
 
 
 
 
 
 
Cash dividends declared per share of common stock
 
$
1.07

 
$
0.72

 
$
0.56


See accompanying notes.

1


 
 
For Years Ended
December 31,
Consolidated Statements of Comprehensive Income
 
2013
 
2012
 
2011
[Millions of dollars]
 
 
 
 
 
 
Net income
 
$
2,162

 
$
1,759

 
$
2,236

Other comprehensive income (loss):
 
 

 
 

 
 

Available-for-sale investments:
 
 

 
 

 
 

Unrealized gains (losses), net of tax benefit (expense) of $0, ($1) and $1
 

 
3

 
(2
)
Reclassification to Net income, net of tax benefit (expense) of $0, $0 and ($7)
 

 

 
12

Net actuarial gains (losses) of defined benefit plans:
 
 
 
 

 
 

Adjustment, net of tax benefit (expense) of ($60), $29 and $65
 
105

 
(81
)
 
(124
)
Reclassification to Net income, net of tax benefit (expense) of ($37), ($104) and ($28)
 
71

 
160

 
48

Prior service cost of defined benefit plans:
 
 

 
 

 
 

Adjustment, net of tax benefit (expense) of $1, $1 and $5
 
(3
)
 
(2
)
 
(9
)
Reclassification to Net income, net of tax benefit (expense) of $2, $0 and ($1)
 
(3
)
 

 
2

Derivative instrument:
 
 
 
 
 
 
Change in fair value, net of tax benefit (expense) of $0, $1 and $1
 

 
(3
)
 
(2
)
Reclassification to Net income, net of tax benefit (expense) of ($1), $0 and $0
 
1

 

 

Other comprehensive income (loss), net of taxes
 
171

 
77

 
(75
)
Total comprehensive income
 
$
2,333

 
$
1,836

 
$
2,161


See accompanying notes.

2


 
 
December 31,
Consolidated Balance Sheets
 
2013
 
2012
[Millions of dollars, except share amounts]
 
 
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
1,627

 
$
1,416

Short-term investments
 
2,202

 
2,549

Accounts receivable, net of allowances of ($22) and ($31)
 
1,203

 
1,230

Raw materials
 
102

 
116

Work in process
 
919

 
935

Finished goods
 
710

 
706

Inventories
 
1,731

 
1,757

Deferred income taxes
 
393

 
473

Prepaid expenses and other current assets
 
863

 
805

Total current assets
 
8,019

 
8,230

Property, plant and equipment at cost
 
6,556

 
6,891

Accumulated depreciation
 
(3,157
)
 
(2,979
)
Property, plant and equipment, net
 
3,399

 
3,912

Long-term investments
 
216

 
215

Goodwill, net
 
4,362

 
4,362

Acquisition-related intangibles, net
 
2,223

 
2,558

Deferred income taxes
 
207

 
280

Capitalized software licenses, net
 
118

 
142

Overfunded retirement plans
 
130

 
68

Other assets
 
264

 
254

Total assets
 
$
18,938

 
$
20,021

 
 
 
 
 
Liabilities and stockholders’ equity
 
 

 
 

Current liabilities:
 
 

 
 

Current portion of long-term debt
 
$
1,000

 
$
1,500

Accounts payable
 
422

 
444

Accrued compensation
 
554

 
524

Income taxes payable
 
119

 
79

Deferred income taxes
 
1

 
2

Accrued expenses and other liabilities
 
651

 
881

Total current liabilities
 
2,747

 
3,430

Long-term debt
 
4,158

 
4,186

Underfunded retirement plans
 
216

 
269

Deferred income taxes
 
548

 
572

Deferred credits and other liabilities
 
462

 
603

Total liabilities
 
8,131

 
9,060

Stockholders’ equity:
 
 

 
 

Preferred stock, $25 par value. Authorized – 10,000,000 shares.
       Participating cumulative preferred. None issued.
 

 

Common stock, $1 par value. Authorized – 2,400,000,000 shares.
       Shares issued: 1,740,815,939
 
1,741

 
1,741

Paid-in capital
 
1,211

 
1,176

Retained earnings
 
28,173

 
27,205

Treasury common stock at cost.
       Shares: 2013 – 658,012,970; 2012 – 632,636,970
 
(19,790
)
 
(18,462
)
Accumulated other comprehensive income (loss), net of taxes
 
(528
)
 
(699
)
Total stockholders’ equity
 
10,807

 
10,961

Total liabilities and stockholders’ equity
 
$
18,938

 
$
20,021

See accompanying notes.

3


 
 
For Years Ended
December 31,
Consolidated Statements of Cash Flows
 
2013
 
2012
 
2011
[Millions of dollars]
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Net income
 
$
2,162

 
$
1,759

 
$
2,236

Adjustments to Net income:
 
 

 
 

 
 

Depreciation
 
879

 
957

 
904

Amortization of acquisition-related intangibles
 
336

 
342

 
111

Amortization of capitalized software
 
82

 
102

 
93

Stock-based compensation
 
287

 
263

 
269

Gain on sales of assets
 
(6
)
 

 
(5
)
Deferred income taxes
 
50

 
130

 
55

Gain on transfer of Japan substitutional pension
 

 
(144
)
 

Increase (decrease) from changes in:
 
 

 
 

 
 

Accounts receivable
 
16

 
311

 
112

Inventories
 
26

 
5

 
(17
)
Prepaid expenses and other current assets
 
(136
)
 
162

 
(203
)
Accounts payable and accrued expenses
 
(284
)
 
99

 
2

Accrued compensation
 
18

 
(82
)
 
(77
)
Income taxes payable
 
78

 
(229
)
 
(85
)
Changes in funded status of retirement plans
 
28

 
(198
)
 
(7
)
Other
 
(152
)
 
(63
)
 
(132
)
Cash flows from operating activities
 
3,384

 
3,414

 
3,256

 
 
 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

 
 

Capital expenditures
 
(412
)
 
(495
)
 
(816
)
Proceeds from asset sales and insurance recovery
 
21

 

 
16

Purchases of short-term investments
 
(3,907
)
 
(2,802
)
 
(3,653
)
Proceeds from short-term investments
 
4,249

 
2,198

 
3,555

Business acquisitions, net of cash acquired
 

 

