Texas Instruments Inc – ‘10-K405/A’ for 12/31/98

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Amendment to Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405/A   Amendment No. 1 to Form 10-K for Year End 12/31/98    67    296K 
 2: EX-23       Consent of Ernst & Young LLP                           1      7K 

10-K405/A   —   Amendment No. 1 to Form 10-K for Year End 12/31/98
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

 WASHINGTON, D. C. 20549

 FORM 10-K/A

AMENDMENT NO. 1 TO
 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 (214) 995-3773

 Securities registered pursuant to Section 12(b) of the Act:

     Title of each class               Name of each exchange on 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)

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 List of Items Amended

 Part II

                                                                [Download Table]

Item                                                                        Page
----                                                                        ----
                                                                                
 7.    Management's Discussion and Analysis of Financial Condition              
       and Results of Operations.............................................  3

 8.    Financial Statements and Supplementary Data........................... 18

                                     Part IV                                    

14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 55

Text of Amendments

Explanatory Note:                                                               

       Each of the above listed Items is hereby amended by deleting the Item
in its entirety and replacing it with the Items included herein.                

         The purpose of the amendment is to make certain changes to Management's
Discussion and Analysis of Financial Condition and Results of Operations (Item  
7) and to the notes to the financial statements included in the Financial       
Statements and Supplementary Data (Item 8), which were incorporated by reference
into Part II of the Annual Report on Form 10-K for the year ended December 31,  
1998 of Texas Instruments Incorporated (the "company" or "TI") that was filed on
February 22, 1999 (the "Original Filing"), and to the Exhibits, Financial       
Statement Schedules and Reports on Form 8-K (Item 14) of Part IV of the Original
Filing.                                                                         

        The amendment is being made to reflect certain comments received by TI
from the Securities and Exchange Commission (the "SEC"). The SEC requested that 
TI amend the Original Filing to, among other things, (i) reorder its            
Management's Discussion and Analysis of Financial Condition and Results of      
Operations in order to place the discussion of inclusive results ahead of       
results without special charges and gains, (ii) provide additional disclosures, 
in notes to its financial statements, Management's Discussion and Analysis of   
Financial Condition and Results of Operations and quarterly financial data,     
regarding certain special charges taken by TI, and (iii) restate results of     
operations to reflect the shift of $14 million of pretax manufacturing costs    
from second quarter to third quarter of 1998. This restatement had no impact on 
the company's revenues or earnings for the year.                                

        Any items in the Original Filing not expressly changed hereby shall be
as set forth in the Original Filing. All information contained in this amendment
and the Original Filing is subject to updating and supplementing as provided in 
the company's periodic reports filed with the SEC subsequent to the date of such
reports.                                                                        

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 PART II

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS                                                                   

       Note: Throughout this report, TI total financial results are reported
with the memory business. Semiconductor results are reported without memory. The
memory business was divested in the third quarter of 1998.                      

1998 RESULTS OF OPERATIONS COMPARED WITH 1997                                   

         TI revenues for 1998 were $8460 million, down 13 percent from 1997, due
primarily to lower prices in dynamic random access memories (DRAMs), and to a   
lesser extent, to the absence of revenue due to the sale of the memory business.
Operating margin was 4.7 percent, down from 6.3 percent in 1997, primarily due  
to lower DRAM prices, and to a lesser extent due about equally to the special   
charges associated with a worldwide restructuring of support functions and      
consolidation of manufacturing operations, and with the discontinuance of the   
memory-chip manufacturing joint venture with Hitachi, Ltd. Earnings per share   
were $1.02, compared with $0.76 for 1997.                                       

   Other income for 1998 was $293 million, up $101 million from 1997
primarily due to an $83 million gain in 1998 on the sale of TI's shares in the  
TI-Acer joint venture to Acer Corporation. This was insufficient to offset the  
decline in operating margin, resulting in income before taxes of $617 million,  
down $96 million from 1997. TI orders were $8069 million for 1998, compared with
$9796 million in 1997, primarily due to declines in memory orders.              

         While income before taxes declined, income after taxes for the year was
$407 million, up 35 percent from $302 million in 1997, due to the absence of the
1997 non-deductible acquisition-related R&D charge.                             

       During the fourth quarter, TI essentially completed the restructuring
announced in June of 1998. Annualized cost savings for the company are estimated
to be $270 million.                                                             

   The results for the fourth quarter include special charges of $72
million, substantially all of which was related to the closing of an            
assembly/test joint venture with Samsung Electronica, Lda. in Portugal and the  
sale of the Aversa, Italy plant. Of the $72 million, $35 million was for        
severance, $35 million for other cash-related costs and $2 million for asset    
write-downs. Of the latter $35 million charge, $20 million was a cash payment   
required as part of an agreement with the third-party buyer of a materials &    
controls manufacturing operation in Europe. The balance was for                 
previously-received government grants expected to be repaid as a result of the  
closing of the European semiconductor assembly operation. The year-ago quarter  
had a charge of $461 million for in-process R&D associated with the acquisition 
of Amati Communications Corporation, along with a pretax charge of $42 million  
for cost-reduction actions, primarily for severance in the materials & controls 
business.                                                                       

  In addition to the fourth-quarter charges, 1998 earnings include
special charges of $477 million, of which $219 million was cash payments for    
discontinuing the memory-chip manufacturing joint venture with Hitachi, Ltd.,   
$25 million was for purchased in-process R&D and $233 million was for a         
worldwide                                                                       

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restructuring of support functions and consolidation of manufacturing           
operations. Of the $233 million, $161 million was for severance, $55 million for
asset write-downs, including accelerated depreciation on fixed assets phased out
during 1998, and $17 million for vendor cancellation and lease charges. There   
was also an $83 million pretax gain in the year on the sale of TI's shares in   
the TI-Acer joint venture to Acer Corporation. In 1997, special pretax charges, 
in addition to those in the fourth quarter, were $100 million, primarily related
to the sale of TI's mobile computing business and the termination of            
joint-venture agreements in Thailand. There also was a $66 million special      
pretax gain for the sale of three businesses, the largest of which was software.

      Excluding the effect of the special items for 1998, operating margin
for the year was 10.9 percent, income was $719 million and earnings per share   
were $1.79. TI believes that, for analytical purposes, the effect of these items
should be excluded from operating results because they are not necessarily      
indicative of future operating results or of future financial condition.        
Additional information relating to these items appears below under the heading  
"Special Charges and Gains."                                                    

      SEMICONDUCTOR: For 1998, semiconductor revenues and operating margin
were down slightly, and orders were down modestly, due to overall semiconductor 
market weakness.                                                                

    For the year, DSP revenues increased 29 percent to a record level,
driven by wireless. Analog revenues declined 4 percent for the year, as strength
in wireless was insufficient to offset weakness in other markets, particularly  
hard disk drive (HDD). Collectively, TI's remaining semiconductor product areas 
saw revenues down moderately from 1997, primarily due to overall semiconductor  
market weakness.                                                                

    In the fourth quarter, DSP and analog comprised 59 percent of TI's
semiconductor revenues. TI expects modest sequential revenue growth in its      
semiconductor business in the first quarter of 1999, leading to moderate growth 
for the year, based on continuing strength in wireless and ongoing improvements 
in HDD and the mass markets. The HDD market represents a growing opportunity for
TI, due to its market leadership and extensive portfolio across the primary HDD 
integrated circuits (application-specific integrated circuits (ASICs), read     
channels, pre-amps, and servo control).                                         

