SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 1-3761
TEXAS INSTRUMENTS INCORPORATED
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(Exact name of Registrant as specified in its charter)
Delaware 75-0289970
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(State of Incorporation) (I.R.S. Employer Identification No.)
8505 Forest Lane, P.O. Box 660199, Dallas, Texas 75266-0199
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 972-995-3773
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, par value $1.00 New York Stock Exchange
The Swiss Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $33,833,000,000 as of December 31, 1998.
390,679,959
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(Number of shares of common stock outstanding as of December 31, 1998)
Parts I, II and IV hereof incorporate information by reference to the
Registrant's 1998 annual report to stockholders. Part III hereof incorporates
information by reference to the Registrant's proxy statement for the 1999
annual meeting of stockholders.
PART I
ITEM 1. Business.
Semiconductor
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Texas Instruments Incorporated ("TI" or the "company," including subsidiaries
except where the context indicates otherwise) is a global semiconductor
company and the world's leading designer and supplier of digital signal
processors and analog integrated circuits, the engines driving the
digitization of electronics. These two types of semiconductor products work
together in digital electronic devices such as digital cellular phones.
Analog technology converts analog signals like sound, light, temperature and
pressure into the digital language of zeros and ones, which can then be
processed in real-time by a digital signal processor. Analog integrated
circuits also translate digital signals back to analog. Digital signal
processors and analog integrated circuits enable a wide range of new products
and features for TI's more than 30,000 customers in commercial, industrial and
consumer markets.
TI also is a world leader in the design and manufacturing of other
semiconductor products. Those products include standard logic, application-
specific integrated circuits, reduced instruction-set computing
microprocessors, and microcontrollers.
The semiconductor business comprised 80% of TI's 1998 revenues when the
divested memory business is excluded. TI's semiconductor products are used in
a diverse range of electronic systems, including digital cell phones,
computers, printers, hard disk drives, modems, networking equipment, digital
cameras and video recorders, motor controls, autos, and home appliances.
Products are sold primarily to original-equipment manufacturers and through
distributors. TI's semiconductor patent portfolio has been established as an
ongoing contributor to semiconductor revenues. Revenues generated from sales
to TI's top three semiconductor customers accounted for approximately 24% of
total semiconductor revenues in 1998.
The semiconductor business is intensely competitive, subject to rapid
technological change and pricing pressures, and requires high rates of
investment. TI is the leading supplier of digital signal processors and analog
integrated circuits, yet faces strong competition in all of its semiconductor
product lines. The rapid pace of change and technological breakthroughs
constantly create new opportunities for existing competitors and start-ups,
which can quickly render existing technologies less valuable.
In digital signal processors, TI competes with a growing number of large and
small companies, both U.S.-based and international. New product development
capabilities, applications support, software knowledge and advanced technology
are the primary competitive factors in this business.
The market for analog integrated circuits is highly fragmented. TI competes
with many large and small companies, both U.S.-based and international.
Primary competitive factors in this business are the availability of innovative
designs and designers, a broad range of process technologies and applications
support and, particularly in the standard products area, price.
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Demand for Digital Signal Processors/Analog Integrated Circuits
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TI has undertaken a business strategy that focuses on developing and marketing
digital signal processors and analog integrated circuits. TI has divested
certain of its businesses and acquired others and invested its resources with
the view of furthering its focus on these products. While TI believes that
focusing its efforts on digital signal processors and analog integrated
circuits offers the best opportunity for TI to achieve its strategic goals and
that TI has developed, and will continue to develop, a wide range of innovative
and technologically advanced products, the results of TI's operations may be
adversely affected in the future if the demand for digital signal processors
and analog integrated circuits decreases or this market grows at a pace
significantly less than that projected by management.
Acquisitions and Divestitures
-----------------------------
From time to time TI considers acquisitions and divestitures that may
strengthen its business portfolio. TI may effect one or more of these
transactions at such time or times as it determines to be appropriate. In
1998, as TI narrowed its focus to digital signal processors and analog
integrated circuits, it acquired technology companies that brought unique
expertise to these core product areas. In the first quarter, TI acquired GO
DSP Corporation, a developer of software development tools for digital signal
processors; Spectron Microsystems, a developer of real-time operating software
for use in digital signal processing applications; and Oasix and Arisix
corporations, both digital integrated circuit design centers for hard disk
drive products. In the fourth quarter, TI acquired certain assets of Adaptec,
Inc., a developer of hardware and software for the high-end hard disk drive
market, a market that increasingly will use digital signal processors in
addition to analog integrated circuits.
In addition, in 1998, TI divested its dynamic random-access memory (DRAM)
semiconductor operation. The business was sold in the third quarter to Micron
Technology, Inc., and included TI's wholly owned manufacturing facilities in
Avezzano, Italy, and Richardson, Texas, its joint-venture interests in Japan
and Singapore, and an assembly and test operation in Singapore. Revenues,
profits and fixed assets for the divested memory business are included in
"Divested Activities" in the note to the financial statements captioned
"Business Segment and Geographic Area Data" on pages 29-31 of TI's 1998 annual
report to stockholders.
Other TI Businesses
-------------------
In addition to semiconductors, TI has two other principal segments. The
largest, representing 12% of TI's 1998 revenues when the memory business is
excluded, is Materials & Controls (M&C). This business sells electrical and
electronic controls, electronic connectors, sensors, radio-frequency
identification systems and clad metals into commercial and industrial markets.
Typically the top supplier in targeted product areas, M&C faces strong
multinational and regional competitors. The primary competitive factors in
this business are product reliability, manufacturing costs, and engineering
expertise. The products of this business are sold directly to original-
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equipment manufacturers and through distributors. Revenues generated from
sales to TI's top three M&C customers accounted for approximately 15% of total
M&C revenues in 1998.
Educational & Productivity Solutions (E&PS) represents 6% of TI's 1998
revenues when the memory business is excluded, and is a leading supplier of
educational and graphing calculators. This business sells primarily through
retailers and to schools through instructional dealers. TI's principal
competitors in this business are several Japanese companies. Technology
expertise, price and infrastructure for education and market understanding are
primary competitive factors in this business. Revenues generated from sales
to TI's top three E&PS customers accounted for approximately 26% of total E&PS
revenues in 1998.
In addition, TI continues to invest in digital imaging, an emerging business
that produces micro-mirror-based devices that enable revolutionary brightness
and clarity in large-screen video displays. The primary sales route is
directly to original-equipment manufacturers. TI faces competition in this
business primarily from a competing technology known as liquid crystal
displays from Asian manufacturers. Primary competitive factors in this
business are price, brightness and performance of the display, and in some
applications, size and weight.
General Information
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TI is headquartered in Dallas, Texas, and has manufacturing, design or sales
operations in more than 25 countries. TI's largest geographic markets are in
the United States, Asia, Japan and Europe. TI has been in operation since 1930.
The financial information with respect to TI's business segments
and operations outside the United States, which is contained in the note to
the financial statements captioned "Business Segment and Geographic Area Data"
on pages 29-31 of TI's 1998 annual report to stockholders, is incorporated
herein by reference to such annual report.
Backlog
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The dollar amount of backlog of orders believed by TI to be firm was $1233
million as of December 31, 1998 and $1623 million as of December 31, 1997.
TI's backlog does not represent actual revenues and is only an indication of
future revenues which may be entered on the books of account of TI. Backlog
orders are, under certain circumstances, subject to cancellation by the
purchaser without penalty and do not reflect any potential adjustments for
price decreases.
Raw Materials
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TI purchases materials, parts and supplies from a number of suppliers. The
materials, parts and supplies essential to TI's business are generally
available at present and TI believes at this time that such materials, parts
and supplies will be available in the foreseeable future.
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Patents and Trademarks
----------------------
TI owns many patents in the United States and other countries in fields
relating to its business. The company has developed a strong, broad-based
patent portfolio. TI also has several agreements with other companies
involving license rights and anticipates that other licenses may be negotiated
in the future. TI does not consider its business materially dependent upon
any one patent or patent license, although taken as a whole, the rights of TI
and the products made and sold under patents and patent licenses are important
to TI's business.
TI owns trademarks that are used in the conduct of its business. These
trademarks are valuable assets, the most important of which are "Texas
Instruments" and TI's corporate monogram.
Research and Development
------------------------
TI's research and development expense was $1206 million in 1998, compared with
$1536 million in 1997 and $1181 million in 1996. Included is a charge for the
value of in-process research and development of $25 million in 1998 as a result
of two business acquisitions; $461 million in 1997 as a result of the
acquisition of Amati Communications Corporation; and $192 million in 1996 as a
result of the acquisition of Silicon Systems, Inc.
Seasonality
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TI's revenues and operating results are subject to some seasonal variation.
Employees
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The information concerning the number of persons employed by TI at December 31,
1998 on page 35 of TI's 1998 annual report to stockholders is incorporated
herein by reference to such annual report.