 
(5,425
)
Other
 
46

 
60

 
151

Cash flows from investing activities
 
(3
)
 
(1,039
)
 
(6,172
)
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

 
 

Proceeds from issuance of long-term debt and commercial paper borrowings
 
986

 
1,492

 
4,697

Repayment of debt and commercial paper borrowings
 
(1,500
)
 
(1,375
)
 
(200
)
Dividends paid
 
(1,175
)
 
(819
)
 
(644
)
Stock repurchases
 
(2,868
)
 
(1,800
)
 
(1,973
)
Proceeds from common stock transactions
 
1,314

 
523

 
690

Excess tax benefit from share-based payments
 
80

 
38

 
31

Other
 
(7
)
 
(10
)
 
(12
)
Cash flows from financing activities
 
(3,170
)
 
(1,951
)
 
2,589

 
 
 
 
 
 
 
Net change in Cash and cash equivalents
 
211

 
424

 
(327
)
Cash and cash equivalents at beginning of year
 
1,416

 
992

 
1,319

Cash and cash equivalents at end of year
 
$
1,627

 
$
1,416

 
$
992

 
 
 
 
 
 
 

See accompanying notes.

4


Consolidated Statements of Stockholders’ Equity
 
Common
Stock
 
Paid-in
Capital
 
Retained
Earnings
 
Treasury
Common
Stock
 
Accumulated Other
Comprehensive
Income (Loss)
[Millions of dollars, except per-share amounts]
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2010
 
$
1,740

 
$
1,114

 
$
24,695

 
$
(16,411
)
 
$
(701
)
 
 
 
 
 
 
 
 
 
 
 
2011
 
 

 
 

 
 

 
 

 
 

Net income
 

 

 
2,236

 

 

Dividends declared and paid ($.56 per share)
 

 

 
(644
)
 

 

Common stock issued for stock-based awards
 
1

 
(252
)
 

 
898

 

Stock repurchases
 

 

 

 
(1,973
)
 

Stock-based compensation
 

 
269

 

 

 

Tax impact from exercise of options
 

 
45

 

 

 

Other comprehensive income (loss), net of taxes
 

 

 

 

 
(75
)
Dividend equivalents paid on restricted stock units
 

 

 
(9
)
 

 

Other
 

 
18

 

 
1

 

Balance, December 31, 2011
 
1,741

 
1,194

 
26,278

 
(17,485
)
 
(776
)
 
 
 
 
 
 
 
 
 
 
 
2012
 
 

 
 

 
 

 
 

 
 

Net income
 

 

 
1,759

 

 

Dividends declared and paid ($.72 per share)
 

 

 
(819
)
 

 

Common stock issued for stock-based awards
 

 
(337
)
 

 
823

 

Stock repurchases
 

 

 

 
(1,800
)
 

Stock-based compensation
 

 
263

 

 

 

Tax impact from exercise of options
 

 
56

 

 

 

Other comprehensive income (loss), net of taxes
 

 

 

 

 
77

Dividend equivalents paid on restricted stock units
 

 

 
(13
)
 

 

Balance, December 31, 2012
 
1,741

 
1,176

 
27,205

 
(18,462
)
 
(699
)
 
 
 
 
 
 
 
 
 
 
 
2013
 
 

 
 

 
 

 
 

 
 

Net income
 

 

 
2,162

 

 

  Dividends declared and paid ($1.07 per share)
 

 

 
(1,175
)
 

 

Common stock issued for stock-based awards
 

 
(273
)
 

 
1,540

 

Stock repurchases
 

 

 

 
(2,868
)
 

Stock-based compensation
 

 
287

 

 

 

Tax impact from exercise of options
 

 
25

 

 

 

Other comprehensive income (loss), net of taxes
 

 

 

 

 
171

Dividend equivalents paid on restricted stock units
 

 

 
(19
)
 

 

Other
 

 
(4
)
 

 

 

Balance, December 31, 2013
 
$
1,741

 
$
1,211

 
$
28,173

 
$
(19,790
)
 
$
(528
)

See accompanying notes.


5


NOTES TO FINANCIAL STATEMENTS

1. Description of business and significant accounting policies and practices

Business
At Texas Instruments (TI), we design and make semiconductors that we sell to electronics designers and manufacturers all over the world. We have two reportable segments, which are established along major categories of products as follows:

Analog – consists of the following major product lines: High Volume Analog & Logic (HVAL), Power Management (Power), High Performance Analog (HPA) and Silicon Valley Analog (SVA). SVA consists primarily of products that we acquired through our purchase of National Semiconductor Corporation (National) in 2011.
Embedded Processing – consists of the following major product lines: Processors, Microcontrollers and Connectivity.

We report the results of our remaining business activities in Other. As a result of our decision to exit certain product lines, Other also includes our baseband products and our OMAP™ applications processors and connectivity products sold into smartphones and consumer tablets. These products, which we refer to as “legacy wireless products,” were part of our former Wireless segment. The Wireless segment was eliminated effective January 1, 2013. To conform to this revised reporting structure, we filed a Form 8-K on May 3, 2013, to recast prior period segment information presented in our Form 10-K for the year ended December 31, 2012. See Note 16 for additional information on our business segments.

Basis of presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The basis of these financial statements is comparable for all periods presented herein.

The consolidated financial statements include the accounts of all subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. All dollar amounts in the financial statements and tables in these notes, except per-share amounts, are stated in millions of U.S. dollars unless otherwise indicated. We have reclassified certain amounts in the prior periods’ financial statements to conform to the 2013 presentation. The preparation of financial statements requires the use of estimates from which final results may vary.

In September 2011, we completed the acquisition of National. We accounted for this transaction under Accounting Standards Codification (ASC) 805 – Business Combinations, and the consolidated financial statements include the results of operations of National from the date of acquisition. See Note 2 for more information.