     TI expects that 1999 earnings will reflect continued improvement in
semiconductor markets and the ongoing benefit of TI's strategic positioning, as 
well as the cost reductions realized from completion of restructuring actions.  
In the first quarter, these improvements may be largely offset by the transition
to increased profit sharing, as the company moves to higher operating margins.  
Profit-sharing expenses are accrued quarterly, based on the company's full-year 
estimated operating profit margin.                                              

         MATERIALS & CONTROLS (M&C): For the full year, M&C revenues were down 1
percent due to weak Asian markets. Operating margin was up for the year to 15.0 
percent, reflecting gains from the best-cost producer strategy. During 1998,    
plant closings took place in Canada and Michigan, restructuring and early       
retirements took place in Holland and Japan, and the Aversa, Italy plant was    
sold.                                                                           

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     EDUCATIONAL & PRODUCTIVITY SOLUTIONS (E&PS): For the year, the E&PS
business showed a rise in operating margin of 3.4 percentage points to 16.6     
percent, as a result of cost improvements.                                      

       DIGITAL IMAGING: For 1998, the operation reduced its loss to one-half
of the 1997 level and continues to make progress on product positioning and     
operational performance.                                                        

         DIVESTED ACTIVITIES: For 1998, memory revenues were down 60 percent and
orders were down 62 percent from 1997 levels, primarily due to lower DRAM       
prices, with the balance due to the divestiture of the memory business in the   
third quarter of 1998. Loss from memory operations was $498 million, versus a   
loss of $192 million in 1997.                                                   

  FINANCIAL CONDITION: During 1998, cash and cash equivalents plus
short-term investments decreased by $771 million to $2249 million. The          
discontinuance of the joint venture with Hitachi and the acquisition of those   
operating assets (which were subsequently included in the sale of the memory    
business) required approximately $300 million of cash in the first quarter. In  
addition, $91 million of cash was used to purchase the remaining outstanding    
shares of Amati Communications Corporation's common stock in the first quarter. 
Under the terms of the sale of TI's memory business to Micron Technology, TI    
provided $550 million of cash financing to Micron in the third quarter. At      
closing, TI deferred an estimated pretax gain of $127 million on the sale until 
the recovery of the TI-provided financing. In the fourth quarter, TI made an    
additional $130 million payment to Micron as part of the contractually required 
working capital.                                                                

   In the memory transaction, TI received approximately 28.9 million
shares of Micron common stock, $740 million face value of a 6.5 percent         
convertible note and $210 million face value of a 6.5 percent subordinated note.
These securities were originally valued at $1717 million. At year-end, market   
value was $2441 million. Market value changes, net of tax, are recorded as an   
adjustment to stockholders' equity.                                             

     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. TI believes that the grants were obtained and used in   
compliance with applicable law and contractual obligations.                     

         Cash flow from operating activities net of additions to property, plant
and equipment was $220 million in 1998.                                         

  Capital expenditures totaled $1031 million for 1998 versus $1238
million for 1997. Depreciation was $1169 million for 1998 compared to $1109     
million for 1997. Authorizations for future capital expenditures were $541      
million at December 31, 1998. TI's capital expenditures for 1999 are forecast to
be level with 1998 at $1.0 billion. Depreciation for 1999 is expected to be $1.0
billion. R&D is expected to be $1.1 billion, versus $1.2 billion in 1998.       

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   The company maintains lines of credit to support commercial paper
borrowings and to provide additional liquidity. These lines of credit totaled   
$669 million at December 31, 1998. Of this amount, $600 million exists to       
support commercial paper borrowings or short-term bank loans.                   

        During 1998, TI repurchased approximately 4.5 million shares of common
stock, at a cost of $294 million, as a part of its previously stated intent to  
neutralize the potential dilutive effect of shares to be issued under employee  
stock options.                                                                  

       At the end of 1998, the debt-to-total-capital ratio was .17, compared
to the 1997 year-end value of .19.                                              

         As previously announced, the timing of TI dividend declarations in 1998
was moved, effective March 1998, from the third month of a quarter to the first 
month of the following quarter. As a result of this one-time lag, 1998 contains 
three rather than four dividend declarations.                                   

        YEAR 2000: Since 1995, TI has been actively engaged in addressing Year
2000 (Y2K) issues. These result from the use of two-digit, rather than          
four-digit, year dates in software, a practice which could cause date-sensitive 
systems to malfunction or fail because they may not recognize or process date   
information correctly.                                                          

   State of Readiness: To manage its Y2K program, TI has divided its
efforts into four program areas:                                                

         Information Technology (computer hardware, software and electronic data
interchange (EDI) interfaces);                          

Physical Plant (manufacturing equipment and facilities);      

Products (including product development); and                 

Extended Enterprise (suppliers and customers).                

    For each of these program areas, TI is using a four-step approach:

Ownership (creating awareness, assigning tasks);              

Inventory (listing items to be assessed for Y2K readiness);   

     Assessment (prioritizing the inventoried items, assessing their Y2K
          readiness, planning corrective actions, making initial contingency
plans); and                                             

Corrective Action Deployment (implementing corrective actions,
verifying implementation, finalizing contingency plans).

      At December 31, 1998, the Ownership, Inventory, and Assessment steps
were essentially complete for priority items in Information Technology, Physical
Plant and Products. TI's assessment activities for Extended Enterprise will     
continue into 1999. TI considers priority items to be those that could          
significantly disrupt TI's business operations. The target completion date for  
priority items for the remaining step (Corrective Action Deployment) is June    
1999 for all program areas.                                                     

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 As of December 31, 1998, the status for each program area is as
follows:                                                                        

   INFORMATION TECHNOLOGY: Corrective actions have been deployed for
substantially all of TI's legacy business strategic information systems         
(manufacturing, marketing, financial and human resources). In the ordinary      
course of business, TI continues to install new business systems as appropriate.
Verification of Year 2000 readiness is incorporated into the process of         
implementing these new systems. Assessment of infrastructure hardware and       
software that support TI's enterprise-wide networks and servers is essentially  
complete, and deployment of corrective actions is under way. TI has also        
deployed an assessment tool and corrective action process for desktop computers.
The readiness of TI's EDI interfaces has been assessed, and testing continues   
with major customers and suppliers.                                             

         PHYSICAL PLANT: Assessment of manufacturing equipment and facilities is
substantially complete and corrective actions are under way.                    

   PRODUCTS: TI is essentially complete with the Year 2000 readiness
assessment of its products and is providing product status information on its   
company web site. Divested product lines are not part of the assessment. This   
effort includes semiconductor devices sold within the past five years. TI's     
assessment indicates that the majority of semiconductor products either have no 
date logic or are programmable devices that require customer assessment of any  
software and firmware or other elements added by or at the request of TI's      
customers. TI has identified date-related issues with certain of TI's           
semiconductor application software development tools and is providing corrective
software patches. The company believes these development tool issues are        
unlikely to cause significant problems for TI customers. Assessment of products 
of the materials & controls and educational & productivity solutions businesses 
indicates they are either Year 2000 ready or have no date logic.                

       EXTENDED ENTERPRISE: TI's Y2K supplier program attempts to assess the
readiness of TI suppliers, focusing on those that could significantly disrupt   
TI's business operations. TI began contacting its suppliers in 1997 to assess   
their readiness. This effort is ongoing and is expected to be complete by June  
1999. TI intends to finalize contingency plans by June 1999 on the basis of     
information gathered through the assessment process. TI continues to discuss Y2K
status with selected strategic customers.                                       

         COSTS TO ADDRESS Y2K ISSUES: TI's estimated aggregate costs for its Y2K
activities from 1995 through 2000 are expected to range from $70 million to $90 
million. Through December 31, 1998, TI has spent approximately $53 million.     

