4. Stock-based compensation

We have stock options outstanding to participants under long-term incentive plans. We also have assumed stock options that were granted by companies that we later acquired. Unless the options are acquisition-related replacement options, the option price per share may not be less than 100 percent of the fair market value of our common stock on the date of the grant. Substantially all the options have a 10-year term and vest ratably over four years. Our options generally continue to vest after the option recipient retires.

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

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

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,
	2015		2014		2013
COR	$	47	$	48	$	49
R&D		60		62		67
SG&A		169		156		160
Acquisition charges		10		11		11
Total	$	286	$	277	$	287

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

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

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

Fair-value methods and assumptions

We account for all awards granted under our various stock-based compensation plans at fair value. We estimate the fair values for non-qualified stock options using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions.

	For Years Ended December 31,
	2015			2014			2013
Weighted average grant date fair value, per share	$	9.49		$	8.13		$	6.78
Weighted average assumptions used:
Expected volatility		22	%		22	%		26	%
Expected lives (in years)		7.3			7.3			7.4
Risk-free interest rates		1.64	%		2.45	%		1.43	%
Expected dividend yields		2.52	%		2.72	%		2.56	%

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

We determine expected lives of options based on the historical option exercise experience of our optionees using a rolling 10-year average. We believe the historical experience method is the best estimate of future exercise patterns currently available.

Risk-free interest rates are determined using the implied yield currently available for zero-coupon U.S. government issues with a remaining term equal to the expected life of the options.

Expected dividend yields are based on the annualized approved quarterly dividend rate and the current market price of our common stock at the time of grant. No assumption for a future dividend rate change is included unless there is an approved plan to change the dividend in the near term.

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

Our employee stock purchase plan is a discount-purchase plan and consequently the Black-Scholes-Merton option-pricing model is not used to determine the fair value per share of these awards. The fair value per share under this plan equals the amount of the discount.

Long-term incentive and director compensation plans

Stock option and RSU transactions under our long-term incentive and director compensation plans during 2015 were as follows:

	Stock Options					RSUs
				Weighted Average					Weighted Average
				Exercise Price					Grant Date Fair
	Shares			per Share		Shares			Value per Share
Outstanding grants, December 31, 2014		57,647,446		$	32.84		17,303,815		$	35.24
Granted		11,913,832			53.95		2,679,437			53.22
Vested RSUs		—			—		(3,386,415	)		33.72
Forfeited and expired		(833,840	)		42.71		(541,295	)		36.94
Exercised		(11,953,455	)		31.33		—			—
Outstanding grants, December 31, 2015		56,773,983			37.45		16,055,542			38.51

The weighted average grant date fair value of RSUs granted during the years 2015, 2014 and 2013 was $53.22, $44.71 and $33.70 per share, respectively. For the years ended December 31, 2015, 2014 and 2013, the total grant date fair value of shares vested from RSU grants was $114 million, $133 million and $98 million, respectively.

Summarized information about stock options outstanding at December 31, 2015, is as follows:

		Stock Options Outstanding							Options Exercisable
		Number			Weighted Average		Weighted Average		Number		Weighted Average
Exercise Price		Outstanding		Remaining Contractual			Exercise Price		Exercisable		Exercise Price
Range		(Shares)			Life (Years)		per Share		(Shares)		per Share
$	14.47 to 20.00		3,499,029			3.1	$	14.96		3,499,029	$	14.96
	20.01 to 30.00		8,385,885			3.1		25.56		8,377,295		25.56
	30.01 to 40.00		21,215,903			6.0		33.00		12,732,409		33.21
	40.01 to 50.00		12,012,519			8.1		44.11		2,229,828		44.10
	50.01 to 58.98		11,660,647			9.1		53.96		1,521		55.41
	14.47 to 58.98		56,773,983			6.5		37.45		26,840,082		29.35

During the years ended December 31, 2015, 2014 and 2013, 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 $290 million, $367 million and $427 million, respectively.

Summarized information as of December 31, 2015, 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		Options
	Expected to Vest) (a)		Exercisable
Number of outstanding (shares)		55,421,103		26,840,082
Weighted average remaining contractual life (in years)		6.4		4.6
Weighted average exercise price per share	$	37.17	$	29.35
Intrinsic value (millions of dollars)	$	978	$	683

(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 $986 million.