Revenue recognition
We recognize revenue from direct sales of our products to our customers, including shipping fees, when title and risk of loss pass to the customer, which usually occurs upon shipment or delivery, depending upon the terms of the sales order; when persuasive evidence of an arrangement exists; when sales amounts are fixed or determinable; and when collectability is reasonably assured. Revenue from sales of our products that are subject to inventory consignment agreements is recognized consistent with the principles discussed above, but delivery occurs when the customer pulls product from consignment inventory that we store at designated locations. Estimates of product returns for quality reasons and of price allowances, which are based on historical experience, product shipment analysis and customer contractual arrangements, are recorded when revenue is recognized. Allowances include volume-based incentives and special pricing arrangements. In addition, we record allowances for accounts receivable that we estimate may not be collected.

We recognize revenue from direct sales of our products to our distributors, net of allowances, consistent with the principles discussed above. Title transfers to the distributors at delivery or when the products are pulled from consignment inventory, and payment is due on our standard commercial terms; payment terms are not contingent upon resale of the products. We calculate credit allowances based on historical data, current economic conditions and contractual terms. For instance, we sell to distributors at standard published prices, but we may grant them price adjustment credits in response to individual competitive opportunities they may have. To estimate allowances, we use statistical percentages of revenue, determined quarterly, based upon recent historical adjustment trends. We also provide allowances for certain growth-based incentives.

We provide distributors an allowance to scrap certain slow-selling or obsolete products in their inventory, estimated as a negotiated fixed percentage of each distributor’s purchases from us. In addition, if we publish a new price for a product that is lower than that paid by distributors for the same product still remaining in each distributor’s on-hand inventory, we may credit them for the difference between those prices. The allowance for this type of credit is based on the identified product price difference applied to our estimate of each distributor’s on-hand inventory of that product. We believe we can reasonably and reliably estimate allowances for credits to distributors in a timely manner.

6



We determine the amount and timing of royalty revenue based on our contractual agreements with intellectual property licensees. We recognize royalty revenue when earned under the terms of the agreements and when we consider realization of payment to be probable. Where royalties are based on a percentage of licensee sales of royalty-bearing products, we recognize royalty revenue by applying this percentage to our estimate of applicable licensee sales. We base this estimate on historical experience and an analysis of each licensee’s sales results. Where royalties are based on fixed payment amounts, we recognize royalty revenue ratably over the term of the royalty agreement. Where warranted, revenue from licensees may be recognized on a cash basis.

We include shipping and handling costs in COR.

Advertising costs
We expense advertising and other promotional costs as incurred. This expense was $46 million in 2013, $46 million in 2012 and $43 million in 2011.

Restructuring charges
Restructuring charges may consist of voluntary or involuntary severance-related charges, asset-related charges and other costs due to exit activities. We recognize voluntary termination benefits when the employee accepts the offered benefit arrangement. We recognize involuntary severance-related charges depending on whether the termination benefits are provided under an ongoing benefit arrangement or under a one-time benefit arrangement. If the former, we recognize the charges once they are probable and the amounts are estimable. If the latter, we recognize the charges once the benefits have been communicated to employees.

Restructuring activities associated with assets are recorded as an adjustment to the basis of the asset, not as a liability. When we commit to a plan to abandon a long-lived asset before the end of its previously estimated useful life, we accelerate the recognition of depreciation to reflect the use of the asset over its shortened useful life. When an asset is held to be sold, we write down the carrying value to its net realizable value and cease depreciation. Restructuring actions may be viewed as an impairment indicator requiring testing of the recoverability of intangible assets, including goodwill.

Income taxes
We account for income taxes using an asset and liability approach. We record the amount of taxes payable or refundable for the current year and the deferred tax assets and liabilities for future tax consequences of events that have been recognized in the financial statements or tax returns. We record a valuation allowance when it is more likely than not that some or all of the deferred tax assets will not be realized.

Other assessed taxes
Some transactions require us to collect taxes such as sales, value-added and excise taxes from our customers. These transactions are presented in our statements of income on a net (excluded from revenue) basis.

Earnings per share (EPS)
Unvested share-based payment awards that contain non-forfeitable rights to receive dividends or dividend equivalents, such as our restricted stock units (RSUs), are considered to be participating securities and the two-class method is used for purposes of calculating EPS. Under the two-class method, a portion of net income is allocated to these participating securities and, therefore, is excluded from the calculation of EPS allocated to common stock, as shown in the table below. 


7


Computation and reconciliation of earnings per common share are as follows (shares in millions):
 
 
2013
 
2012
 
2011
 
 
Net Income
 
Shares
 
EPS
 
Net Income
 
Shares
 
EPS
 
Net Income
 
Shares
 
EPS
Basic EPS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
2,162

 
 
 
 
 
$
1,759

 
 
 
 
 
$
2,236

 
 
 
 
Income allocated to RSUs
 
(37
)
 
 
 
 
 
(31
)
 
 
 
 
 
(35
)
 
 
 
 
Income allocated to common stock for basic EPS calculation
 
$
2,125

 
1,098

 
$
1.94

 
$
1,728

 
1,132

 
$
1.53

 
$
2,201

 
1,151

 
$
1.91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustment for dilutive shares:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Stock-based compensation plans
 
 

 
15

 
 

 
 

 
14

 
 

 
 

 
20

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income
 
$
2,162

 
 

 
 

 
$
1,759

 
 

 
 

 
$
2,236

 
 

 
 

Income allocated to RSUs
 
(36
)
 
 

 
 

 
(31
)
 
 

 
 

 
(34
)
 
 

 
 

Income allocated to common stock for diluted EPS calculation
 
$
2,126

 
1,113

 
$
1.91

 
$
1,728

 
1,146

 
$
1.51

 
$
2,202

 
1,171

 
$
1.88

 
There were no potentially dilutive securities to exclude from the computation of diluted earnings per common share during 2013. Potentially dilutive securities representing 52 million and 24 million shares of common stock that were outstanding during 2012 and 2011, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been anti-dilutive.

Investments
We present investments on our balance sheets as cash equivalents, short-term investments or long-term investments. Specific details are as follows:

Cash equivalents and short-term investments: We consider investments in debt securities with maturities of 90 days or less from the date of our investment to be cash equivalents. We consider investments in debt securities with maturities beyond 90 days from the date of our investment as being available for use in current operations and include them in short-term investments. The primary objectives of our cash equivalent and short-term investment activities are to preserve capital and maintain liquidity while generating appropriate returns.
Long-term investments: Long-term investments consist of mutual funds, venture capital funds and non-marketable equity securities.
Classification of investments: Depending on our reasons for holding the investment and our ownership percentage, we classify investments in securities as available for sale, trading, or equity- or cost-method investments, which are more fully described in Note 9. We determine cost or amortized cost, as appropriate, on a specific identification basis.