        RISKS OF Y2K ISSUES AND CONTINGENCY PLANS: TI continues to review Year
2000 issues relating to its information technology, physical plant, products,   
suppliers and customers, as well as legal risks that may be associated with     
discontinued products and divested product lines. TI's contingency planning     
process is intended to mitigate worst-case business disruptions. The company is 
preparing contingency plans to address worst-case issues such as delays in      
delivery of product. As noted above, the company expects its contingency plans  
to be complete by June 1999.                                                    

      MARKET RISK SENSITIVE INSTRUMENTS: The U.S. dollar is the functional
currency for financial reporting. In this regard, the company uses forward      
currency exchange contracts,                                                    

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including lira note currency swaps, 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. For example, at year-end 1998, the company had forward 
currency exchange contracts outstanding of $756 million (including $161 million 
to sell yen, $132 million to buy lira and $105 million to buy deutsche marks).  
Similar hedging activities existed at year-end 1997. Because most of the        
aggregate non-U.S. dollar balance sheet exposure is hedged by these exchange    
contracts and swaps, a hypothetical 10% plus or minus fluctuation in non-U.S.   
currency exchange rates would not be expected to have a material earnings       
impact, e.g., based on year-end 1998 balances and rates, a pretax currency      
exchange gain or loss of $6 million.                                            

        The company has interest rate swaps that change the characteristics of
the interest payments on its $300 million of 6.125% notes due 2006 from         
fixed-rate payments to short-term LIBOR-based variable rate payments in order to
achieve a mix of interest rates on the company's long-term debt which, over     
time, is expected to moderate financing costs. The effect of these interest rate
swaps was to reduce interest expense by $3 million in 1998. The year-end 1998   
effective interest rate for the $300 million of notes due 2006, including the   
effect of the swaps, was approximately 4.6% (5.1% at year-end 1997). These swaps
are sensitive to interest rate changes. For example, if short-term interest     
rates increase (decrease) by one percentage point from year-end 1998 rates,     
annual pretax interest expense would increase (decrease) by $3 million.         

 The company's long-term debt has a fair value, based on current
interest rates, of approximately $1346 million at year-end 1998 ($1390 million  
at year-end 1997). Fair value will vary as interest rates change. The following 
table presents the aggregate maturities and historical cost amounts of the debt 
principal and related weighted-average interest rates by maturity dates at      
year-end 1998:                                                                  

                                                                [Download Table]

                               Millions of Dollars     
                               -------------------     
            U.S. Dollar   Average     Lira     Average 
  Maturity  Fixed-Rate   Interest  Fixed-Rate  Interest
   Date        Debt        Rate       Debt       Rate  
----------  ----------   --------  ----------  --------
                                                       
   1999      $  235        6.74%     $  32       5.25% 
   2000         274        6.81%        38       5.09% 
   2001         105        7.90%        30       4.95% 
   2002          --         n/a         27       4.73% 
   2003         133        8.47%        28       4.74% 
Thereafter      356        6.40%        36       4.53% 
----------  -------      ------      -----     ------  
  Total      $1,103        6.97%     $ 191       4.89% 

        Total long-term debt historical cost amount at year-end 1998 was $1294
million.                                                                        

    The company's cash equivalents and short-term investments are debt
securities with remaining maturities within three months (cash equivalents) and 
beyond three months and within 13 months (short-term investments). Their        
aggregate fair value and carrying amount was $1771 million at year-end 1998     
($2566 million at year-end 1997). Fair value will vary as interest rates change.
The following table presents the aggregate maturities of cash equivalents and   
short-term investments and related weighted-average interest rates by maturity  
dates at year-end 1998:                                                         

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                                                                [Download Table]

          Millions of Dollars          
           Cash Equivalents    Average 
Maturity    and Short-Term     Interest
  Date        Investments        Rate  
--------  -------------------  --------
                                       
  1999           $1,681          5.32% 

  2000               90          5.12% 
--------         ------          ----  
  Total          $1,771          5.31% 

       The company's investments at year-end 1998 consisted of the following
(amounts at year-end 1997 were not material):                                   

      o     Equity investments - primarily 28,933,092 Micron common shares
        acquired in 1998, along with several other publicly traded
investments.                                      

         o     Debt investments - 6.5% Micron convertible and subordinated notes
      acquired in 1998. The convertible note (convertible into
       12,333,358 Micron common shares at $60 per share) and the
          subordinated note have face amounts of $740 million and $210
            million. The notes, which mature 2005, have a weighted-average
imputed interest rate of 8.7%.                    

        o     TI Ventures - an externally managed venture fund that invests in
         the development of new markets. As of year-end 1998, it had
              invested in 14 companies focused on next-generation applications
of digital signal processors.                     

        o     Other investments - consist of mutual funds that are acquired to
         generate returns that offset changes in certain liabilities
             related to deferred compensation arrangements. The mutual funds
hold a variety of debt and equity investments.    

       The equity investments (fair value of $1516 million) and venture fund
(fair value of $37 million) are sensitive to equity price changes. For example, 
if prices of the equity investments increase or decrease 10%, the company would 
record an increase or decrease in stockholders' equity of $152 million.         
Similarly, if prices for the venture fund increase or decrease 10%, the company 
would record an increase or decrease in other income (expense) of $4 million.   
Changes in prices of the other investments are expected to offset related       
changes in deferred compensation liabilities such that a 10% increase or        
decrease in investment prices would not affect operating results.               

         Fair value of the debt investments ($978 million) will vary as interest
rates change (and also for the convertible note, as the underlying equity share 
price changes). The following table presents the aggregate historical cost      
maturities of debt investments and related weighted-average interest rates by   
maturity dates:                                                                 

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                                                                [Download Table]

           Millions of Dollars      
           -------------------      
                            Average 
  Maturity        Debt      Interest
    Date      Investments     Rate  
-----------   -----------   --------
                                    
1999 - 2004       None         N/A  

   2005          $ 839         8.7% 

1997 RESULTS OF OPERATIONS COMPARED WITH 1996                                   

                                                                [Download Table]

                                         Change in     Change in   
                                          Orders,     Net Revenues,
              Business                 1997 vs. 1996  1997 vs. 1996
------------------------------------   -------------  -------------
                                                                   
Semiconductor                           up       25%    up      21%
Material & Controls                     up        9%    up       7%
Educational & Productivity Solutions    up        5%    up       6%
                                       ------------   -------------
Total TI                                up        6%  down       2%
                                       ------------   -------------
Total TI excluding businesses sold      up       22%    up      19%

        TI's orders in 1997 were $9796 million, compared with $9268 million in
1996. Net revenues in 1997 were $9750 million, compared with $9940 million in   
1996. Financial results in 1997 and 1996 included revenues from TI businesses   
that have been sold, primarily memory, software, mobile computing and printers. 

       Net income for 1997 was $1805 million, which consisted of income from
continuing operations of $302 million, income from the discontinued defense     
business of $52 million, gain on the sale of the discontinued defense business  
of $1473 million, and an extraordinary charge of $22 million associated with    
debt retirement. On a similar basis, net income for 1996 was $63 million, which 
consisted of a loss from continuing operations of $46 million and income from   
the discontinued defense business of $109 million. Earnings per share were $0.76
for 1997, compared with a loss of $0.12 in 1996.                                

       Profit from operations in 1997 was $615 million, versus a loss of $26
million in 1996. The improvement was primarily due to higher semiconductor      
profits, and to a lesser degree, due to the absence of losses from the sold     
businesses, primarily memory, software and mobile computing. In 1996, these sold
businesses lost $229 million more than in 1997.                                 