Cautionary Statements Regarding Future Results of Operations
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You should read the following cautionary statements in conjunction with
discussions of factors discussed elsewhere in this and other of TI's filings
with the Securities and Exchange Commission (SEC) and in materials
incorporated by reference in these filings. These cautionary statements are
intended to highlight certain factors that may affect the financial condition
and results of operations of TI and are not meant to be an exhaustive
discussion of risks that apply to companies with broad international
operations, such as TI. Like other businesses, TI is susceptible to
macroeconomic downturns in the United States or abroad that may affect the
general economic climate and performance of TI or its customers. Similarly,
the price of TI's securities is subject to volatility due to fluctuations in
general market conditions, differences in TI's results of operations from
estimates and projections generated by the investment community and other
factors beyond TI's control.
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Significant Delay in the Recovery or Worsening of the Market for
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Semiconductors.
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TI's semiconductor business represents its largest business segment and
the principal source of its revenues. The semiconductor market has
historically been cyclical and subject to significant economic downturns. The
weak semiconductor market in 1998 had an adverse effect on the demand for TI's
semiconductor products and resulted in a decrease in revenues from TI's sale of
semiconductors compared to 1997. A significant delay in the recovery of, or a
prolonged weakening of, the semiconductor market may adversely affect TI's
results of operations and have an adverse effect on the market price of its
securities.
Dependence on Technology and New Product Development and Marketability.
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TI's results of operations depend in part upon its ability to successfully
develop and market innovative products in a rapidly changing technological
environment. TI requires significant capital to develop new technologies and
products to meet changing customer demands that, in turn, may result in
shortened product lifecycles. Moreover, expenditures for technology and
product development are generally made before the commercial viability for such
developments can be assured. As a result, there can be no assurance that TI
will successfully develop and market these new products, that the products TI
does develop and market will be well received by customers or that TI will
realize a return on the capital expended to develop such products.
Competition
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TI faces intense technological and pricing competition in the markets in
which it operates. TI expects that the level of this competition will increase
in the future from large, established semiconductor and related product
companies, as well as from emerging companies serving niche markets also served
by TI. Certain of TI's competitors possess sufficient financial, technical and
management resources to develop and market products that may compete favorably
against those products of TI that currently offer technological and/or price
advantages over competitive products. Competition results in price and product
development pressures, which may result in reduced profit margins and lost
business opportunities in the event that TI is unable to match price declines
or technological, product, applications support, software or manufacturing
advances of its competitors.
Intellectual Property Rights
----------------------------
TI benefits from royalties generated from various license agreements that
will be in effect through the year 2005. Future royalty revenues and access
to world-wide markets depend on the continued strength of TI's intellectual
property portfolio. TI actively enforces and protects its intellectual
property rights, but there can be no assurance that TI's efforts will be
adequate to prevent the misappropriation or improper use of the protected
technology. Moreover, there can be no assurance that, as TI's business expands
into new areas, TI will be able to independently develop the technology,
software or know-how necessary to conduct its business and may have to rely
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increasingly on licensed technology from others. To the extent that TI relies
on licenses from others, there can be no assurance that it will be able to
obtain all of the licenses it desires in the future on terms it considers
reasonable or at all.
Decline in Demand for Products in Key Markets
---------------------------------------------
TI's customer base includes companies in a wide range of industries, but
TI generates a significant amount of revenues from sales to customers in the
telecommunications and computer industries. Within these industries, a large
portion of TI revenues is generated by the sale of digital signal processors
and analog integrated circuits to customers in the cellular phone, modem and
hard disk drive segments of these industries. A significant decline in any
one or several of these end-user markets could have a material adverse effect
on the demand for TI's products and its results of operations.
Impact of Year 2000 Issue
-------------------------
As discussed on pages 37-38 of TI's 1998 annual report to stockholders,
since 1995 TI has been addressing Year 2000 issues that result from the use of
two digit, rather than four digit, year dates in software. TI has essentially
completed the assessment phase of its Year 2000 effort in the program areas of
Information Technology, Physical Plant and Products. Assessment in the
Extended Enterprise program area is ongoing. There can be no assurance,
however, that TI has fully and accurately assessed its Year 2000 readiness or
the effectiveness of its corrective actions, nor can there be any assurance
that TI's customers and suppliers will timely complete their respective Year
2000 efforts and avoid Year 2000 disruption.
International Operations
------------------------
TI operates in 25 countries worldwide and in 1998 derived in excess of 68%
of its revenues from sales to locations outside the United States. Operating
internationally exposes TI to changes in the laws or policies, as well as the
general economic conditions, of the various countries in which it operates,
which could result in an adverse effect on TI's business operations in such
countries and its results of operations. Also, as discussed in more detail on
pages 22 and 38-39 of TI's 1998 annual report to stockholders, TI uses forward
currency exchange contracts to minimize the adverse earnings impact from the
effect of exchange rate fluctuations on the company's non-U.S. dollar net
balance sheet exposures. Nevertheless, in periods when the U.S. dollar
strengthens in relation to the non-U.S. currencies in which TI transacts
business, the remeasurement of non-U.S. dollar transactions can have an adverse
effect on TI's non-U.S. business.
Dependence on Certain Customers
-------------------------------
While TI generates revenues from thousands of customers worldwide, the
loss of or significant curtailment of purchases by one or more of its top
customers, including curtailments due to a change in the sourcing policies or
practices of these customers, may adversely affect TI's results of operations.
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Dependence on Key Personnel
---------------------------
TI's continued success depends on the retention and recruitment of skilled
personnel, including technical, marketing, management and staff personnel.
Experienced personnel in the electronics industry are in high demand and
competition for their skills is intense. There can be no assurance that TI
will be able to successfully retain and recruit the key personnel that it
requires.
Available Information
---------------------
TI files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements and
other information filed by TI at the SEC's public reference rooms at 450 Fifth
Street, N.W., Washington, D.C. 20549, or at the SEC offices in New York, New
York and Chicago, Illinois. Please call (800) SEC-0330 for further information
on the public reference rooms. TI's filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the SEC at http://www.sec.gov.
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ITEM 2. Properties.
TI's principal executive offices are located at 8505 Forest Lane, Dallas,
Texas. TI owns and leases plants in the United States and 11 other countries
for manufacturing and related purposes. The following table indicates the
general location of TI's principal plants and the business segments which make
major use of them. Except as otherwise indicated, the principal plants are
owned by TI.
Materials
Semiconductor & Controls E&PS
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Dallas, Texas(1) X X X
Houston, Texas X
Sherman, Texas(1)(2) X
Santa Cruz, California X
Attleboro, X X
Massachusetts
Freising, Germany X X
Baguio, X
Philippines(3)
Hiji, Japan X
Kuala Lumpur, X X
Malaysia(4)
Miho, Japan X
Taipei, Taiwan X
Aguascalientes, Mexico X X
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(1) Certain plants or portions thereof in Dallas and Sherman are leased to
Raytheon Company or Raytheon-related entities in connection with the sale in
1997 of TI's defense systems and electronics business.
(2) Leased.
(3) Owned on leased land.
(4) Approximately half of this site is owned on leased land; the remainder is
leased.
TI's facilities in the United States contained approximately 17,700,000 square
feet as of December 31, 1998, of which approximately 3,300,000 square feet were
leased. TI's facilities outside the United States contained approximately
5,600,000 square feet as of December 31, 1998, of which approximately 1,300,000
square feet were leased.
TI believes that its existing properties are in good condition and suitable for
the manufacture of its products. At the end of 1998, the company utilized
substantially all of the space in its facilities.
Leases covering TI's leased facilities expire at varying dates generally within
the next 10 years. TI anticipates no difficulty in either retaining occupancy
through lease renewals, month-to-month occupancy or purchases of leased
facilities, or replacing the leased facilities with equivalent facilities.
ITEM 3. Legal Proceedings.
Beginning May 1, 1998, TI filed lawsuits in United States District Courts in
Texas and in courts in the United Kingdom, The Netherlands, France, Germany
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and Japan against Hyundai Electronics Industries Co., Ltd. or related entities
(collectively, "Hyundai") seeking injunctive relief for alleged infringement
of over a dozen of TI's patents relating to the manufacture and sale of
semiconductor devices, including DRAMs. Hyundai responded by filing lawsuits
in United States District Courts in Texas and Delaware, seeking injunctive
relief against TI for alleged infringement of Hyundai's patents relating to the
manufacture and sale of semiconductor devices, including DRAMs.
Approximately $300 million of grants from the Italian government to TI's former
memory operations in Italy are being reviewed in the ordinary course by
government auditors. TI understands that these auditors are questioning
whether some of the grants were applied to purposes outside the scope of the
grants. TI's deferred gain on the sale of its memory business may be reduced
to the extent that any grants are determined to have been misapplied. Also, TI
understands that an Italian prosecutor is conducting a criminal investigation
concerning a portion of the grants relating to specified research and
development activities. The company believes that the grants were obtained and
used in compliance with applicable law and contractual obligations.
TI is involved in various investigations and proceedings conducted by the
federal Environmental Protection Agency and certain state environmental
agencies regarding disposal of waste materials. Although the factual
situations and the progress of each of these matters differ, the company
believes that the amount of its liability will not have a material adverse
effect upon its financial position or results of operations and, in most cases,
TI's liability will be limited to sharing clean-up or other remedial costs with
other potentially responsible parties.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The information which is contained in the note to the financial statements
captioned "Common Stock Prices and Dividends" on page 41 of TI's 1998 annual
report to stockholders, and the information concerning the number of
stockholders of record at December 31, 1998 on page 35 of such annual report,
are incorporated herein by reference to such annual report.