Inventories
Inventories are stated at the lower of cost or estimated net realizable value. Cost is generally computed on a currently adjusted standard cost basis, which approximates cost on a first-in first-out basis. Standard cost is based on the normal utilization of installed factory capacity. Cost associated with underutilization of capacity is expensed as incurred. Inventory held at consignment locations is included in our finished goods inventory. Consigned inventory was $202 million and $169 million as of December 31, 2013 and 2012, respectively.

We review inventory quarterly for salability and obsolescence. A specific allowance is provided for inventory considered unlikely to be sold. Remaining inventory includes a salability and obsolescence allowance based on an analysis of historical disposal activity. We write off inventory in the period in which disposal occurs.

Property, plant and equipment; acquisition-related intangibles and other capitalized costs
Property, plant and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method. Our cost basis includes certain assets acquired in business combinations that were initially recorded at fair value as of the date of acquisition. Leasehold improvements are amortized using the straight-line method over the shorter of the remaining lease

8


term or the estimated useful lives of the improvements. We amortize acquisition-related intangibles on a straight-line basis over the estimated economic life of the assets. Capitalized software licenses generally are amortized on a straight-line basis over the term of the license. Fully depreciated or amortized assets are written off against accumulated depreciation or amortization.

Impairments of long-lived assets
We regularly review whether facts or circumstances exist that indicate the carrying values of property, plant and equipment or other long-lived assets, including intangible assets, are impaired. We assess the recoverability of assets by comparing the projected undiscounted net cash flows associated with those assets to their respective carrying amounts. Any impairment charge is based on the excess of the carrying amount over the fair value of those assets. Fair value is determined by available market valuations, if applicable, or by discounted cash flows.

Goodwill and indefinite-lived intangibles
Goodwill is not amortized but is reviewed for impairment annually or more frequently if certain impairment indicators arise. We perform our annual goodwill impairment test as of October 1 for our reporting units, which compares the fair value for each reporting unit to its associated carrying value including goodwill. See Note 10 for additional information.

Foreign currency
The functional currency for our non-U.S. subsidiaries is the U.S. dollar. Accounts recorded in currencies other than the U.S. dollar are remeasured into the functional currency. Current assets (except inventories), deferred income taxes, other assets, current liabilities and long-term liabilities are remeasured at exchange rates in effect at the end of each reporting period. Property, plant and equipment with associated depreciation and inventories are valued at historic exchange rates. Revenue and expense accounts other than depreciation for each month are remeasured at the appropriate daily rate of exchange. Currency exchange gains and losses from remeasurement are credited or charged to OI&E.

Derivatives and hedging
In connection with the issuance of variable-rate long-term debt in May 2011, we entered into an interest rate swap designated as a hedge of the variability of cash flows related to interest payments. Gains and losses from changes in the fair value of the interest rate swap were credited or charged to Accumulated other comprehensive income (loss), net of taxes (AOCI). We repaid this long-term debt in the second quarter of 2013, and this interest rate swap was settled for no gain or loss. In association with the issuance of long-term debt, we use financial derivatives such as treasury rate lock agreements that are recognized in AOCI and amortized over the life of the related debt. The results of these derivative transactions have not been material.

We also use derivative financial instruments to manage exposure to foreign exchange risk. These instruments are primarily forward foreign currency exchange contracts, which are used as economic hedges to reduce the earnings impact that exchange rate fluctuations may have on our non-U.S. dollar net balance sheet exposures. Gains and losses from changes in the fair value of these forward foreign currency exchange contracts are credited or charged to OI&E. We do not apply hedge accounting to our foreign currency derivative instruments.

We do not use derivatives for speculative or trading purposes.

Changes in accounting standards
In January 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This standard clarifies that a previously-issued standard on disclosure requirements relating to offsetting (or netting) financial instruments applies only to derivatives, repurchase agreements and certain securities lending transactions. This standard was effective as of the first quarter of 2013 and did not have a material impact on our financial disclosures as the derivatives to which it applies are not significant.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This standard requires an entity to disclose information about amounts reclassified out of AOCI. This standard was effective as of the first quarter of 2013. See Note 15 for the required disclosure.


9


2. Acquisition-related charges

We incurred various costs as a result of the 2011 acquisition of National that are included in Other, consistent with how management measures the performance of its segments. These total acquisition-related charges are as follows:
 
 
For Years Ended
December 31,
 
 
2013
 
2012
 
2011
Amortization of intangible assets
 
$
323

 
$
325

 
$
87

Retention bonuses
 
7

 
57

 
46

Stock-based compensation
 
11

 
17

 
50

Severance and other benefits:
 
 
 
 
 
 
Employment reductions announced at closing
 

 
16

 
29

Change of control
 

 

 
41

Transaction and other costs
 

 
35

 
62

As recorded in Acquisition charges
 
341

 
450

 
315

Distributor contract termination
 

 
21

 

Inventory related
 

 

 
96

Property, plant and equipment related
 

 

 
15

As recorded in COR
 

 
21

 
111

Total acquisition-related charges
 
$
341

 
$
471

 
$
426


Acquisition charges
The amount of recognized amortization of intangible assets resulting from the National acquisition is based on estimated useful lives. See Note 10 for additional information.

Retention bonuses reflect amounts paid to former National employees who fulfilled agreed-upon service period obligations and were recognized ratably over the required service period.

Stock-based compensation was recognized for the accelerated vesting of equity awards upon the termination of employees, with additional compensation being recognized over the applicable vesting period for the remaining grantees.

Severance and other benefits costs were for former National employees who were terminated after the closing date. These costs totaled $70 million for the year ended December 31, 2011, with $41 million in charges related to change of control provisions under existing employment agreements and $29 million in charges for announced employment reductions affecting about 350 jobs. All of these jobs were eliminated by the end of 2012 as a result of redundancies and cost efficiency measures, with $16 million of additional expense recognized in 2012. Of the $86 million in cumulative charges recognized through December 31, 2013, $3 million was paid in 2013, $65 million was paid in 2012 and $14 million was paid in 2011. The remaining $4 million will be paid in future years.