     Results for the fourth quarter include a charge of $461 million for
in-process R&D associated with the acquisition of Amati Communications          
Corporation, along with a pretax charge of $42 million for cost reduction       
actions, primarily in the materials & controls business. In addition to the     
fourth-quarter charges, the 1997 earnings include previously announced special  
pretax charges of $56 million, primarily related to the sale of TI's mobile     
computing business, and $44 million for the termination of joint-venture        
agreements in Thailand.                                                         

        Results for 1997 also include a $66 million gain for the sale of three
businesses, the largest of which was software. The total of the 1997 special    
items is equivalent to $1.27 per share. In 1996, special charges were $400      
million before taxes, with $208 million being in the fourth quarter. These      
charges were equivalent to $0.86 per share for the year.                        

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      Results for 1997 also included an accrual for profit sharing of $122
million, which was 7.82 percent of eligible payroll. There was no profit sharing
in 1996.                                                                        

       Excluding these divested activities, TI orders were up 22 percent for
the year and revenues were up 19 percent, primarily due to growth in            
semiconductor.                                                                  

Royalty revenues in 1997 were essentially steady with 1996.   

       Interest income for 1997 was up $84 million from 1996, primarily as a
result of investment of net proceeds from the sale of the defense business to   
Raytheon.                                                                       

The income tax rate for 1997 was 35 percent.                  

    TI's backlog of unfilled orders as of December 31, 1997, was $1623
million, unchanged from year-end 1996.                                          

       R&D for 1997 was $1075 million, excluding the $461 million charge for
in-process R&D associated with the Amati acquisition, compared with $989 million
in 1996, excluding the $192 million charge for in-process R&D associated with   
the SSi acquisition.                                                            

      Capital expenditures were $1238 million in 1997, compared with $2063
million in 1996. Depreciation for 1997 was $1109 million compared with $904     
million in 1996.                                                                

      Excluding the effect of the special items for 1997, operating margin
was 12.4 percent, income was $809 million and earnings per share were $2.03. TI 
believes that, for analytical purposes, the effect of these items should be     
excluded from operating results because they are not necessarily indicative of  
future operating results or of future financial condition. Additional           
information relating to these items appears below under the heading "Special    
Charges and Gains."                                                             

        SEMICONDUCTOR: Orders in semiconductor for 1997 were $6610 million, up
25 percent from $5267 million in 1996. The increase resulted from strong demand 
for digital signal processing solutions (DSPS), as DSPS orders increased over 40
percent. Semiconductor revenues were $6514 million, up 21 percent from $5385    
million in 1996. The increase in semiconductor resulted from an increase of more
than 35 percent in DSPS revenues due to increased shipments.                    

         For the fourth quarter, semiconductor revenues, which include royalties
from semiconductor patent licenses, represented about 71 percent of TI's        
revenues. Digital signal processors plus mixed signal/analog represented about  
54 percent of semiconductor. The remainder of semiconductor consists primarily  
of a broad range of advanced products, including application-specific integrated
circuits, reduced instruction-set microprocessors, microcontrollers and standard
logic.                                                                          

       Revenues reached record levels for digital signal processing for both
the year and the fourth quarter. Mixed-signal/analog also had a strong year,    
with record revenues for the year and fourth quarter, growing more than twice as
fast as the market in 1997.                                                     

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 TI's other semiconductor products, such as microcontrollers and
application-specific integrated circuits, made good progress in growth and      
profitability in 1997.                                                          

      Semiconductor profit from operations increased from $1012 million in
1996 to $1546 million in 1997, and operating margin improved from 18.8 percent  
to 23.7 percent. Results particularly benefited from higher DSPS shipments.     

        MATERIALS & CONTROLS (M&C): Orders in M&C of $972 million were up from
$896 million in 1996, primarily due to TIRIS. Revenues of $954 million were up  
$64 million from 1996 due primarily to the growing acceptance of TIRIS in       
automotive applications. PFO increased from $90 million in 1996 to $123 million 
in 1997, with operating margin improving from 10.1 percent to 12.9 percent. The 
increase was due primarily to manufacturing cost reduction.                     

       EDUCATIONAL & PRODUCTIVITY SOLUTIONS (E&PS): Orders in E&PS were $448
million, up $22 million from 1996 as a result of continued growth in            
instructional calculators. Revenues were $447 million, an increase of $24       
million from 1996 also as a result of growth in instructional calculators. PFO  
increased from $56 million in 1996 to $59 million in 1997, and operating margin 
remained flat at 13.2 percent.                                                  

  DIGITAL IMAGING: TI's digital imaging business continued to make
progress throughout 1997, further focusing its strategy on key market           
opportunities.                                                                  

    DIVESTED ACTIVITIES: Revenues for memory decreased $400 million in
1997, compared to 1996, as DRAM prices continued to decline sharply.            

SPECIAL CHARGES AND GAINS                                                       

         FOURTH QUARTER OF 1998: In the fourth quarter of 1998, the company took
further steps to enhance manufacturing efficiency, including the announced      
closing of a semiconductor assembly operation and sale of a materials & controls
manufacturing operation, both in Europe. The sale was completed on December 31, 
1998. The primary benefit from these actions was the consolidation of           
manufacturing facilities, which increased efficiencies and reduced manufacturing
costs. Estimated savings from such actions were approximately $24 million       
annually. The benefit was expected to begin in the first quarter of 1999. The   
assembly operation closing, which is ongoing, affected 740 employees. As a      
result of these actions, the company took a fourth-quarter 1998 pretax charge of
$72 million, of which $27 million was included in cost of revenues, $24 million 
in other income (expense) net and $21 million in marketing, general and         
administrative expense. Of this $72 million charge, $35 million was for         
severance, $35 million for other cash-related costs and $2 million for asset    
write-downs, primarily to adjust fixed assets in the European materials &       
controls operation to actual sale value. Of the $35 million severance charge,   
$19 million had been paid by year-end 1998 and $16 million will be paid in 1999.
Of the other $35 million charge, $20 million was a cash payment required as part
of an agreement with the third-party buyer of a materials & controls            
manufacturing operation in Europe. The balance was for previously-received      
government grants expected to be repaid as a result of the closing of the       
European semiconductor assembly operation.                                      

  THIRD QUARTER OF 1998: In the third quarter of 1998, the company
recorded a $14 million charge for accelerated depreciation on fixed assets      
primarily located in a                                                          

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semiconductor manufacturing facility in Singapore. This action was taken in     
connection with the severance/manufacturing efficiency program announced during 
the second quarter of 1998 (which program is more fully described below under   
the heading Second Quarter of 1998). This asset write-down charge was included  
in cost of revenues.                                                            

    SECOND QUARTER OF 1998: In the second quarter of 1998, the company
announced that, as a result of the various business divestitures over the past  
several years, the pending sale of its memory business (subsequently completed  
in September 1998), and weakness at that time in the semiconductor market       
environment, it was implementing a severance/manufacturing efficiency program in
order to more closely match the size and cost of its support functions with the 
company's overall size and to further combine manufacturing resources for more  
efficient operations. The primary benefit from this severance/manufacturing     
efficiency program was reduced people costs; total benefits were estimated to   
reach $270 million annually. The benefit was expected to begin in the third     
quarter of 1998.                                                                

The program, which primarily affected the company's corporate 
activities and semiconductor business, included the elimination of 3,441 jobs   
around the world through voluntary programs, attrition, outsourcing and layoffs,
as well as the closing of several facilities. As a result, the company took a   
pretax charge of $219 million in the second quarter of 1998, of which $126      
million was included in marketing, general and administrative expense and $93   
million in cost of revenues. Of the $219 million charge, $161 million was for   
severance, $41 million for asset write-downs and $17 million for vendor         
cancellation and lease charges.                                                 

    Of the $41 million for asset write-downs, $25 million was for U.S.
semiconductor inventories and $16 million was for fixed assets, primarily       
accelerated depreciation on assets phased out during 1998 in connection with the
winding down of production at a semiconductor manufacturing facility located in 
Singapore. The primary benefits from this consolidation action were increased   
efficiencies and reduced manufacturing costs. Estimated savings from such       
actions were approximately $9 million annually. The benefit was expected to     
begin in the fourth quarter of 1998.                                            

   Of the $17 million for vendor cancellation and lease charges, $15
million was for required vendor fees for cancellation of purchase contracts for 
chemicals, supplies and equipment as a result of a U.S. facility shutdown.      