ITEM 6. Selected Financial Data.
The "Summary of Selected Financial Data" for the years 1994 through 1998 which
appears on page 35 of TI's 1998 annual report to stockholders is incorporated
herein by reference to such annual report.
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ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information contained under the headings "Financial Highlights,"
"Semiconductor," "Materials & Controls," "Educational & Productivity
Solutions," "Digital Imaging" and the first two paragraphs under the heading
"Building a Real Time Advantage" on pages 3-4, and the information contained
under the caption "Management Discussion and Analysis of Financial Condition
and Results of Operations" on pages 36-41 of TI's 1998 annual report to
stockholders are incorporated herein by reference to such annual report.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Information concerning market risk is contained on pages 38 and 39 of TI's
1998 annual report to stockholders and is incorporated by reference to such
annual report.
ITEM 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the company at December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998, and
the report thereon of the independent auditors, on pages 14-34 of TI's 1998
annual report to stockholders, are incorporated herein by reference to such
annual report.
The "Quarterly Financial Data" on pages 42-43 of TI's 1998 annual report to
stockholders is also incorporated herein by reference to such annual report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The information with respect to directors' names, ages, positions,
term of office and periods of service, which is contained under the caption
"Nominees for Directorship" in the company's proxy statement for the 1999
annual meeting of stockholders, is incorporated herein by reference to such
proxy statement.
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The following is an alphabetical list of the names and ages of the executive
officers of the company and the positions or offices with the company presently
held by each person named:
Name Age Position
Richard J. Agnich 55 Senior Vice President, Secretary
and General Counsel
William A. Aylesworth 56 Senior Vice President,
Treasurer and Chief Financial
Officer
Thomas J. Engibous 46 Director; Chairman of the
Board, President and Chief Executive
Officer
Stephen H. Leven 47 Senior Vice President
Keh-Shew Lu 52 Senior Vice President
John Scarisbrick 46 Senior Vice President
Richard Schaar 53 Senior Vice President
(President, Educational &
Productivity Solutions)
M. Samuel Self 59 Senior Vice President and Controller
(Chief Accounting Officer)
Elwin L. Skiles, Jr. 57 Senior Vice President
Richard K. Templeton 40 Executive Vice President
(President, Semiconductor)
Teresa L. West 38 Senior Vice President
Delbert A. Whitaker 55 Senior Vice President
Thomas Wroe 48 Senior Vice President
(President, Materials & Controls)
The term of office of the above listed officers is from the date of their
election until their successor shall have been elected and qualified, and the
most recent date of election of each of them was April 16, 1998. Messrs.
Agnich, Aylesworth, Engibous and Skiles have served as officers of the company
for more than five years. Mr. Templeton has served as an officer of the
company since 1996, and he has been an employee of the company for more than
five years. Ms. West and Messrs. Leven, Lu, Scarisbrick, Schaar, Self,
Whitaker and Wroe have served as officers of the company since March 19, 1998
and have been employees of the company for more than five years.
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ITEM 11. Executive Compensation.
The information which is contained under the caption "Directors Compensation,"
"Executive Compensation" in the company's proxy statement for the 1999 annual
meeting of stockholders is incorporated herein by reference to such proxy
statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning (a) the only persons that have reported beneficial
ownership of more than 5% of the common stock of TI, and (b) the ownership of
TI's common stock by the Chief Executive Officer and the five other most highly
compensated executive officers, and all executive officers and directors as a
group, which is contained under the caption "Voting Securities" in the
company's proxy statement for the 1999 annual meeting of stockholders, is
incorporated herein by reference to such proxy statement. The information
concerning ownership of TI's common stock by each of the directors, which is
contained under the caption "Nominees for Directorship" in such proxy
statement, is also incorporated herein by reference to such proxy statement.
ITEM 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1 and 2. Financial Statements and Financial Statement
Schedules:
The financial statements and financial statement schedules are
listed in the index on page 21 hereof.
3. Exhibits:
Designation of
Exhibit in
this Report Description of Exhibit
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3(a) Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit
3(a) to the Registrant's Annual Report on Form
10-K for the year 1993).
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3(b) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(b) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(c) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(c) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(d) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
3(e) Certificate of Ownership Merging Texas
Instruments Automation Controls, Inc. into the
Registrant (incorporated by reference to Exhibit
3(e) to the Registrant's Annual Report on Form
10-K for the year 1993).
3(f) Certificate of Elimination of Designations of
Preferred Stock of the Registrant (incorporated
by reference to Exhibit 3(f) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(g) Certificate of Ownership and Merger Merging
Tiburon Systems, Inc. into the Registrant
(incorporated by reference to Exhibit 4(g) to the
Registrant's Registration Statement No.
333-41919 on Form S-8).
3(h) Certificate of Ownership and Merger Merging
Tartan, Inc. into the Registrant (incorporated by
reference to Exhibit 4(h) to the Registrant's
Registration Statement No. 333-41919 on Form
S-8).
3(i) Certificate of Designation relating to the
Registrant's Participating Cumulative Preferred
Stock (incorporated by reference to Exhibit 4(a)
to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
3(j) Certificate of Elimination of Designation of
Preferred Stock of the Registrant.
3(k) By-Laws of the Registrant (incorporated by
reference to Exhibit 3 to the Registrant's
Current Report on Form 8-K dated
December 4, 1997).
4(a)(i) Rights Agreement dated as of June 18, 1998
between the Registrant and Harris Trust and
Savings Bank as Rights Agent, which includes as
Exhibit B the form of Rights Certificate
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(incorporated by reference to Exhibit 1 to the
Registrant's Registration Statement on Form 8-A
dated June 23, 1998).
4(a)(ii) Amendment dated as of September 18, 1998 to the
Rights Agreement (incorporated by reference to
Exhibit 2 to the Registrant's Amendment No. 1 to
Registration Statement on Form 8-A dated September
23, 1998).
4(b) The Registrant agrees to provide the Commission,
upon request, copies of instruments defining the
rights of holders of long-term debt of the
Registrant and its subsidiaries.
10(a)(i) TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(ii) to the
Registrant's Annual Report on Form 10-K for the
year 1994).*
10(a)(ii) Amendment No. 1 to TI Deferred Compensation Plan
(incorporated by reference to Exhibit 10(a)(iii)
to the Registrant's Annual Report on Form 10-K
for the year 1994).*
10(a)(iii) Amendment No. 2 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).*
10(a)(iv) Amendment No. 3 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).*
10(b) Texas Instruments Long-Term Incentive Plan
(incorporated by reference to Exhibit 10(a)(ii)
to the Registrant's Annual Report on Form 10-K
for the year 1993).*
10(c) Texas Instruments 1996 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996).*
10(d) Texas Instruments Executive Officer Performance
Plan (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997).*
10(e) Texas Instruments Restricted Stock Unit Plan for
Directors (incorporated by reference to
Exhibit 10(e) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1998).
-15-
10(f) Texas Instruments Directors Deferred Compensation
Plan (incorporated by reference to Exhibit 10(f)
to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
10(g) Texas Instruments Stock Option Plan for
Non-Employee Directors.
10(h) Asset Purchase Agreement dated as of January 4,
1997 between the Registrant and Raytheon Company
(exhibits and schedules omitted) (incorporated by
reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated January 4,
1997).
10(i) Acquisition Agreement dated as of June 18, 1998
between Texas Instruments Incorporated and Micron
Technology, Inc. (exhibit C omitted) (incorporated
by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated June 18, 1998).
10(j) Second Amendment to Acquisition Agreement dated as
of September 30, 1998 between Texas Instruments
Incorporated and Micron Technology, Inc.
(incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K dated
October 15, 1998).
10(k) Securities Rights and Restrictions Agreement dated
as of September 30, 1998 between Texas Instruments
Incorporated and Micron Technology, Inc.
11 Computation of Earnings Per Common and Dilutive
Potential Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of Registrant's 1998 Annual Report to
Stockholders Incorporated by Reference Herein.
21 List of Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
----------------
*Executive Compensation Plans and Arrangements:
TI Deferred Compensation Plan (incorporated by reference to Exhibit
10(a)(ii) to the Registrant's Annual Report on Form 10-K for the
year 1994).
Amendment No. 1 to TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(iii) to Registrant's Annual Report on
Form 10-K for the year 1994).
-16-
Amendment No. 2 to TI Deferred Compensation Plan (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
Amendment No. 3 to TI Deferred Compensation Plan (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
Texas Instruments Long-Term Incentive Plan (incorporated by
reference to Exhibit 10(a)(ii) to the Registrant's Annual Report on
Form 10-K for the year 1993).
Texas Instruments 1996 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
Texas Instruments Executive Officer Performance Plan (incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997).
(b) Reports on Form 8-K:
The Registrant filed the following reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended December 31, 1998: Form 8-K dated
September 30, 1998, which included pro forma financial statements relating to
the Registrant's sale of the memory business to Micron Technology, Inc.; Form
8-K dated October 1, 1998, relating to completion of the sale of the
Registrant's memory business.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
This report includes "forward-looking statements" intended to qualify for the
safe harbor from liability established by the Private Securities Litigation
Reform Act of 1995. These forward-looking statements generally can be
identified by phrases such as TI or its management "believes," "expects,"
"anticipates," "foresees," "forecasts," "estimates" or other words or phrases
of similar import. Similarly, statements herein that describe TI's business
strategy, outlook, objectives, plans, intentions or goals also are forward-
looking statements. All such forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those in forward-looking statements.