Transaction and other costs include various expenses incurred in connection with the National acquisition. In 2011, we also incurred bridge financing costs.

COR
In 2011, we discontinued using one of National’s distributors. We acquired the distributor’s inventory at fair value, resulting in an incremental charge of $21 million to COR upon sale of the inventory in 2012.

At acquisition, we recognized costs associated with the adjustments to write up the value of acquired inventory and property, plant and equipment to fair value. These costs are in addition to the normal expensing of the acquired assets based on their carrying or book value prior to the acquisition. The total fair-value write-up of $96 million for the acquired inventory was expensed as that inventory was sold. The total fair-value write-up for the acquired property, plant and equipment was $436 million. In the fourth quarter of 2011, depreciation was $15 million. It continues at a declining rate and is no longer separately disclosed as an acquisition-related charge.


10


3. Restructuring charges/other

Restructuring charges/other is comprised of the following components:
 
For Years Ended
December 31,
 
Cumulative Since
January 1, 2011
 
2013
 
2012
 
2011
 
Restructuring charges by action:
 
 
 
 
 
 
 
2013 actions
 
 
 
 
 
 
 
Severance and benefits cost
$
49

 
$

 
$

 
$
49

 
 
 
 
 
 
 
 
2012 Wireless action
 
 
 
 
 
 
 
Severance and benefits cost
30

 
245

 

 
275

Accelerated depreciation
6

 
3

 

 
9

Other exit costs
2

 
103

 

 
105

 
38

 
351

 

 
389

Prior actions
 
 
 
 
 
 
 
Severance and benefits cost
6

 
6

 
107

 
119

Accelerated depreciation
5

 
18

 
5

 
28

Other exit costs
28

 
25

 

 
53

 
39

 
49

 
112

 
200

Total restructuring charges
126

 
400

 
112

 
$
638

 
 
 
 
 
 
 
 
Other:
 
 
 
 
 
 
 
Gain on technology transfer
(315
)
 

 

 
 
Gain on transfer of Japan substitutional pension

 
(144
)
 

 
 
Other

 
8

 

 
 
Restructuring charges/other
$
(189
)
 
$
264

 
$
112

 
 
 
Restructuring charges/other are recognized in Other. Restructuring actions related to the acquisition of National are discussed in Note 2 and the associated costs are reflected in the Acquisition charges line of our Consolidated statements of income.

2013 actions
In January 2014, we announced cost-saving actions in Embedded Processing and in Japan to reduce expenses and focus our investments on markets with greater potential for sustainable growth and strong long-term returns, which we expect to be substantially complete by mid-2015. Cost reductions include the elimination of about 1,100 jobs worldwide. Total restructuring charges related to these actions are expected to be about $80 million, all of which will be severance and related benefit costs. In the fourth quarter of 2013, we recorded restructuring charges of $49 million related to the action in Embedded Processing, and the remainder related to Japan is expected to be recognized in the first quarter of 2014. As of December 31, 2013, no payments related to these restructuring charges have been made.

2012 Wireless action
In 2012, we announced a restructuring of our Wireless business to reduce expenses and focus our investments on markets with greater potential for sustainable growth and strong long-term returns. This action is now complete, eliminating about 1,700 jobs worldwide. We recognized $389 million in cumulative restructuring charges, including a $90 million impairment of goodwill. As of December 31, 2013, $180 million has been paid to terminated employees for severance and benefits.

Prior actions
In 2012, we announced closure of two older semiconductor manufacturing facilities in Houston, Texas, and Hiji, Japan. Each facility employed about 500 people. We recognized $200 million in cumulative restructuring charges related to these closures with both complete by the end of 2013. As of December 31, 2013, $97 million has been paid to terminated employees for severance and benefits.

As of December 31, 2013 and 2012, we carried immaterial liabilities related to actions commenced in 2008 and 2009. The related expense was recognized in periods prior to 2011.

11



The table below reflects the changes in accrued restructuring balances associated with these actions:
 
 
2013 Actions
 
2012 Wireless Action
 
Prior Actions
 
 
 
 
Severance
and Benefits
 
Severance
and Benefits
 
Other
Charges
 
Severance
and Benefits
 
Other
Charges
 
Total
Accrual at December 31, 2010
 
$

 
$

 
$

 
$
22

 
$
8

 
$
30

Restructuring charges
 

 

 

 
107

 
5

 
112

Non-cash items (a)
 

 

 

 
(11
)
 
(5
)
 
(16
)
Payments
 

 

 

 
(9
)
 
(1
)
 
(10
)
Remaining accrual at December 31, 2011
 

 

 

 
109

 
7

 
116

 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges
 

 
245

 
106

 
6

 
43

 
400

Non-cash items (a)
 

 

 
(106
)
 
3

 
(18
)
 
(121
)
Payments
 

 
(4
)
 

 
(19
)
 
(23
)
 
(46
)
Remaining accrual at December 31, 2012
 

 
241

 

 
99

 
9

 
349

 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges
 
49

 
30

 
8

 
6

 
33

 
126

Non-cash items (a)
 

 

 
(6
)
 
(5
)
 
(11
)
 
(22
)
Payments
 

 
(176
)
 
(2
)
 
(90
)
 
(24
)
 
(292
)
Remaining accrual at December 31, 2013
 
$
49

 
$
95

 
$

 
$
10

 
$
7

 
$
161

(a) Reflects charges for goodwill impairment, stock-based compensation, impacts of postretirement benefit plans and accelerated depreciation.

The accrual balances above are primarily a component of Accrued expenses and other liabilities or Deferred credits and other liabilities on our Consolidated balance sheets, depending on the expected timing of payment.

Other
Gain on technology transfer
During the second quarter of 2013, we entered into an agreement to transfer wireless connectivity technology to a customer. This technology was associated with the former Wireless business, and we recognized a gain of $315 million on this transfer.

Gain on transfer of Japan substitutional pension
During the third quarter of 2012, we transferred the obligations and assets of the substitutional portion of our Japan pension plan to the government of Japan, resulting in a net gain of $144 million. See Note 11 for additional details.