         At year-end 1998, the program had essentially been completed, with most
severance costs paid except for $49 million, which will primarily be paid in    
1999. Of the 3,441 jobs, 3,260 had been eliminated, and 181 will be eliminated  
in 1999.                                                                        

   In the second quarter of 1998, the company sold its shares in the
TI-Acer DRAM semiconductor manufacturing joint venture to Acer Corporation for  
$120 million in cash. This sale resulted in a pretax gain of $83 million,       
included in other income.                                                       

     FIRST QUARTER OF 1998: In the first quarter of 1998, TI's U.S. DRAM
semiconductor manufacturing joint venture with Hitachi, Ltd. was discontinued as
a result of a combination of severe price declines and overcapacity in the DRAM 
market. As part of this first quarter discontinuance, TI purchased the assets of
the venture for approximately $98 million. Also as part of this first quarter   
discontinuance, TI and Hitachi decided to assume and share equally in the       
payment of the venture's obligations. TI's share of those payments was $219     
million, which was paid and charged to cost of revenues in the first quarter.   

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      In connection with TI's acquisitions of GO DSP and Spectron, both of
which occurred in the first quarter of l998, TI recorded charges of $10 million 
and $15 million for purchased in-process R&D (purchased R&D), based upon the    
appraised value of the related developmental projects. The Income Approach,     
which included an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing each   
purchased R&D project.                                                          

 GO DSP's and Spectron's research and development related to DSP
software tools. These software tools, which include real-time operating systems,
allow DSP systems developers to improve productivity and reduce time-to-market. 
TI's goal in these acquisitions was to extend its leadership in digital signal  
processing solutions by offering a complete development environment, simplifying
DSP development, and making TI DSP solutions even more attractive for a broad   
range of fast-growing markets.                                                  

        Significant assumptions used in determining the value of purchased R&D
for GO DSP and Spectron included projected operating cash flows and the discount
rate. Projected operating cash flows were expected to begin in late 1998. The   
discount rate selected for GO DSP's and Spectron's in-process technologies was  
30%.                                                                            

 At the time of the acquisitions, GO DSP and Spectron management
estimated the remaining cost and time to complete the purchased R&D projects was
approximately $7 million and 540 engineer-months. The term "engineer-month"     
refers to the average amount of research work expected to be performed by an    
engineer in a month. All the in-process projects were essentially completed on  
schedule. TI expects to essentially meet its original return expectations.      

        The relative stage of completion and projected operating cash flows of
the underlying in-process projects acquired were the most significant and       
uncertain assumptions utilized in the valuation analysis of the in-process      
research and development. Uncertainties regarding projected operating cash flows
could give rise to unforeseen budget over-runs and/or revenue shortfalls in the 
event that TI is unable to successfully commercialize the projects. TI          
management is primarily responsible for estimating the value of the purchased   
R&D in all acquisitions accounted for under the purchase method.                

      FOURTH QUARTER OF 1997: In connection with TI's acquisition of Amati
Communications Corporations (Amati) in the fourth quarter of 1997, TI recorded a
charge of $461 million for the value of purchased in-process R&D (purchased R&D)
at the acquisition date, based upon the appraised value of the related          
developmental projects. The Income Approach, which included an analysis of the  
markets, cash flows, and risks associated with achieving such cash flows, was   
the primary technique utilized in valuing each purchased R&D project.           

     Amati's research and development related to Digital Subscriber Line
(DSL) system designs for the Internet and other uses. DSL technology targets the
local exchange carrier market since the technology permits the transmission of  
data at high speeds over the existing copper lines of the local exchange        
carriers. Currently, analog modems are noted as being slow in                   

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their transmission speed, and ADSL digital processing technology is expected to 
fill the need for additional bandwidth requirements. VDSL transmits high-speed  
data over short reaches of twisted-pair copper telephone wire, with a range of  
speeds that depends on actual line length.                                      

        Significant assumptions used in determining the value of purchased R&D
for Amati included projected operating cash flows and the discount rate.        
Projected operating cash flows were expected to begin in 1999. The discount rate
selected for Amati's in-process technologies was 30%.                           

At the time of the acquisition, Amati management estimated the
remaining cost to complete the purchased R&D projects to be approximately $13   
million with a remaining time requirement of approximately 1,300                
engineer-months. The term "engineer-month" refers to the average amount of      
research work to be performed by an engineer in a month. All the in-process     
projects were essentially completed on schedule. Several products have been     
released, and although the DSL market has developed more slowly than expected,  
TI expects improvements in the near term in Internet-related demand. As this    
occurs, TI will be one of a very few suppliers who have demonstrated            
interoperability and standards compliance. Thus, TI expects to essentially meet 
its original return expectations.                                               

        The relative stage of completion and projected operating cash flows of
the underlying in-process projects acquired were the most significant and       
uncertain assumptions utilized in the valuation analysis of the in-process      
research and development. Uncertainties regarding projected operating cash flows
could give rise to unforeseen budget over-runs and/or revenue shortfalls in the 
event that TI is unable to successfully commercialize the projects. TI          
management is primarily responsible for estimating the value of the purchased   
R&D in all acquisitions accounted for under the purchase method.                

        In the fourth quarter of 1997, the company took a pretax charge of $42
million, of which $30 million was included in cost of revenues and $12 million  
in marketing, general and administrative expense, primarily for severance costs 
related to cost-reduction actions by the materials & controls business. These   
actions, which are expected to be completed in first-quarter 1999, affected     
approximately 260 employees. The terminated employees were in plants located in 
Holland, Italy, Canada and Michigan. The primary benefit from this materials &  
controls action was reduced people costs, which were estimated to reach $20     
million annually. The benefit was expected to begin in the first quarter of     
1998.                                                                           

        SECOND QUARTER OF 1997: In the second quarter of 1997, TI sold several
activities, principally software, for a pre-tax gain of $66 million, after      
transaction costs. These transaction costs totaled $54 million and included     
severance of $17 million for 372 employees, who left TI within three months of  
the related divestitures, $24 million for vendor and warranty obligations, $4   
million for professional fees, and $9 million for various other costs. The      
primary benefit from the related divestitures was the cessation of the software 
business, which was operating at a loss of approximately $28 million in the     
first half of 1997.                                                             

       FIRST QUARTER OF 1997: In the first quarter of 1997, the company sold
its mobile computing business and terminated its digital imaging printing       
development program. The primary benefits from these actions were the           
divestiture of a business operating at a loss and the termination of the        
research and development program. The divested                                  

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business had a $180 million loss in 1996. The cost of the research and          
development program in 1996 was $32 million. As a result of these actions, the  
company took a first-quarter pretax charge of $56 million, of which $28 million 
was included in cost of revenues and $28 million in marketing, general and      
administrative expense. Of this $56 million charge, $27 million was for         
severance for involuntary reductions worldwide. These severance actions were    
essentially completed by the end of the quarter and affected approximately 1,045
employees. The balance of $29 million was for other costs associated with the   
business sale and program termination, including vendor cancellation and lease  
charges. Essentially all costs were paid in 1998.                               