We urge you to carefully consider the following important factors that could
cause actual results to differ materially from the expectations of TI or its
management:
- Market demand for semiconductors, particularly for digital signal
processors and analog integrated circuits in key markets, such as
telecommunications and computers.
- TI's ability to develop, manufacture and market innovative products in a
rapidly changing technological environment.
-17-
- TI's ability to compete in products and prices in an intensely competitive
industry.
- TI's ability to maintain and enforce a strong intellectual property
portfolio and obtain needed licenses from third parties.
- Timely completion by customers and suppliers of their Year 2000 programs,
as well as accurate assessment of TI's Year 2000 readiness and effective
implementation of corrective actions.
- Global economic, social and political conditions in the countries in which
TI and its customers and suppliers operate, including fluctuations in
foreign currency exchange rates.
- Losses or curtailments of purchases from key customers or the timing of
customer inventory corrections.
- TI's ability to recruit and retain skilled personnel.
- Availability of raw materials and critical manufacturing equipment.
- Realization of savings from announced worldwide corporate restructuring
efforts and consolidation of manufacturing operations.
For a more detailed discussion of these factors see the text under the heading
"Cautionary Statements Regarding Future Operations" in Item 1 of this report.
The forward-looking statements included in this report are made only as of the
date of this report and TI undertakes no obligation to publicly update the
forward-looking statements to reflect subsequent events or circumstances.
-18-
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEXAS INSTRUMENTS INCORPORATED
By: /s/WILLIAM A. AYLESWORTH
------------------------------
William A. Aylesworth
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: February 19, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 19th day of February, 1999.
Signature Title
/s/JAMES R. ADAMS* Director
------------------------------------
James R. Adams
/s/DAVID L. BOREN* Director
------------------------------------
David L. Boren
/s/JAMES B. BUSEY IV* Director
------------------------------------
James B. Busey IV
/s/DANIEL A. CARP* Director
------------------------------------
Daniel A. Carp
/s/THOMAS J. ENGIBOUS* Chairman of the Board; President;
------------------------------------ Chief Executive Officer; Director
Thomas J. Engibous
/s/GERALD W. FRONTERHOUSE* Director
------------------------------------
Gerald W. Fronterhouse
/s/DAVID R. GOODE* Director
------------------------------------
David R. Goode
-19-
Director
------------------------------------
Wayne R. Sanders
Director
------------------------------------
Gloria M. Shatto
/s/CLAYTON K. YEUTTER* Director
------------------------------------
Clayton K. Yeutter
/s/WILLIAM A. AYLESWORTH Senior Vice President; Treasurer;
------------------------------------ Chief Financial Officer
William A. Aylesworth
/s/ M. SAMUEL SELF
------------------------------------ Senior Vice President; Controller;
M. Samuel Self Chief Accounting Officer
*By:
/s/WILLIAM A. AYLESWORTH
-----------------------------
William A. Aylesworth
Attorney-in-fact
-20-
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
Page Reference
--------------
Annual
Report to
Form 10-K Stockholders
--------- ------------
Information incorporated by reference
to the Registrant's 1998 Annual Report
to Stockholders:
Consolidated Financial Statements:
Income for each of the three
years in the period ended
December 31, 1998 14
Balance sheet at December 31,
1998 and 1997 15
Cash flows for each of the
three years in the period
ended December 31, 1998 16-17
Stockholders' equity for each of
the three years in the period
ended December 31, 1998 18
Notes to financial statements 19-33
Report of Independent Auditors 34
Consolidated Schedule for each of the three
years in the period ended December 31, 1998:
II. Allowance for Losses and
Cash-Related Special Charges 22
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
-21-
Schedule II
-----------
-22-
Exhibit Index
Designation of
Exhibit in Electronic
this Report Description of Exhibit or Paper
-------------- ---------------------- ----------
3(a) Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit
3(a) to the Registrant's Annual Report on Form
10-K for the year 1993).
3(b) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(b) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(c) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(c) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(d) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
3(e) Certificate of Ownership Merging Texas
Instruments Automation Controls, Inc. into the
Registrant (incorporated by reference to Exhibit
3(e) to the Registrant's Annual Report on Form
10-K for the year 1993).
3(f) Certificate of Elimination of Designations of
Preferred Stock of the Registrant (incorporated
by reference to Exhibit 3(f) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(g) Certificate of Ownership and Merger Merging
Tiburon Systems, Inc. into the Company
(incorporated by reference to Exhibit 4(g) to
the Registrant's Registration Statement No.
333-41919 on Form S-8).
3(h) Certificate of Ownership and Merger Merging
Tartan, Inc. into the Company (incorporated by
reference to Exhibit 4(h) to the Registrant's
Registration Statement No. 333-41919 on Form
S-8).
3(i) Certificate of Designation relating to the
Registrant's Participating Cumulative Preferred
Stock (incorporated by reference to Exhibit 4(a)
to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
3(j) Certificate of Elimination of Designation of
Preferred Stock of the Registrant.
3(k) By-Laws of the Registrant (incorporated by
reference to Exhibit 3 to the Registrant's
Current Report on Form 8-K dated
December 4, 1997).
4(a)(i) Rights Agreement dated as of June 18, 1998
between the Registrant and Harris Trust and
Savings Bank as Rights Agent, which includes as
Exhibit B the form of Rights Certificate
(incorporated by reference to Exhibit 1 to the
Registrant's Registration Statement on Form 8-A
dated June 23, 1998).
4(a)(ii) Amendment dated as of September 18, 1998 to the
Rights Agreement (incorporated by reference to
Exhibit 2 to the Registrant's Amendment No. 1 to
Registration Statement on Form 8-A dated September
23, 1998).
4(b) The Registrant agrees to provide the Commission,
upon request, copies of instruments defining the
rights of holders of long-term debt of the
Registrant and its subsidiaries.
10(a)(i) TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(ii) to the
Registrant's Annual Report on Form 10-K for the
year 1994).*
10(a)(ii) Amendment No. 1 to TI Deferred Compensation Plan
(incorporated by reference to Exhibit 10(a)(iii)
to the Registrant's Annual Report on Form 10-K
for the year 1994).*
10(a)(iii) Amendment No. 2 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).*
10(a)(iv) Amendment No. 3 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).*
10(b) Texas Instruments Long-Term Incentive Plan
(incorporated by reference to Exhibit 10(a)(ii)
to the Registrant's Annual Report on Form 10-K
for the year 1993).*
10(c) Texas Instruments 1996 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996).*
10(d) Texas Instruments Executive Officer Performance
Plan (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997).*
10(e) Texas Instruments Restricted Stock Unit Plan for
Directors (incorporated by reference to
Exhibit 10(e) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1998).
10(f) Texas Instruments Directors Deferred Compensation
Plan (incorporated by reference to Exhibit 10(f)
to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
10(g) Texas Instruments Stock Option Plan for
Non-Employee Directors.
10(h) Asset Purchase Agreement dated as of January 4,
1997 between the Registrant and Raytheon Company
(exhibits and schedules omitted) (incorporated by
reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated January 4,
1997).
10(i) Acquisition Agreement dated as of June 18, 1998
between Texas Instruments Incorporated and Micron
Technology, Inc. (exhibit C omitted) (incorporated
by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated June 18, 1998).
10(j) Second Amendment to Acquisition Agreement dated as
of September 30, 1998 between Texas Instruments
Incorporated and Micron Technology, Inc.
(incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K dated
October 15, 1998).
10(k) Securities Rights and Restrictions Agreement dated
as of September 30, 1998 between Texas Instruments
Incorporated and Micron Technology, Inc.
11 Computation of Earnings Per Common and Dilutive
Potential Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of Registrant's 1998 Annual Report to
Stockholders Incorporated by Reference Herein.
21 List of Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
----------------
*Executive Compensation Plans and Arrangements:
TI Deferred Compensation Plan (incorporated by reference to
Exhibit 10(a)(ii) to the Registrant's Annual Report on Form 10-K for
the year 1994).
Amendment No. 1 to TI Deferred Compensation Plan
(incorporated by reference to Exhibit 10(a)(iii) to Registrant's Annual Report
on Form 10-K for the year 1994).
Amendment No. 2 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
Amendment No. 3 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
Texas Instruments Long-Term Incentive Plan (incorporated by
reference to Exhibit 10(a)(ii) to the Registrant's Annual Report on
Form 10-K for the year 1993).
Texas Instruments 1996 Long-Term Incentive Plan (incorporated
by reference to Exhibit 10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
Texas Instruments Executive Officer Performance Plan
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997).
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 1-3761
TEXAS INSTRUMENTS INCORPORATED
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 75-0289970
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
8505 Forest Lane, P.O. Box 660199, Dallas, Texas 75266-0199
--------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 972-995-3773
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
----------------------------- ------------------------
Common Stock, par value $1.00 New York Stock Exchange
The Swiss Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $33,833,000,000 as of December 31, 1998.