4. Losses associated with the 2011 earthquake in Japan

In March 2011, a magnitude 9.0 earthquake struck near our semiconductor manufacturing facilities in Japan. Our manufacturing site in Miho suffered substantial damage. We maintain earthquake insurance policies in Japan for limited coverage for property damage and business interruption losses.

In 2011, we incurred cumulative gross operating losses of $101 million related to the earthquake and associated events in Japan. These losses related to property damage, the underutilization expense we incurred from having our manufacturing assets only partially loaded and costs associated with recovery teams assembled from across the world. Gross operating losses did not comprehend any lost revenue.

These losses were offset by $36 million in cumulative insurance proceeds related to property damage claims, of which $13 million was received in 2012 and $23 million was received in 2011. Almost all of these costs and proceeds are included in COR in our Consolidated statements of income and are recorded in Other.


12


In addition, we recognized $172 million in cumulative insurance proceeds through December 31, 2012, of which $135 million was received in 2012 and $37 million was received in 2011, related to business interruption claims. These proceeds are recorded as revenue in our Consolidated statements of income and in Other.

In the third quarter of 2012, we completed discussions with our insurers and their advisors. All claims related to these events have been settled and the proceeds received.

5. Stock-based compensation

We have stock options outstanding to participants under various long-term incentive plans. We also have assumed stock options that were granted by companies that we later acquired. Unless the options are acquisition-related replacement options, the option price per share may not be less than 100 percent of the fair market value of our common stock on the date of the grant. Substantially all the options have a ten-year term and vest ratably over four years. Our options generally continue to vest after the option recipient retires.

We also have RSUs outstanding under long-term incentive plans. Each RSU represents the right to receive one share of TI common stock on the vesting date, which is generally four years after the date of grant. Upon vesting, the shares are issued without payment by the grantee. Beginning with 2013 grants, RSUs generally continue to vest after the recipient retires. Holders of most RSUs receive an annual cash payment equal to the dividends paid on our common stock.

We have options and RSUs outstanding to non-employee directors under various director compensation plans. The plans generally provide for annual grants of stock options and RSUs, a one-time grant of RSUs to each new non-employee director and the issuance of TI common stock upon the distribution of stock units credited to deferred compensation accounts established for such directors.

We also have an employee stock purchase plan under which options are offered to all eligible employees in amounts based on a percentage of the employee’s compensation, subject to a cap. Under the plan, the option price per share is 85 percent of the fair market value on the exercise date, and options have a three-month term.

Total stock-based compensation expense recognized was as follows:
 
 
For Years Ended
 December 31,
 
 
2013
 
2012
 
2011
Stock-based compensation expense recognized in:
 
 
 
 
 
 
COR
 
$
49

 
$
48

 
$
40

R&D
 
67

 
71

 
58

SG&A
 
160

 
127

 
121

Acquisition charges
 
11

 
17

 
50

Total
 
$
287

 
$
263

 
$
269


These amounts include expense related to non-qualified stock options, RSUs and stock options offered under our employee stock purchase plan and are net of expected forfeitures.

We issue awards of non-qualified stock options generally with graded vesting provisions (e.g., 25 percent per year for four years). Generally, we recognize the related compensation expense on a straight-line basis over the minimum service period required for vesting of the award, adjusting for expected forfeiture activity. Awards issued to employees who are retirement eligible or nearing retirement eligibility are expensed on an accelerated basis.

Our RSUs generally vest four years after the date of grant. We recognize the related compensation expense on a straight-line basis over the vesting period, adjusting for expected forfeiture activity. Beginning with 2013 grants, RSUs issued to employees who are retirement eligible or nearing retirement eligibility are expensed on an accelerated basis.


13


Fair-value methods and assumptions
We account for all awards granted under our various stock-based compensation plans at fair value. We estimate the fair values for non-qualified stock options using the Black-Scholes option-pricing model with the following weighted average assumptions.
 
 
2013
 
2012
 
2011
Weighted average grant date fair value, per share
 
$
6.78

 
$
8.31

 
$
10.37

Weighted average assumptions used:
 
 
 
 

 
 

Expected volatility
 
26
%
 
30
%
 
30
%
Expected lives (in years)
 
7.4

 
7.1

 
6.9

Risk-free interest rates
 
1.43
%
 
1.40
%
 
2.61
%
Expected dividend yields
 
2.56
%
 
2.10
%
 
1.51
%

We determine expected volatility on all options granted using available implied volatility rates. We believe that market-based measures of implied volatility are currently the best available indicators of the expected volatility used in these estimates.

We determine expected lives of options based on the historical option exercise experience of our optionees using a rolling 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 annualized approved quarterly dividend rate and the current market price of our common stock at the time of grant. No assumption for a future dividend rate change is included unless there is an approved plan to change the dividend in the near term.

The fair value per share of RSUs is determined based on the closing price of our common stock on the date of grant.

Our employee stock purchase plan is a discount-purchase plan and consequently the Black-Scholes 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 2013 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, 2012
 
99,639,098

 
$
27.73

 
23,375,234

 
$
25.91

Granted
 
12,975,548

 
32.84

 
5,137,727

 
33.70

Vested RSUs
 

 

 
(5,741,981
)
 
17.09

Forfeited and expired
 
(2,176,832
)
 
30.58

 
(1,878,958
)
 
29.38

Exercised
 
(45,507,274
)
 
27.26

 

 

Outstanding grants, December 31, 2013
 
64,930,540

 
$
28.98

 
20,892,022

 
$
29.94


The weighted average grant date fair value of RSUs granted during the years 2013, 2012 and 2011 was $33.70, $31.60 and $33.20 per share, respectively. For the years ended December 31, 2013, 2012 and 2011, the total grant date fair value of shares vested from RSU grants was $98 million, $120 million and $155 million, respectively.