         FOURTH QUARTER OF 1996: In the fourth quarter of 1996, the company took
a pretax charge of $208 million, of which $169 million was included in cost of  
revenues and $39 million was included in marketing, general and administrative  
expense. Of the $208 million, $91 million was for severance for employment      
reduction actions in the United States and selected reductions worldwide. The   
primary benefit from these actions was reduced people costs, which were         
estimated to reach $195 million annually. The benefit was expected to begin in  
the first quarter of 1997. These actions, which primarily involved the          
semiconductor business as well as divested activities, were essentially         
completed by year-end 1996 and affected approximately 2,600 employees. Of the   
severance cost of $91 million, $34 million was paid in 1996 and $57 million was 
paid in 1997.                                                                   

       The balance of this charge, $117 million, was for vendor cancellation
and other cash-related costs of $47 million and asset write-downs of $70 million
on several product lines, primarily mobile computing, an operation divested in  
first-quarter 1997. The asset write-downs were to adjust inventory and fixed    
assets to actual sale value. Of the $70 million asset write-downs charges, $54  
million was for mobile computing.                                               

        With respect to this $54 million charge, $47 million was for inventory
and $7 million was for fixed assets. The balance of $16 million included a $6   
million charge against operating assets for the impact of the expected first    
quarter 1997 termination of TI's digital imaging printing development program.  
The benefit of this action is described above under the heading First Quarter of
1997. The remainder, $10 million, was to write down the operating assets of TI's
Telecom business, which was held for sale, and sold in the second quarter of    
1997 for a nominal gain. The primary benefit from this action was the           
divestiture of a business operating at a loss ($14 million in 1996).            

        THIRD QUARTER OF 1996: In connection with TI's acquisitions of Silicon
Systems, Inc. (SSi) in the third quarter of 1996, TI recorded a charge of $192  
million for the value of purchased in-process R&D (purchased R&D) at the        
acquisition date, based upon the appraised value of the related developmental   
projects. The Income Approach, which included an analysis of the markets, cash  
flows, and risks associated with achieving such cash flows, was the primary     
technique utilized in valuing each purchased R&D project.                       

      SSi's research and development related to analog technology for hard
disk drives and removable storage devices. Historically, SSi had primarily      
emphasized producing integrated circuits for the hard disk drive market. As of  
the acquisition date, SSi's product development activities for this market had  
been expanded to include other magnetic optical storage devices that require    
advanced technology and performance.                                            

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        Significant assumptions used in determining the value of purchased R&D
for SSi included projected operating cash flows and the discount rate. Projected
operating cash flows were expected to commence in late 1996. The discount rate  
selected for SSi's in-process technologies was 22%.                             

       At the time of the acquisition SSi management estimated the remaining
cost to complete the purchased R&D projects to be approximately $16 million,    
over a 9-month period. All the in-process projects were essentially completed on
schedule. TI expects to essentially meet its original return expectations.      

        The relative stage of completion and projected operating cash flows of
the underlying in-process projects were the most significant and uncertain      
assumptions utilized in the valuation analysis of the in-process research and   
development. Uncertainties regarding projected operating cash flows could give  
rise to unforeseen budget over-runs and/or revenue shortfalls in the event that 
TI is unable to successfully commercialize the projects. TI management is       
primarily responsible for estimating the value of the purchased R&D in all      
acquisitions accounted for under the purchase method.                           

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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                             

Consolidated Financial Statements (millions of dollars, except per-share        
amounts)                                                                        

Income                                                                          

                                                                [Download Table]

For the Years Ended December 31,                    1998      1997       1996   
                                                   -------   -------    ------- 
                                                                                
Net Revenues                                       $ 8,460   $ 9,750    $ 9,940 
                                                   -------   -------    ------- 
Operating costs and expenses:                                                   
  Cost of revenues                                   5,394     6,067      7,146 
  Research and development                           1,206     1,536      1,181 
  Marketing, general and administrative              1,461     1,532      1,639 
                                                   -------   -------    ------- 
      Total                                          8,061     9,135      9,966 
                                                   -------   -------    ------- 
Profit (loss) from operations                          399       615        (26)
Other income (expense) net                             293       192         76 
Interest on loans                                       75        94         73 
                                                   -------   -------    ------- 
Income (loss) from continuing operations                                        
  before provision for income taxes and                                         
  extraordinary item                                   617       713        (23)
Provision for income taxes                             210       411         23 
                                                   -------   -------    ------- 
Income (loss) from continuing operations                                        
  before extraordinary item                            407       302        (46)
Discontinued operations:                                                        
  Income from operations                                --        52        109 
  Gain on sale                                          --     1,473         -- 
                                                   -------   -------    ------- 
Income before extraordinary item                       407     1,827         63 
Extraordinary item:  extinguishment of debt             --       (22)        -- 
                                                   -------   -------    ------- 
Net income                                         $   407   $ 1,805    $    63 
                                                   =======   =======    ======= 
Diluted earnings (loss) per common share:                                       
  Continuing operations before extraordinary                                    
     item                                          $  1.02   $   .76    $  (.12)
  Discontinued operations:                                                      
     Income from operations                             --       .13        .29 
     Gain on sale                                       --      3.70         -- 
  Extraordinary item                                    --      (.05)        -- 
                                                   -------   -------    ------- 
Net income                                         $  1.02   $  4.54    $   .17 
                                                   =======   =======    ======= 
Basic earnings (loss) per common share:                                         
  Continuing operations before extraordinary                                    
     item                                          $  1.04   $   .78    $  (.12)
  Discontinued operations:                                                      
     Income from operations                             --       .14        .29 
     Gain on sale                                       --      3.82         -- 
  Extraordinary item                                    --      (.05)        -- 
                                                   -------   -------    ------- 
Net income                                         $  1.04   $  4.69    $   .17 
                                                   =======   =======    ======= 

See accompanying notes.                                       

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Consolidated Financial Statements (millions of dollars, except per-share        
amounts)                                                                        

Balance Sheet                                                                   

                                                                [Download Table]

As of December 31,                                    1998       1997   
------------------                                  --------   -------- 
                                                                        
Assets                                                                  
Current assets:                                                         
 Cash and cash equivalents                          $    540   $  1,015 
 Short-term investments                                1,709      2,005 
 Accounts receivable, less allowance for losses of                      
   $97 million in 1998 and $73 million in 1997         1,343      1,705 
 Inventories                                             596        742 
 Prepaid expenses                                         75         59 
 Deferred income taxes                                   583        577 
                                                     -------    ------- 
   Total current assets                                4,846      6,103 
                                                     -------    ------- 
Property, plant and equipment at cost                  6,379      7,414 
 Less accumulated depreciation                        (3,006)    (3,234)
                                                     -------    ------- 
   Property, plant and equipment (net)                 3,373      4,180 
                                                     -------    ------- 
Investments                                            2,564         69 
Deferred income taxes                                     23        134 
Other assets                                             444        363 
                                                     -------    ------- 
Total assets                                        $ 11,250   $ 10,849 
                                                    ========   ======== 

Liabilities and Stockholders' Equity                                            

Current liabilities:                                                            

                                                                [Download Table]
                                                                               