390,679,959
---------------------------------------------------------------------
(Number of shares of common stock outstanding as of December 31, 1998)
Parts I, II and IV hereof incorporate information by reference to the
Registrant's 1998 annual report to stockholders. Part III hereof incorporates
information by reference to the Registrant's proxy statement for the 1999
annual meeting of stockholders.
PART I
ITEM 1. Business.
Semiconductor
-------------
Texas Instruments Incorporated ("TI" or the "company," including subsidiaries
except where the context indicates otherwise) is a global semiconductor
company and the world's leading designer and supplier of digital signal
processors and analog integrated circuits, the engines driving the
digitization of electronics. These two types of semiconductor products work
together in digital electronic devices such as digital cellular phones.
Analog technology converts analog signals like sound, light, temperature and
pressure into the digital language of zeros and ones, which can then be
processed in real-time by a digital signal processor. Analog integrated
circuits also translate digital signals back to analog. Digital signal
processors and analog integrated circuits enable a wide range of new products
and features for TI's more than 30,000 customers in commercial, industrial and
consumer markets.
TI also is a world leader in the design and manufacturing of other
semiconductor products. Those products include standard logic, application-
specific integrated circuits, reduced instruction-set computing
microprocessors, and microcontrollers.
The semiconductor business comprised 80% of TI's 1998 revenues when the
divested memory business is excluded. TI's semiconductor products are used in
a diverse range of electronic systems, including digital cell phones,
computers, printers, hard disk drives, modems, networking equipment, digital
cameras and video recorders, motor controls, autos, and home appliances.
Products are sold primarily to original-equipment manufacturers and through
distributors. TI's semiconductor patent portfolio has been established as an
ongoing contributor to semiconductor revenues. Revenues generated from sales
to TI's top three semiconductor customers accounted for approximately 24% of
total semiconductor revenues in 1998.
The semiconductor business is intensely competitive, subject to rapid
technological change and pricing pressures, and requires high rates of
investment. TI is the leading supplier of digital signal processors and analog
integrated circuits, yet faces strong competition in all of its semiconductor
product lines. The rapid pace of change and technological breakthroughs
constantly create new opportunities for existing competitors and start-ups,
which can quickly render existing technologies less valuable.
In digital signal processors, TI competes with a growing number of large and
small companies, both U.S.-based and international. New product development
capabilities, applications support, software knowledge and advanced technology
are the primary competitive factors in this business.
The market for analog integrated circuits is highly fragmented. TI competes
with many large and small companies, both U.S.-based and international.
Primary competitive factors in this business are the availability of innovative
designs and designers, a broad range of process technologies and applications
support and, particularly in the standard products area, price.
-2-
Demand for Digital Signal Processors/Analog Integrated Circuits
---------------------------------------------------------------
TI has undertaken a business strategy that focuses on developing and marketing
digital signal processors and analog integrated circuits. TI has divested
certain of its businesses and acquired others and invested its resources with
the view of furthering its focus on these products. While TI believes that
focusing its efforts on digital signal processors and analog integrated
circuits offers the best opportunity for TI to achieve its strategic goals and
that TI has developed, and will continue to develop, a wide range of innovative
and technologically advanced products, the results of TI's operations may be
adversely affected in the future if the demand for digital signal processors
and analog integrated circuits decreases or this market grows at a pace
significantly less than that projected by management.
Acquisitions and Divestitures
-----------------------------
From time to time TI considers acquisitions and divestitures that may
strengthen its business portfolio. TI may effect one or more of these
transactions at such time or times as it determines to be appropriate. In
1998, as TI narrowed its focus to digital signal processors and analog
integrated circuits, it acquired technology companies that brought unique
expertise to these core product areas. In the first quarter, TI acquired GO
DSP Corporation, a developer of software development tools for digital signal
processors; Spectron Microsystems, a developer of real-time operating software
for use in digital signal processing applications; and Oasix and Arisix
corporations, both digital integrated circuit design centers for hard disk
drive products. In the fourth quarter, TI acquired certain assets of Adaptec,
Inc., a developer of hardware and software for the high-end hard disk drive
market, a market that increasingly will use digital signal processors in
addition to analog integrated circuits.
In addition, in 1998, TI divested its dynamic random-access memory (DRAM)
semiconductor operation. The business was sold in the third quarter to Micron
Technology, Inc., and included TI's wholly owned manufacturing facilities in
Avezzano, Italy, and Richardson, Texas, its joint-venture interests in Japan
and Singapore, and an assembly and test operation in Singapore. Revenues,
profits and fixed assets for the divested memory business are included in
"Divested Activities" in the note to the financial statements captioned
"Business Segment and Geographic Area Data" on pages 29-31 of TI's 1998 annual
report to stockholders.
Other TI Businesses
-------------------
In addition to semiconductors, TI has two other principal segments. The
largest, representing 12% of TI's 1998 revenues when the memory business is
excluded, is Materials & Controls (M&C). This business sells electrical and
electronic controls, electronic connectors, sensors, radio-frequency
identification systems and clad metals into commercial and industrial markets.
Typically the top supplier in targeted product areas, M&C faces strong
multinational and regional competitors. The primary competitive factors in
this business are product reliability, manufacturing costs, and engineering
expertise. The products of this business are sold directly to original-
-3-
equipment manufacturers and through distributors. Revenues generated from
sales to TI's top three M&C customers accounted for approximately 15% of total
M&C revenues in 1998.
Educational & Productivity Solutions (E&PS) represents 6% of TI's 1998
revenues when the memory business is excluded, and is a leading supplier of
educational and graphing calculators. This business sells primarily through
retailers and to schools through instructional dealers. TI's principal
competitors in this business are several Japanese companies. Technology
expertise, price and infrastructure for education and market understanding are
primary competitive factors in this business. Revenues generated from sales
to TI's top three E&PS customers accounted for approximately 26% of total E&PS
revenues in 1998.
In addition, TI continues to invest in digital imaging, an emerging business
that produces micro-mirror-based devices that enable revolutionary brightness
and clarity in large-screen video displays. The primary sales route is
directly to original-equipment manufacturers. TI faces competition in this
business primarily from a competing technology known as liquid crystal
displays from Asian manufacturers. Primary competitive factors in this
business are price, brightness and performance of the display, and in some
applications, size and weight.
General Information
-------------------
TI is headquartered in Dallas, Texas, and has manufacturing, design or sales
operations in more than 25 countries. TI's largest geographic markets are in
the United States, Asia, Japan and Europe. TI has been in operation since 1930.
The financial information with respect to TI's business segments
and operations outside the United States, which is contained in the note to
the financial statements captioned "Business Segment and Geographic Area Data"
on pages 29-31 of TI's 1998 annual report to stockholders, is incorporated
herein by reference to such annual report.
Backlog
-------
The dollar amount of backlog of orders believed by TI to be firm was $1233
million as of December 31, 1998 and $1623 million as of December 31, 1997.
TI's backlog does not represent actual revenues and is only an indication of
future revenues which may be entered on the books of account of TI. Backlog
orders are, under certain circumstances, subject to cancellation by the
purchaser without penalty and do not reflect any potential adjustments for
price decreases.
Raw Materials
-------------
TI purchases materials, parts and supplies from a number of suppliers. The
materials, parts and supplies essential to TI's business are generally
available at present and TI believes at this time that such materials, parts
and supplies will be available in the foreseeable future.
-4-
Patents and Trademarks
----------------------
TI owns many patents in the United States and other countries in fields
relating to its business. The company has developed a strong, broad-based
patent portfolio. TI also has several agreements with other companies
involving license rights and anticipates that other licenses may be negotiated
in the future. TI does not consider its business materially dependent upon
any one patent or patent license, although taken as a whole, the rights of TI
and the products made and sold under patents and patent licenses are important
to TI's business.
TI owns trademarks that are used in the conduct of its business. These
trademarks are valuable assets, the most important of which are "Texas
Instruments" and TI's corporate monogram.
Research and Development
------------------------
TI's research and development expense was $1206 million in 1998, compared with
$1536 million in 1997 and $1181 million in 1996. Included is a charge for the
value of in-process research and development of $25 million in 1998 as a result
of two business acquisitions; $461 million in 1997 as a result of the
acquisition of Amati Communications Corporation; and $192 million in 1996 as a
result of the acquisition of Silicon Systems, Inc.
Seasonality
-----------
TI's revenues and operating results are subject to some seasonal variation.
Employees
---------
The information concerning the number of persons employed by TI at December 31,
1998 on page 35 of TI's 1998 annual report to stockholders is incorporated
herein by reference to such annual report.
Cautionary Statements Regarding Future Results of Operations
------------------------------------------------------------
You should read the following cautionary statements in conjunction with
discussions of factors discussed elsewhere in this and other of TI's filings
with the Securities and Exchange Commission (SEC) and in materials
incorporated by reference in these filings. These cautionary statements are
intended to highlight certain factors that may affect the financial condition
and results of operations of TI and are not meant to be an exhaustive
discussion of risks that apply to companies with broad international
operations, such as TI. Like other businesses, TI is susceptible to
macroeconomic downturns in the United States or abroad that may affect the
general economic climate and performance of TI or its customers. Similarly,
the price of TI's securities is subject to volatility due to fluctuations in
general market conditions, differences in TI's results of operations from
estimates and projections generated by the investment community and other
factors beyond TI's control.