As of December 31, 2015, the total future compensation cost related to equity awards not yet recognized in the Consolidated Statements of Income was $273 million, consisting of $112 million related to unvested stock options and $161 million related to unvested RSUs. The $273 million is expected to be recognized as follows: $140 million in 2016, $86 million in 2017, $42 million in 2018 and $5 million in 2019.

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 issue treasury shares. Director deferred stock activity during 2015 was as follows:

	Director Deferred Stock (Shares)
Outstanding, December 31, 2014		135,722
New shares deferred		14,722
Issued		(7,531	)
Outstanding, December 31, 2015		142,913

Employee stock purchase plan

Options outstanding under the employee stock purchase plan at December 31, 2015, had an exercise price equal to 85 percent of the fair market value of TI common stock on the date of automatic exercise. The automatic exercise occurred on January 4, 2016, resulting in an exercise price of $46.19 per share. Of the total outstanding options, none were exercisable at year-end 2015.

Employee stock purchase plan transactions during 2015 were as follows:

	Employee Stock
	Purchase Plan
	(Shares)			Exercise Price
Outstanding grants, December 31, 2014		374,703		$	45.46
Granted		1,530,127			44.75
Exercised		(1,532,264	)		44.57
Outstanding grants, December 31, 2015		372,566			46.19

The weighted average grant date fair value of options granted under the employee stock purchase plans during the years 2015, 2014 and 2013 was $7.89, $7.34 and $5.71 per share, respectively. During the years ended December 31, 2015, 2014 and 2013, the total intrinsic value of options exercised under these plans was $12 million, $12 million and $13 million, respectively.

Effect on shares outstanding and treasury shares

Treasury shares were acquired in connection with the board-authorized stock repurchase program. As of December 31, 2015, $7.93 billion of stock repurchase authorizations remain, and no expiration date has been specified.

Our current practice is to issue shares of common stock from treasury shares upon exercise of stock options, distribution of director deferred compensation and vesting of RSUs. The table below reflects the changes in our treasury shares:

	Stock Options			RSUs			Treasury Shares
Balance, December 31, 2012								632,636,970
Repurchases								77,564,013
Shares used for:
Stock options/RSUs		(45,507,711	)		(5,741,981	)
Stock applied to taxes		—			1,461,422
ESPP		(2,386,834	)		—
Director deferred stock		—			—			(12,909	)
Total issued		(47,894,545	)		(4,280,559	)		(52,175,104	)
Balance, December 31, 2013								658,012,970

Repurchases								61,665,209
Shares used for:
Stock options/RSUs		(19,503,382	)		(5,609,627	)
Stock applied to exercises or taxes		6,618			1,408,701
ESPP		(1,784,184	)		—
Director deferred stock		—			—			(7,178	)
Total issued		(21,280,948	)		(4,200,926	)		(25,481,874	)
Balance, December 31, 2014								694,189,127

Repurchases								51,384,339
Shares used for:
Stock options/RSUs		(11,953,455	)		(3,386,415	)
Stock applied to exercises or taxes		8,562			845,164
ESPP		(1,532,264	)		—
Director deferred stock		—			—			(7,531	)
Total issued		(13,477,157	)		(2,541,251	)		(16,018,408	)
Balance, December 31, 2015								729,547,527

Shares available for future grants and reserved for issuance are summarized below:

	December 31, 2015
	Long-Term Incentive
	and Director			Employee Stock
Shares	Compensation Plans			Purchase Plan			Total
Reserved for issuance (a)		105,793,583			38,032,774			143,826,357
Shares to be issued upon exercise of outstanding options and RSUs (a)		(72,972,438	)		(372,566	)		(73,345,004	)
Available for future grants		32,821,145			37,660,208			70,481,353

(a) Includes 142,913 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, 2015.

The effects on cash flows were as follows:

	For Years Ended December 31,
	2015		2014		2013
Proceeds from common stock transactions	$	442	$	616	$	1,314
Tax benefit realized from stock options exercised		171		218		227