 Loans payable and current portion long-term debt          $    267   $     71 
 Accounts payable and accrued expenses                        1,582      2,082 
 Income taxes payable                                           193        154 
 Accrued retirement and profit sharing contributions            154        189 
                                                           --------   -------- 
  Total current liabilities                                   2,196      2,496 
                                                           --------   -------- 
Long-term debt                                                1,027      1,286 
Accrued retirement costs                                        895        731 
Deferred income taxes                                           381        288 
Deferred credits and other liabilities                          224        134 
Stockholders' equity:                                                          
 Preferred stock, $25 par value.  Authorized - 10,000,000                      
   shares.                                                                     
   Participating cumulative preferred.  None issued.             --         -- 
 Common stock, $1 par value.  Authorized - 1,200,000,000                       
   shares.                                                                     
   Shares issued:  1998 - 392,395,997; 1997 - 390,359,317       392        390 
 Paid-in capital                                              1,178      1,183 
 Retained earnings                                            4,795      4,488 
 Less treasury common stock at cost.                                           
   Shares:  1998 - 1,716,038; 1997 - 860,765                   (134)       (94)
 Accumulated other comprehensive income                         296        (53)
                                                           --------   -------- 
    Total stockholders' equity                                6,527      5,914 
                                                           --------   -------- 
Total liabilities and stockholders' equity                 $ 11,250   $ 10,849 
                                                           ========   ======== 

See accompanying notes.                                       

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Consolidated Financial Statements (millions of dollars, except per-share        
amounts)                                                                        

Cash Flows                                                                      

                                                                [Download Table]

For the Years Ended December 31,                     1998      1997      1996  
--------------------------------                   -------   -------   ------- 
                                                                               
Continuing operations:                                                         
 Cash flows from operating activities:                                         
  Income (loss) from continuing operations                                     
   before extraordinary item                       $   407   $   302   $   (46)
  Depreciation                                       1,169     1,109       904 
  Acquired in-process research and development          25       461       192 
  Deferred income taxes                                (50)        9       (51)
  Net currency exchange (gains) losses                  (4)        6         7 
   (Increase) decrease in working capital                                      
    (excluding  cash and cash equivalents,                                     
    short-term investments, deferred income                                    
    taxes, and loans payable and current                                       
    portion long-term debt):                                                   
     Accounts receivable                               289       (39)      250 
     Inventories                                        74       (34)      245 
     Prepaid expenses                                  (17)      (19)        9 
     Accounts payable and accrued expenses            (427)      (36)     (404)
     Income taxes payable                               24       (26)       (3)
     Accrued retirement and profit sharing                                     
      contributions                                    (24)      128      (283)
  Extraordinary item:  extinguishment of debt           --       (22)       -- 
  Increase in noncurrent accrued retirement costs       42         7        79 
  Other                                               (257)       (3)     (101)
                                                   -------   -------   ------- 
 Net cash provided by operating activities           1,251     1,843       798 
 Cash flows from investing activities:                                         
  Additions to property, plant and equipment        (1,031)   (1,238)   (2,063)
  Purchases of short-term investments               (2,244)   (2,457)      (27)
  Sales and maturities of short-term investments     2,537       479       202 
  Acquisition of businesses, net of cash acquired     (152)     (304)     (313)
  Loans and payments made in connection with                                   
   sale of memory business                            (680)       --        -- 
  Proceeds from sale of other businesses               100       177       150 
  Proceeds from sale of discontinued operations                                
   less income taxes and transaction costs              --     2,138        -- 
                                                   -------   -------   ------- 
 Net cash used in investing activities              (1,470)   (1,205)   (2,051)

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Consolidated Financial Statements (millions of dollars, except per-share        
amounts)                                                                        

                                                                [Download Table]

Cash Flows (continued)                                                         
For the Years Ended December 31,                   1998       1997       1996  
--------------------------------                 -------    -------    ------- 
                                                                               
 Cash flows from financing activities:                                         
  Additions to loans payable                          --         --        288 
  Payments on loans payable                           (4)      (314)        (2)
  Additions to long-term debt                         --         28        871 
  Payments on long-term debt                         (68)      (256)      (199)
  Dividends paid on common stock                    (133)      (131)      (129)
  Sales and other common stock transactions          196        140         35 
  Common stock repurchase program                   (253)       (86)        -- 
  Other                                               --         (2)        (1)
                                                 -------    -------    ------- 
 Net cash provided by (used in) financing                                      
  activities                                        (262)      (621)       863 
 Effect of exchange rate changes on cash               6        (23)       (16)
                                                 -------    -------    ------- 
 Cash used in continuing operations                 (475)        (6)      (406)
                                                 -------    -------    ------- 
Discontinued operations:                                                       
 Operating activities                                 --         73         86 
 Investing activities                                 --        (16)       (80)
 Financing activities                                 --         --         -- 
                                                 -------    -------    ------- 
 Cash provided by discontinued operations             --         57          6 
                                                 -------    -------    ------- 
Net increase (decrease) in cash and                                            
 cash equivalents                                   (475)        51       (400)

Cash and cash equivalents at beginning of year     1,015        964      1,364 
                                                 -------    -------    ------- 
Cash and cash equivalents at end of year         $   540    $ 1,015    $   964 
                                                 =======    =======    ======= 

See accompanying notes.                                       

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Consolidated Financial Statements (millions of dollars, except per-share        
amounts)                                                                        

Stockholders' Equity                                                            

                                                                [Download Table]

                                                                        Accumulated 
                                                             Treasury      Other    
                                  Common   Paid-in  Retained  Common   Comprehensive
                                   Stock   Capital  Earnings   Stock      Income*   
                                  -------  -------  --------  -------  -------------
                                                                                    
Balance, December 31, 1995        $   190  $ 1,081  $ 2,881   $   (12)   $   (45)   

1996                                                                                
                                  -------  -------  -------   -------    -------    
  Net income                           --       --       63        --         --    
  Dividends declared on common                                                      
    stock ($.34 per share)             --       --     (130)       --         --    
  Common stock issued on                                                            
    exercise of stock options          --       28       --        --         --    
  Other stock transactions, net        --        7       --        --         --    
  Pension liability adjustment         --       --       --        --          6    
  Equity and cash investments                                                       
    adjustment                         --       --       --        --         28    
                                  -------  -------  -------   -------    -------    
Balance, December 31, 1996            190    1,116    2,814       (12)       (11)   

1997                                                                                
                                  -------  -------  -------   -------    -------    
  Net income                           --       --    1,805        --         --    
  Dividends declared on common                                                      
    stock ($.34 per share)             --       --     (131)       --         --    
  Two-for-one common stock                                                          
    split                             195     (195)      --        --         --    
  Common stock issued:                                                              
    On exercise of stock options        3       95       --         5         --    
    On conversion of debentures         2      101       --        --         --    
  Stock repurchase program             --       --       --       (86)        --    
  Other stock transactions, net        --       66       --        (1)        --    
  Pension liability adjustment         --       --       --        --        (24)   
  Equity and cash investments                                                       
    adjustment                         --       --       --        --        (18)   
                                  -------  -------  -------   -------    -------    
Balance, December 31, 1997            390    1,183    4,488       (94)       (53)   

1998                                                                                
                                  -------  -------  -------   -------    -------    
  Net income                           --       --      407        --         --    
  Dividends declared on common                                                      
    stock ($.255 per share)            --       --     (100)       --         --    
  Common stock issued                                                               
    on exercise of stock options        2     (111)      --       254         --    
  Stock repurchase program             --       --       --      (294)        --    
  Other stock transactions, net        --      106       --        --         --    
  Pension liability adjustment         --       --       --        --       (117)   
  Equity, debt and cash                                                             
    investments adjustment             --       --       --        --        466    
                                  -------  -------  -------   -------    -------    
Balance, December 31, 1998        $   392  $ 1,178  $ 4,795   $  (134)   $   296    
                                  =======  =======  =======   =======    =======    

         Comprehensive income, i.e., net income plus other comprehensive income,
totaled $756 million in 1998, $1,763 million in 1997 and $97 million in 1996.   

See accompanying notes.                                   