-5-
Significant Delay in the Recovery or Worsening of the Market for
----------------------------------------------------------------
Semiconductors.
---------------
TI's semiconductor business represents its largest business segment and
the principal source of its revenues. The semiconductor market has
historically been cyclical and subject to significant economic downturns. The
weak semiconductor market in 1998 had an adverse effect on the demand for TI's
semiconductor products and resulted in a decrease in revenues from TI's sale of
semiconductors compared to 1997. A significant delay in the recovery of, or a
prolonged weakening of, the semiconductor market may adversely affect TI's
results of operations and have an adverse effect on the market price of its
securities.
Dependence on Technology and New Product Development and Marketability.
-----------------------------------------------------------------------
TI's results of operations depend in part upon its ability to successfully
develop and market innovative products in a rapidly changing technological
environment. TI requires significant capital to develop new technologies and
products to meet changing customer demands that, in turn, may result in
shortened product lifecycles. Moreover, expenditures for technology and
product development are generally made before the commercial viability for such
developments can be assured. As a result, there can be no assurance that TI
will successfully develop and market these new products, that the products TI
does develop and market will be well received by customers or that TI will
realize a return on the capital expended to develop such products.
Competition
-----------
TI faces intense technological and pricing competition in the markets in
which it operates. TI expects that the level of this competition will increase
in the future from large, established semiconductor and related product
companies, as well as from emerging companies serving niche markets also served
by TI. Certain of TI's competitors possess sufficient financial, technical and
management resources to develop and market products that may compete favorably
against those products of TI that currently offer technological and/or price
advantages over competitive products. Competition results in price and product
development pressures, which may result in reduced profit margins and lost
business opportunities in the event that TI is unable to match price declines
or technological, product, applications support, software or manufacturing
advances of its competitors.
Intellectual Property Rights
----------------------------
TI benefits from royalties generated from various license agreements that
will be in effect through the year 2005. Future royalty revenues and access
to world-wide markets depend on the continued strength of TI's intellectual
property portfolio. TI actively enforces and protects its intellectual
property rights, but there can be no assurance that TI's efforts will be
adequate to prevent the misappropriation or improper use of the protected
technology. Moreover, there can be no assurance that, as TI's business expands
into new areas, TI will be able to independently develop the technology,
software or know-how necessary to conduct its business and may have to rely
-6-
increasingly on licensed technology from others. To the extent that TI relies
on licenses from others, there can be no assurance that it will be able to
obtain all of the licenses it desires in the future on terms it considers
reasonable or at all.
Decline in Demand for Products in Key Markets
---------------------------------------------
TI's customer base includes companies in a wide range of industries, but
TI generates a significant amount of revenues from sales to customers in the
telecommunications and computer industries. Within these industries, a large
portion of TI revenues is generated by the sale of digital signal processors
and analog integrated circuits to customers in the cellular phone, modem and
hard disk drive segments of these industries. A significant decline in any
one or several of these end-user markets could have a material adverse effect
on the demand for TI's products and its results of operations.
Impact of Year 2000 Issue
-------------------------
As discussed on pages 37-38 of TI's 1998 annual report to stockholders,
since 1995 TI has been addressing Year 2000 issues that result from the use of
two digit, rather than four digit, year dates in software. TI has essentially
completed the assessment phase of its Year 2000 effort in the program areas of
Information Technology, Physical Plant and Products. Assessment in the
Extended Enterprise program area is ongoing. There can be no assurance,
however, that TI has fully and accurately assessed its Year 2000 readiness or
the effectiveness of its corrective actions, nor can there be any assurance
that TI's customers and suppliers will timely complete their respective Year
2000 efforts and avoid Year 2000 disruption.
International Operations
------------------------
TI operates in 25 countries worldwide and in 1998 derived in excess of 68%
of its revenues from sales to locations outside the United States. Operating
internationally exposes TI to changes in the laws or policies, as well as the
general economic conditions, of the various countries in which it operates,
which could result in an adverse effect on TI's business operations in such
countries and its results of operations. Also, as discussed in more detail on
pages 22 and 38-39 of TI's 1998 annual report to stockholders, TI uses forward
currency exchange contracts to minimize the adverse earnings impact from the
effect of exchange rate fluctuations on the company's non-U.S. dollar net
balance sheet exposures. Nevertheless, in periods when the U.S. dollar
strengthens in relation to the non-U.S. currencies in which TI transacts
business, the remeasurement of non-U.S. dollar transactions can have an adverse
effect on TI's non-U.S. business.
Dependence on Certain Customers
-------------------------------
While TI generates revenues from thousands of customers worldwide, the
loss of or significant curtailment of purchases by one or more of its top
customers, including curtailments due to a change in the sourcing policies or
practices of these customers, may adversely affect TI's results of operations.
-7-
Dependence on Key Personnel
---------------------------
TI's continued success depends on the retention and recruitment of skilled
personnel, including technical, marketing, management and staff personnel.
Experienced personnel in the electronics industry are in high demand and
competition for their skills is intense. There can be no assurance that TI
will be able to successfully retain and recruit the key personnel that it
requires.
Available Information
---------------------
TI files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements and
other information filed by TI at the SEC's public reference rooms at 450 Fifth
Street, N.W., Washington, D.C. 20549, or at the SEC offices in New York, New
York and Chicago, Illinois. Please call (800) SEC-0330 for further information
on the public reference rooms. TI's filings are also available to the public
from commercial document retrieval services and at the web site maintained by
the SEC at http://www.sec.gov.
-8-
ITEM 2. Properties.
TI's principal executive offices are located at 8505 Forest Lane, Dallas,
Texas. TI owns and leases plants in the United States and 11 other countries
for manufacturing and related purposes. The following table indicates the
general location of TI's principal plants and the business segments which make
major use of them. Except as otherwise indicated, the principal plants are
owned by TI.
Materials
Semiconductor & Controls E&PS
------------- ------------ ----
Dallas, Texas(1) X X X
Houston, Texas X
Sherman, Texas(1)(2) X
Santa Cruz, California X
Attleboro, X X
Massachusetts
Freising, Germany X X
Baguio, X
Philippines(3)
Hiji, Japan X
Kuala Lumpur, X X
Malaysia(4)
Miho, Japan X
Taipei, Taiwan X
Aguascalientes, Mexico X X
--------------------
(1) Certain plants or portions thereof in Dallas and Sherman are leased to
Raytheon Company or Raytheon-related entities in connection with the sale in
1997 of TI's defense systems and electronics business.
(2) Leased.
(3) Owned on leased land.
(4) Approximately half of this site is owned on leased land; the remainder is
leased.
TI's facilities in the United States contained approximately 17,700,000 square
feet as of December 31, 1998, of which approximately 3,300,000 square feet were
leased. TI's facilities outside the United States contained approximately
5,600,000 square feet as of December 31, 1998, of which approximately 1,300,000
square feet were leased.
TI believes that its existing properties are in good condition and suitable for
the manufacture of its products. At the end of 1998, the company utilized
substantially all of the space in its facilities.
Leases covering TI's leased facilities expire at varying dates generally within
the next 10 years. TI anticipates no difficulty in either retaining occupancy
through lease renewals, month-to-month occupancy or purchases of leased
facilities, or replacing the leased facilities with equivalent facilities.
ITEM 3. Legal Proceedings.
Beginning May 1, 1998, TI filed lawsuits in United States District Courts in
Texas and in courts in the United Kingdom, The Netherlands, France, Germany
-9-
and Japan against Hyundai Electronics Industries Co., Ltd. or related entities
(collectively, "Hyundai") seeking injunctive relief for alleged infringement
of over a dozen of TI's patents relating to the manufacture and sale of
semiconductor devices, including DRAMs. Hyundai responded by filing lawsuits
in United States District Courts in Texas and Delaware, seeking injunctive
relief against TI for alleged infringement of Hyundai's patents relating to the
manufacture and sale of semiconductor devices, including DRAMs.
Approximately $300 million of grants from the Italian government to TI's former
memory operations in Italy are being reviewed in the ordinary course by
government auditors. TI understands that these auditors are questioning
whether some of the grants were applied to purposes outside the scope of the
grants. TI's deferred gain on the sale of its memory business may be reduced
to the extent that any grants are determined to have been misapplied. Also, TI
understands that an Italian prosecutor is conducting a criminal investigation
concerning a portion of the grants relating to specified research and
development activities. The company believes that the grants were obtained and
used in compliance with applicable law and contractual obligations.
TI is involved in various investigations and proceedings conducted by the
federal Environmental Protection Agency and certain state environmental
agencies regarding disposal of waste materials. Although the factual
situations and the progress of each of these matters differ, the company
believes that the amount of its liability will not have a material adverse
effect upon its financial position or results of operations and, in most cases,
TI's liability will be limited to sharing clean-up or other remedial costs with
other potentially responsible parties.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The information which is contained in the note to the financial statements
captioned "Common Stock Prices and Dividends" on page 41 of TI's 1998 annual
report to stockholders, and the information concerning the number of
stockholders of record at December 31, 1998 on page 35 of such annual report,
are incorporated herein by reference to such annual report.
ITEM 6. Selected Financial Data.