14


Summarized information about stock options outstanding at December 31, 2013, 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
 
1,177

 
0.1
 
$
9.56

 
1,177

 
$
9.56

 
10.01 to 20.00
 
5,270,450

 
5.0
 
14.97

 
5,253,929

 
14.97

 
20.01 to 30.00
 
20,356,470

 
4.2
 
24.89

 
16,834,288

 
25.25

 
30.01 to 40.00
 
39,294,693

 
6.9
 
32.97

 
13,419,619

 
32.97

 
40.01 to 42.66
 
7,750

 
9.9
 
42.66

 

 
n/a

$
9.56 to 42.66
 
64,930,540

 
5.9
 
$
28.98

 
35,509,013

 
$
26.65


During the years ended December 31, 2013, 2012 and 2011, the aggregate intrinsic value (i.e., the difference in the closing market price on the date of exercise and the exercise price paid by the optionee) of options exercised was $427 million, $244 million and $231 million, respectively.

Summarized information as of December 31, 2013, about outstanding stock options that are vested and expected to vest, as well as stock options that are currently exercisable, is as follows:
 
 
Outstanding Stock Options (Fully
Vested and Expected to Vest) (a)
 
Options
Exercisable
Number of outstanding (shares)
 
63,552,430

 
35,509,013

Weighted average remaining contractual life (in years)
 
5.8

 
4.1

Weighted average exercise price per share
 
$
28.90

 
$
26.65

Intrinsic value (millions of dollars)
 
$
954

 
$
613

(a) Includes effects of expected forfeitures of approximately 1 million shares. Excluding the effects of expected forfeitures, the aggregate intrinsic value of stock options outstanding was $969 million.

As of December 31, 2013, the total future compensation cost related to equity awards not yet recognized in the Consolidated statements of income was $348 million, consisting of $109 million related to unvested stock options and $239 million related to unvested RSUs. The $348 million is expected to be recognized as follows: $173 million in 2014, $119 million in 2015, $50 million in 2016 and $6 million in 2017.

Director deferred compensation
Directors who retire or resign from the board may receive stock distributions for compensation they elected to defer. For these stock distributions, we issued treasury shares of 12,909 in 2013, 6,592 in 2012 and 8,061 in 2011. Director deferred stock activity during 2013 was as follows:
 
 
Director Deferred Stock (Shares)
Outstanding, December 31, 2012
 
129,033

New shares deferred
 
13,140

Issued
 
(12,909
)
Outstanding , December 31, 2013
 
129,264


Employee stock purchase plan
Options outstanding under the employee stock purchase plan at December 31, 2013, had an exercise price of $36.64 per share, which is 85 percent of the fair market value of TI common stock on the date of automatic exercise. Of the total outstanding options, none were exercisable at year-end 2013.


15


Employee stock purchase plan transactions during 2013 were as follows:
 
 
Employee Stock
Purchase Plan
(Shares)
 
Exercise Price
Outstanding grants, December 31, 2012
 
681,951

 
$
27.47

Granted
 
2,190,291

 
32.37

Exercised
 
(2,386,834
)
 
30.10

Outstanding grants, December 31, 2013
 
485,408

 
$
36.64


The weighted average grant date fair value of options granted under the employee stock purchase plans during the years 2013, 2012 and 2011 was $5.71, $4.52 and $4.59 per share, respectively. During the years ended December 31, 2013, 2012 and 2011, the total intrinsic value of options exercised under these plans was $13 million, $13 million and $10 million, respectively.

Effect on shares outstanding and treasury shares
Our current practice is to issue shares of common stock from treasury shares upon exercise of stock options, distribution of director deferred compensation and vesting of RSUs. We settled stock option plan exercises and issued director deferred shares using treasury shares of 47,907,017 in 2013, 25,064,951 in 2012 and 27,308,311 in 2011; and previously unissued common shares of none in 2013, 180,955 in 2012 and 390,438 in 2011.

Upon vesting of RSUs, we issued treasury shares of 4,280,559 in 2013, 3,187,490 in 2012 and 3,748,623 in 2011; and previously unissued common shares of none in 2013, 4,593 in 2012, and 73,852 in 2011.

Shares available for future grants and reserved for issuance are summarized below:
 
 
As of December 31, 2013
Shares
 
Long-term Incentive
and Director
Compensation Plans
 
Employee Stock
Purchase Plan
 
Total
Reserved for issuance (a)
 
146,190,489

 
22,750,985

 
168,941,474

Shares to be issued upon exercise of outstanding options and RSUs
 
(85,951,826
)
 
(485,408
)
 
(86,437,234
)
Available for future grants
 
60,238,663

 
22,265,577

 
82,504,240

(a) Includes 129,264 shares credited to directors’ deferred stock accounts that settle in shares of TI common stock. These shares are not included as grants outstanding at December 31, 2013.

Effect on cash flows
Cash received from the exercise of options was $1.314 billion in 2013, $523 million in 2012 and $690 million in 2011. The related net tax impact realized was $25 million, $56 million and $45 million, which includes excess tax benefits realized of $80 million, $38 million and $31 million, in 2013, 2012 and 2011, respectively.
 
6. Profit sharing plans

Profit sharing benefits are generally formulaic and determined by one or more subsidiary or company-wide financial metrics. We pay profit sharing benefits primarily under the company-wide TI Employee Profit Sharing Plan. This plan provides for profit sharing to be paid based solely on TI’s operating margin for the full calendar year. Under this plan, TI must achieve a minimum threshold of 10 percent operating margin before any profit sharing is paid. At 10 percent operating margin, profit sharing will be 2 percent of eligible payroll. The maximum amount of profit sharing available under the plan is 20 percent of eligible payroll, which is paid only if TI’s operating margin is at or above 35 percent for a full calendar year.

We recognized $161 million, $96 million and $143 million of profit sharing expense under the TI Employee Profit Sharing Plan in 2013, 2012 and 2011, respectively.


16


7. Income taxes

Income before Income Taxes
 
 
U.S.
 
Non-U.S.
 
Total
2013
 
$
1,507

 
$
1,247

 
$
2,754

2012
 
319

 
1,616

 
1,935

2011
 
1,791

 
1,164

 
2,955

 
Provision (Benefit) for Income Taxes
 
 
U.S. Federal
 
Non-U.S.
 