The "Summary of Selected Financial Data" for the years 1994 through 1998 which
appears on page 35 of TI's 1998 annual report to stockholders is incorporated
herein by reference to such annual report.
-10-
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information contained under the headings "Financial Highlights,"
"Semiconductor," "Materials & Controls," "Educational & Productivity
Solutions," "Digital Imaging" and the first two paragraphs under the heading
"Building a Real Time Advantage" on pages 3-4, and the information contained
under the caption "Management Discussion and Analysis of Financial Condition
and Results of Operations" on pages 36-41 of TI's 1998 annual report to
stockholders are incorporated herein by reference to such annual report.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Information concerning market risk is contained on pages 38 and 39 of TI's
1998 annual report to stockholders and is incorporated by reference to such
annual report.
ITEM 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the company at December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998, and
the report thereon of the independent auditors, on pages 14-34 of TI's 1998
annual report to stockholders, are incorporated herein by reference to such
annual report.
The "Quarterly Financial Data" on pages 42-43 of TI's 1998 annual report to
stockholders is also incorporated herein by reference to such annual report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The information with respect to directors' names, ages, positions,
term of office and periods of service, which is contained under the caption
"Nominees for Directorship" in the company's proxy statement for the 1999
annual meeting of stockholders, is incorporated herein by reference to such
proxy statement.
-11-
The following is an alphabetical list of the names and ages of the executive
officers of the company and the positions or offices with the company presently
held by each person named:
Name Age Position
Richard J. Agnich 55 Senior Vice President, Secretary
and General Counsel
William A. Aylesworth 56 Senior Vice President,
Treasurer and Chief Financial
Officer
Thomas J. Engibous 46 Director; Chairman of the
Board, President and Chief Executive
Officer
Stephen H. Leven 47 Senior Vice President
Keh-Shew Lu 52 Senior Vice President
John Scarisbrick 46 Senior Vice President
Richard Schaar 53 Senior Vice President
(President, Educational &
Productivity Solutions)
M. Samuel Self 59 Senior Vice President and Controller
(Chief Accounting Officer)
Elwin L. Skiles, Jr. 57 Senior Vice President
Richard K. Templeton 40 Executive Vice President
(President, Semiconductor)
Teresa L. West 38 Senior Vice President
Delbert A. Whitaker 55 Senior Vice President
Thomas Wroe 48 Senior Vice President
(President, Materials & Controls)
The term of office of the above listed officers is from the date of their
election until their successor shall have been elected and qualified, and the
most recent date of election of each of them was April 16, 1998. Messrs.
Agnich, Aylesworth, Engibous and Skiles have served as officers of the company
for more than five years. Mr. Templeton has served as an officer of the
company since 1996, and he has been an employee of the company for more than
five years. Ms. West and Messrs. Leven, Lu, Scarisbrick, Schaar, Self,
Whitaker and Wroe have served as officers of the company since March 19, 1998
and have been employees of the company for more than five years.
-12-
ITEM 11. Executive Compensation.
The information which is contained under the caption "Directors Compensation,"
"Executive Compensation" in the company's proxy statement for the 1999 annual
meeting of stockholders is incorporated herein by reference to such proxy
statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information concerning (a) the only persons that have reported beneficial
ownership of more than 5% of the common stock of TI, and (b) the ownership of
TI's common stock by the Chief Executive Officer and the five other most highly
compensated executive officers, and all executive officers and directors as a
group, which is contained under the caption "Voting Securities" in the
company's proxy statement for the 1999 annual meeting of stockholders, is
incorporated herein by reference to such proxy statement. The information
concerning ownership of TI's common stock by each of the directors, which is
contained under the caption "Nominees for Directorship" in such proxy
statement, is also incorporated herein by reference to such proxy statement.
ITEM 13. Certain Relationships and Related Transactions.
Not applicable.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1 and 2. Financial Statements and Financial Statement
Schedules:
The financial statements and financial statement schedules are
listed in the index on page 21 hereof.
3. Exhibits:
Designation of
Exhibit in
this Report Description of Exhibit
-------------- -------------------------------------------------
3(a) Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit
3(a) to the Registrant's Annual Report on Form
10-K for the year 1993).
-13-
3(b) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(b) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(c) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(c) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(d) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
3(e) Certificate of Ownership Merging Texas
Instruments Automation Controls, Inc. into the
Registrant (incorporated by reference to Exhibit
3(e) to the Registrant's Annual Report on Form
10-K for the year 1993).
3(f) Certificate of Elimination of Designations of
Preferred Stock of the Registrant (incorporated
by reference to Exhibit 3(f) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(g) Certificate of Ownership and Merger Merging
Tiburon Systems, Inc. into the Registrant
(incorporated by reference to Exhibit 4(g) to the
Registrant's Registration Statement No.
333-41919 on Form S-8).
3(h) Certificate of Ownership and Merger Merging
Tartan, Inc. into the Registrant (incorporated by
reference to Exhibit 4(h) to the Registrant's
Registration Statement No. 333-41919 on Form
S-8).
3(i) Certificate of Designation relating to the
Registrant's Participating Cumulative Preferred
Stock (incorporated by reference to Exhibit 4(a)
to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
3(j) Certificate of Elimination of Designation of
Preferred Stock of the Registrant.
3(k) By-Laws of the Registrant (incorporated by
reference to Exhibit 3 to the Registrant's
Current Report on Form 8-K dated
December 4, 1997).
4(a)(i) Rights Agreement dated as of June 18, 1998
between the Registrant and Harris Trust and
Savings Bank as Rights Agent, which includes as
Exhibit B the form of Rights Certificate
-14-
(incorporated by reference to Exhibit 1 to the
Registrant's Registration Statement on Form 8-A
dated June 23, 1998).
4(a)(ii) Amendment dated as of September 18, 1998 to the
Rights Agreement (incorporated by reference to
Exhibit 2 to the Registrant's Amendment No. 1 to
Registration Statement on Form 8-A dated September
23, 1998).
4(b) The Registrant agrees to provide the Commission,
upon request, copies of instruments defining the
rights of holders of long-term debt of the
Registrant and its subsidiaries.
10(a)(i) TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(ii) to the
Registrant's Annual Report on Form 10-K for the
year 1994).*
10(a)(ii) Amendment No. 1 to TI Deferred Compensation Plan
(incorporated by reference to Exhibit 10(a)(iii)
to the Registrant's Annual Report on Form 10-K
for the year 1994).*
10(a)(iii) Amendment No. 2 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).*
10(a)(iv) Amendment No. 3 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).*
10(b) Texas Instruments Long-Term Incentive Plan
(incorporated by reference to Exhibit 10(a)(ii)
to the Registrant's Annual Report on Form 10-K
for the year 1993).*
10(c) Texas Instruments 1996 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996).*
10(d) Texas Instruments Executive Officer Performance
Plan (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997).*
10(e) Texas Instruments Restricted Stock Unit Plan for
Directors (incorporated by reference to
Exhibit 10(e) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1998).
-15-
10(f) Texas Instruments Directors Deferred Compensation
Plan (incorporated by reference to Exhibit 10(f)
to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
10(g) Texas Instruments Stock Option Plan for
Non-Employee Directors.
10(h) Asset Purchase Agreement dated as of January 4,
1997 between the Registrant and Raytheon Company
(exhibits and schedules omitted) (incorporated by
reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated January 4,
1997).
10(i) Acquisition Agreement dated as of June 18, 1998
between Texas Instruments Incorporated and Micron
Technology, Inc. (exhibit C omitted) (incorporated
by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated June 18, 1998).
10(j) Second Amendment to Acquisition Agreement dated as
of September 30, 1998 between Texas Instruments
Incorporated and Micron Technology, Inc.
(incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K dated
October 15, 1998).
10(k) Securities Rights and Restrictions Agreement dated
as of September 30, 1998 between Texas Instruments
Incorporated and Micron Technology, Inc.
11 Computation of Earnings Per Common and Dilutive
Potential Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of Registrant's 1998 Annual Report to
Stockholders Incorporated by Reference Herein.
21 List of Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
----------------
*Executive Compensation Plans and Arrangements:
TI Deferred Compensation Plan (incorporated by reference to Exhibit
10(a)(ii) to the Registrant's Annual Report on Form 10-K for the
year 1994).
Amendment No. 1 to TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(iii) to Registrant's Annual Report on
Form 10-K for the year 1994).
-16-
Amendment No. 2 to TI Deferred Compensation Plan (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
Amendment No. 3 to TI Deferred Compensation Plan (incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
Texas Instruments Long-Term Incentive Plan (incorporated by
reference to Exhibit 10(a)(ii) to the Registrant's Annual Report on
Form 10-K for the year 1993).
Texas Instruments 1996 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
Texas Instruments Executive Officer Performance Plan (incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997).
(b) Reports on Form 8-K:
The Registrant filed the following reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended December 31, 1998: Form 8-K dated
September 30, 1998, which included pro forma financial statements relating to
the Registrant's sale of the memory business to Micron Technology, Inc.; Form
8-K dated October 1, 1998, relating to completion of the sale of the
Registrant's memory business.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
This report includes "forward-looking statements" intended to qualify for the
safe harbor from liability established by the Private Securities Litigation
Reform Act of 1995. These forward-looking statements generally can be
identified by phrases such as TI or its management "believes," "expects,"
"anticipates," "foresees," "forecasts," "estimates" or other words or phrases
of similar import. Similarly, statements herein that describe TI's business
strategy, outlook, objectives, plans, intentions or goals also are forward-
looking statements. All such forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those in forward-looking statements.