U.S. State
 
Total
2013:
 
 
 
 
 
 
 
 
Current
 
$
291

 
$
247

 
$
4

 
$
542

Deferred
 
17

 
33

 

 
50

Total
 
$
308

 
$
280

 
$
4

 
$
592

 
 
 
 
 
 
 
 
 
2012:
 
 

 
 

 
 

 
 

Current
 
$
(108
)
 
$
156

 
$
(2
)
 
$
46

Deferred
 
65

 
65

 

 
130

Total
 
$
(43
)
 
$
221

 
$
(2
)
 
$
176

 
 
 
 
 
 
 
 
 
2011:
 
 

 
 

 
 

 
 

Current
 
$
518

 
$
138

 
$
8

 
$
664

Deferred
 
20

 
24

 
11

 
55

Total
 
$
538

 
$
162

 
$
19

 
$
719


To conform with current period reporting, we reclassified $571 million of 2012 prepaid taxes associated with intercompany profit in ending inventory from Current assets: Deferred income taxes to Prepaid expenses and other current assets on the Consolidated balance sheets.

In the Provision (Benefit) for Income Taxes table above, this change resulted in a reclassification of approximately $65 million and $174 million for 2012 and 2011, respectively, from the deferred provision to the current provision.

Principal reconciling items from income tax computed at the statutory federal rate follow:
 
 
2013
 
2012
 
2011
Computed tax at statutory rate
 
$
964

 
$
677

 
$
1,034

Non-U.S. effective tax rates
 
(156
)
 
(345
)
 
(245
)
U.S. R&D tax credit
 
(129
)
 

 
(58
)
U.S. tax benefit for manufacturing
 
(66
)
 
(158
)
 
(31
)
Impact of changes to uncertain tax positions
 
(14
)
 
(88
)
 

Non-deductible expenses
 
13

 
42

 
27

Other
 
(20
)
 
48

 
(8
)
Total provision for income taxes
 
$
592

 
$
176

 
$
719


The total provision for 2013 in the reconciliation above includes $79 million of discrete tax benefits primarily for the reinstatement of the U.S. R&D tax credit retroactive to 2012. Included in the Non-U.S. effective tax rates reconciling item are tax benefits from tax holidays of $40 million, $51 million and $18 million in 2013, 2012 and 2011, respectively. The tax benefits relate to our operations in Malaysia and the Philippines, and expire in 2018 and 2017, respectively. The total provision for 2012 includes $252 million of discrete tax benefits primarily for additional U.S. tax benefits for manufacturing related to the years 2000 through 2011.


17


The primary components of deferred income tax assets and liabilities were as follows:
 
 
December 31,
 
 
2013
 
2012
Deferred income tax assets:
 
 
 
 
Deferred loss and tax credit carryforwards
 
$
345

 
$
382

Accrued expenses
 
265

 
331

Stock-based compensation
 
262

 
366

Postretirement benefit costs recognized in AOCI
 
262

 
357

Inventories and related reserves
 
162

 
163

Other
 
175

 
209

 
 
1,471

 
1,808

Valuation allowance
 
(219
)
 
(221
)
 
 
1,252

 
1,587

Deferred income tax liabilities:
 
 
 
 

Acquisition-related intangibles and fair-value adjustments
 
(804
)
 
(921
)
Accrued retirement costs for defined benefit and retiree health care
 
(211
)
 
(243
)
International earnings
 
(121
)
 
(102
)
Property, plant and equipment
 
(57
)
 
(131
)
Other
 
(8
)
 
(11
)
 
 
(1,201
)
 
(1,408
)
Net deferred income tax asset
 
$
51

 
$
179


The deferred income tax assets and liabilities based on tax jurisdictions are presented on the Consolidated balance sheets as follows:
 
 
December 31,
 
 
2013
 
2012
Current deferred income tax assets
 
$
393

 
$
473

Noncurrent deferred income tax assets
 
207

 
280

Current deferred income tax liabilities
 
(1
)
 
(2
)
Noncurrent deferred income tax liabilities
 
(548
)
 
(572
)
Net deferred income tax asset
 
$
51

 
$
179


We make an ongoing assessment regarding the realization of U.S. and non-U.S. deferred tax assets. This assessment is based on our evaluation of relevant criteria, including the existence of deferred tax liabilities that can be used to absorb deferred tax assets, taxable income in prior carryback years and expectations for future taxable income. In 2013, we recognized a net decrease of $2 million in our valuation allowance, due to valuation allowances on unutilized tax credits.

We have U.S. and non-U.S. tax loss carryforwards of approximately $124 million, none of which will expire before the year 2023.

A provision has been made for deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent that dividend
payments from these subsidiaries are expected to result in additional tax liability. The remaining undistributed earnings of approximately $6.87 billion at December 31, 2013, have been indefinitely reinvested outside of the U.S.; therefore, no U.S. tax provision has been made for taxes due upon remittance of these earnings. The indefinitely reinvested earnings of our non-U.S. subsidiaries are primarily invested in tangible assets such as inventory and property, plant and equipment. Determination of the amount of unrecognized deferred income tax liability is not practical because of the complexities associated with its hypothetical calculation.

Cash payments made for income taxes, net of refunds, were $569 million, $171 million and $902 million for the years ended December 31, 2013, 2012 and 2011, respectively.


18


Uncertain tax positions
We operate in a number of tax jurisdictions, and our income tax returns are subject to examination by tax authorities in those jurisdictions who may challenge any item on these tax returns. Because the matters challenged by authorities are typically complex, their ultimate outcome is uncertain. Before any benefit can be recorded in the financial statements, we must determine that it is “more likely than not” that a tax position will be sustained by the appropriate tax authorities. We recognize accrued interest related to uncertain tax positions and penalties as components of OI&E.

The changes in the total amounts of uncertain tax positions are summarized as follows:
 
 
2013
 
2012
 
2011
Balance, January 1
 
$
184

 
$
210

 
$
103

Additions based on tax positions related to the current year
 
7

 
12

 
15

Additions from the acquisition of National
 

 

 
132

Additions for tax positions of prior years
 
19

 
45

 
3

Reductions for tax positions of prior years
 
(10
)
 
(92
)
 
(39
)
Settlements with tax authorities
 
(96
)
 
39

 
(4
)
Expiration of the statute of limitations for assessing taxes
 
(13
)
 
(30
)
 

Balance, December 31
 
$
91

 
$
184

 
$
210

 
 
 
 
 
 
 
Interest income (expense) recognized in the year ended December 31
 
$
(10
)
 
$
32

 
$
1