We urge you to carefully consider the following important factors that could
cause actual results to differ materially from the expectations of TI or its
management:
- Market demand for semiconductors, particularly for digital signal
processors and analog integrated circuits in key markets, such as
telecommunications and computers.
- TI's ability to develop, manufacture and market innovative products in a
rapidly changing technological environment.
-17-
- TI's ability to compete in products and prices in an intensely competitive
industry.
- TI's ability to maintain and enforce a strong intellectual property
portfolio and obtain needed licenses from third parties.
- Timely completion by customers and suppliers of their Year 2000 programs,
as well as accurate assessment of TI's Year 2000 readiness and effective
implementation of corrective actions.
- Global economic, social and political conditions in the countries in which
TI and its customers and suppliers operate, including fluctuations in
foreign currency exchange rates.
- Losses or curtailments of purchases from key customers or the timing of
customer inventory corrections.
- TI's ability to recruit and retain skilled personnel.
- Availability of raw materials and critical manufacturing equipment.
- Realization of savings from announced worldwide corporate restructuring
efforts and consolidation of manufacturing operations.
For a more detailed discussion of these factors see the text under the heading
"Cautionary Statements Regarding Future Operations" in Item 1 of this report.
The forward-looking statements included in this report are made only as of the
date of this report and TI undertakes no obligation to publicly update the
forward-looking statements to reflect subsequent events or circumstances.
-18-
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TEXAS INSTRUMENTS INCORPORATED
By: /s/WILLIAM A. AYLESWORTH
------------------------------
William A. Aylesworth
Senior Vice President,
Treasurer and Chief
Financial Officer
Date: February 19, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 19th day of February, 1999.
Signature Title
/s/JAMES R. ADAMS* Director
------------------------------------
James R. Adams
/s/DAVID L. BOREN* Director
------------------------------------
David L. Boren
/s/JAMES B. BUSEY IV* Director
------------------------------------
James B. Busey IV
/s/DANIEL A. CARP* Director
------------------------------------
Daniel A. Carp
/s/THOMAS J. ENGIBOUS* Chairman of the Board; President;
------------------------------------ Chief Executive Officer; Director
Thomas J. Engibous
/s/GERALD W. FRONTERHOUSE* Director
------------------------------------
Gerald W. Fronterhouse
/s/DAVID R. GOODE* Director
------------------------------------
David R. Goode
-19-
Director
------------------------------------
Wayne R. Sanders
Director
------------------------------------
Gloria M. Shatto
/s/CLAYTON K. YEUTTER* Director
------------------------------------
Clayton K. Yeutter
/s/WILLIAM A. AYLESWORTH Senior Vice President; Treasurer;
------------------------------------ Chief Financial Officer
William A. Aylesworth
/s/ M. SAMUEL SELF
------------------------------------ Senior Vice President; Controller;
M. Samuel Self Chief Accounting Officer
*By:
/s/WILLIAM A. AYLESWORTH
-----------------------------
William A. Aylesworth
Attorney-in-fact
-20-
TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
Page Reference
--------------
Annual
Report to
Form 10-K Stockholders
--------- ------------
Information incorporated by reference
to the Registrant's 1998 Annual Report
to Stockholders:
Consolidated Financial Statements:
Income for each of the three
years in the period ended
December 31, 1998 14
Balance sheet at December 31,
1998 and 1997 15
Cash flows for each of the
three years in the period
ended December 31, 1998 16-17
Stockholders' equity for each of
the three years in the period
ended December 31, 1998 18
Notes to financial statements 19-33
Report of Independent Auditors 34
Consolidated Schedule for each of the three
years in the period ended December 31, 1998:
II. Allowance for Losses and
Cash-Related Special Charges 22
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
-21-
Schedule II
-----------
-22-
Exhibit Index
Designation of
Exhibit in Electronic
this Report Description of Exhibit or Paper
-------------- ---------------------- ----------
3(a) Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit
3(a) to the Registrant's Annual Report on Form
10-K for the year 1993).
3(b) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(b) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(c) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3(c) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(d) Certificate of Amendment to Restated Certificate
of Incorporation of the Registrant (incorporated
by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
3(e) Certificate of Ownership Merging Texas
Instruments Automation Controls, Inc. into the
Registrant (incorporated by reference to Exhibit
3(e) to the Registrant's Annual Report on Form
10-K for the year 1993).
3(f) Certificate of Elimination of Designations of
Preferred Stock of the Registrant (incorporated
by reference to Exhibit 3(f) to the Registrant's
Annual Report on Form 10-K for the year 1993).
3(g) Certificate of Ownership and Merger Merging
Tiburon Systems, Inc. into the Company
(incorporated by reference to Exhibit 4(g) to
the Registrant's Registration Statement No.
333-41919 on Form S-8).
3(h) Certificate of Ownership and Merger Merging
Tartan, Inc. into the Company (incorporated by
reference to Exhibit 4(h) to the Registrant's
Registration Statement No. 333-41919 on Form
S-8).
3(i) Certificate of Designation relating to the
Registrant's Participating Cumulative Preferred
Stock (incorporated by reference to Exhibit 4(a)
to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
3(j) Certificate of Elimination of Designation of
Preferred Stock of the Registrant.
3(k) By-Laws of the Registrant (incorporated by
reference to Exhibit 3 to the Registrant's
Current Report on Form 8-K dated
December 4, 1997).
4(a)(i) Rights Agreement dated as of June 18, 1998
between the Registrant and Harris Trust and
Savings Bank as Rights Agent, which includes as
Exhibit B the form of Rights Certificate
(incorporated by reference to Exhibit 1 to the
Registrant's Registration Statement on Form 8-A
dated June 23, 1998).
4(a)(ii) Amendment dated as of September 18, 1998 to the
Rights Agreement (incorporated by reference to
Exhibit 2 to the Registrant's Amendment No. 1 to
Registration Statement on Form 8-A dated September
23, 1998).
4(b) The Registrant agrees to provide the Commission,
upon request, copies of instruments defining the
rights of holders of long-term debt of the
Registrant and its subsidiaries.
10(a)(i) TI Deferred Compensation Plan (incorporated by
reference to Exhibit 10(a)(ii) to the
Registrant's Annual Report on Form 10-K for the
year 1994).*
10(a)(ii) Amendment No. 1 to TI Deferred Compensation Plan
(incorporated by reference to Exhibit 10(a)(iii)
to the Registrant's Annual Report on Form 10-K
for the year 1994).*
10(a)(iii) Amendment No. 2 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).*
10(a)(iv) Amendment No. 3 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).*
10(b) Texas Instruments Long-Term Incentive Plan
(incorporated by reference to Exhibit 10(a)(ii)
to the Registrant's Annual Report on Form 10-K
for the year 1993).*
10(c) Texas Instruments 1996 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996).*
10(d) Texas Instruments Executive Officer Performance
Plan (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997).*
10(e) Texas Instruments Restricted Stock Unit Plan for
Directors (incorporated by reference to
Exhibit 10(e) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1998).
10(f) Texas Instruments Directors Deferred Compensation
Plan (incorporated by reference to Exhibit 10(f)
to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
10(g) Texas Instruments Stock Option Plan for
Non-Employee Directors.
10(h) Asset Purchase Agreement dated as of January 4,
1997 between the Registrant and Raytheon Company
(exhibits and schedules omitted) (incorporated by
reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated January 4,
1997).
10(i) Acquisition Agreement dated as of June 18, 1998
between Texas Instruments Incorporated and Micron
Technology, Inc. (exhibit C omitted) (incorporated
by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated June 18, 1998).
10(j) Second Amendment to Acquisition Agreement dated as
of September 30, 1998 between Texas Instruments
Incorporated and Micron Technology, Inc.
(incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K dated
October 15, 1998).
10(k) Securities Rights and Restrictions Agreement dated
as of September 30, 1998 between Texas Instruments
Incorporated and Micron Technology, Inc.
11 Computation of Earnings Per Common and Dilutive
Potential Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of Registrant's 1998 Annual Report to
Stockholders Incorporated by Reference Herein.
21 List of Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
----------------
*Executive Compensation Plans and Arrangements:
TI Deferred Compensation Plan (incorporated by reference to
Exhibit 10(a)(ii) to the Registrant's Annual Report on Form 10-K for
the year 1994).
Amendment No. 1 to TI Deferred Compensation Plan
(incorporated by reference to Exhibit 10(a)(iii) to Registrant's Annual Report
on Form 10-K for the year 1994).
Amendment No. 2 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997).
Amendment No. 3 to TI Deferred Compensation Plan
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
Texas Instruments Long-Term Incentive Plan (incorporated by
reference to Exhibit 10(a)(ii) to the Registrant's Annual Report on
Form 10-K for the year 1993).
Texas Instruments 1996 Long-Term Incentive Plan (incorporated
by reference to Exhibit 10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
Texas Instruments Executive Officer Performance Plan
(incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997).