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Notes to Financial Statements                                                   

ACCOUNTING POLICIES AND PRACTICES                                               

   The company adopted SFAS No. 130 in the first quarter of 1998. It
required disclosure of comprehensive income, i.e., net income plus direct       
adjustments to stockholders' equity such as equity, debt and cash investment    
adjustments and pension liability adjustments. Also in 1998, the company adopted
SFAS No. 132, which mandated changes in disclosures for pension and retiree     
health care plans. In 1997, the company adopted SFAS No. 128, which required    
disclosure of two new earnings per share amounts (diluted and basic) and        
elimination of prior earnings per share amounts. Also in 1997, the company      
adopted SFAS No. 131, which required a new basis of determining reportable      
business segments, i.e., the management approach. Disclosures under these 1997  
and 1998 standards were provided on a retroactive basis. None affected reported 
net income.                                                                     

         Accounting standard SFAS No. 133 was issued in 1998 and is effective in
2000. It requires that all derivatives be marked-to-market on an ongoing basis. 
This applies whether the derivatives are stand-alone instruments, such as       
forward currency exchange contracts and interest rate swaps, or embedded        
derivatives, such as call options contained in convertible debt investments.    
Along with the derivatives, the underlying hedged items are also to be          
marked-to-market on an ongoing basis. These market value adjustments are to be  
included either in the income statement or stockholders' equity, depending on   
the nature of the transaction. The company expects to adopt the standard in the 
first quarter of 2000 on a cumulative basis. Based on analysis to date, the     
company expects the most significant impact of this standard will be the        
cumulative, as well as ongoing mark-to-market, adjustment through the income    
statement of the embedded call option on Micron Technology, Inc. (Micron) common
shares contained in the convertible note received from Micron in connection with
TI's 1998 sale of its memory business. The value of this option can be volatile 
given its sensitivity to changes in the value of Micron common shares. For      
example, at September 30, 1998, the estimated value of the option was $82       
million; at December 31, 1998, it was $192 million. Under SFAS No. 133, this    
change in value of $110 million would be included in the income statement. Under
current accounting principles, the change in value of the Micron convertible    
note, including the embedded call, is an adjustment to stockholders' equity.    

     Accounting standard SOP 98-1 was issued in 1998 and is effective in
1999. It requires capitalization of the development costs of software to be used
internally, e.g., for manufacturing or administrative processes. The company,   
which currently capitalizes significant development costs for internal-use      
software, expects to adopt the standard in the first quarter of 1999 for        
developmental costs incurred in that quarter and thereafter. The effect is not  
expected to be material. Accounting standard SOP 98-5 was issued in 1998 and is 
effective in 1999. It requires expensing, rather than capitalizing, the cost of 
start-up activities. The company currently expenses such amounts as incurred and
therefore expects no material effect from adoption of this standard.            

   The consolidated financial statements include the accounts of all
subsidiaries. The preparation of financial statements requires the use of       
estimates from which final results may vary. Intercompany balances and          
transactions have been eliminated. Certain amounts in prior                     

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years' financial statements and related notes have been reclassified to conform 
to the 1998 presentation. The U.S. dollar is the functional currency for        
financial reporting. With regard to accounts recorded in currencies other than  
U.S. dollars, current assets (except inventories), deferred income taxes, other 
assets, current liabilities and long-term liabilities are remeasured at exchange
rates in effect at year-end. Inventories, property, plant and equipment and     
depreciation thereon are remeasured at historic exchange rates. Revenue and     
expense accounts other than depreciation for each month are remeasured at the   
appropriate month-end rate of exchange. Net currency exchange gains and losses  
from remeasurement and forward currency exchange contracts to hedge net balance 
sheet exposures are charged or credited on a current basis to other income      
(expense) net. Gains and losses from forward currency exchange contracts to     
hedge specific transactions are deferred and included in the measurement of the 
related transactions. Gains and losses from interest rate swaps are included on 
the accrual basis in interest expense. Gains and losses from terminated forward 
currency exchange contracts and interest rate swaps are deferred and recognized 
consistent with the terms of the underlying transaction.                        

   As discussed in the Divestitures note, the consolidated financial
statements include the effect of two significant divestitures: the sale of the  
company's memory business and related joint venture interests to Micron in      
September 1998, which was accounted for as a sale of a business, and the sale of
the defense business to Raytheon Company in July 1997, which was accounted for  
as a discontinued operation.                                                    

        The description "accounted for as a sale of a business" means the sale
of TI's memory business, which was a portion of the company's Semiconductor     
segment, was not accounted for as a discontinued operation under APB No. 30, but
as a part of continuing operations, as discussed in paragraph 13 of that        
opinion.                                                                        

       The description "accounted for as a discontinued operation" means the
sale of TI's Defense Systems and Electronics segment was accounted for under APB
No. 30, paragraph 8, as the disposal of a segment of a business. Accordingly,   
the operating results and gain on the sale of this business were presented in   
TI's financial statements as discontinued operations, separate from TI's        
continuing operations.                                                          

     Inventories are stated at the lower of cost or estimated realizable
value. Cost is generally computed on a currently adjusted standard (which       
approximates current average costs) or average basis.                           

    Revenues are generally recognized as products are shipped. Royalty
revenue is recognized by the company upon fulfillment of its contractual        
obligations and determination of a fixed royalty amount or, in the case of      
ongoing royalties, upon sale by the licensee of royalty-bearing products, as    
estimated by the company.                                                       

 Depreciation is computed by either the declining-balance method
(primarily 150 percent declining method) or the sum-of-the-years-digits method. 
Fully depreciated assets are written off against accumulated depreciation.      
Advertising costs are expensed as incurred. Advertising expense was $100 million
in 1998, $128 million in 1997 and $124 million in 1996.                         

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   Computation of earnings per common share (EPS) amounts for income
(loss) from continuing operations before extraordinary item is as follows       
(millions, except per-share amounts):                                           

                                                        [Enlarge/Download Table]

                                                      Millions of Dollars                      
                         --------------------------------------------------------------------- 
                                   1998                   1997                  1996           
                         ----------------------  ----------------------  --------------------- 
                         Income   Shares   EPS   Income  Shares    EPS   Loss   Shares   EPS   
                         ------   ------  -----  ------  ------   -----  ----   ------  ------ 
                                                                                               
Basic EPS                $  407    390.5  $1.04  $  302   385.1   $ .78  $(46)   379.4  $ (.12)
Dilutives:                                                                                     
 Stock options/                                                                                
  compensation plans        --      10.4             --     9.3            --       --         
 Convertible debentures     --        --             --     3.3            --       --         
                         ------   ------  -----  ------  ------   -----  ----   ------  ------ 
Diluted EPS              $  407    400.9  $1.02  $  302   397.7   $ .76  $(46)   379.4  $ (.12)
                         ======   ======  =====  ======  ======   =====  ====   ======  ====== 

    The EPS computation for 1996 excludes 4.8 million shares for stock
options/compensation plans and 5.0 million shares for convertible debentures    
because their effect would have been antidilutive.                              

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS                                     

  Debt securities with original maturities within three months are
considered cash equivalents. Debt securities with original maturities beyond    
three months have remaining maturities within 13 months and are considered      
short-term investments. These cash equivalent and short-term investment debt    
securities are available for sale and stated at fair value, which approximates  
their specific amortized cost. As of December 31, 1998, these debt securities   
consisted primarily of the following types: corporate ($1092 million) and       
asset-backed commercial paper ($679 million). At December 31, 1997, these debt  
securities consisted primarily of the following types: corporate ($1943 million)
and asset-backed commercial paper ($623 million). Gross realized and unrealized 
gains and losses for each of these security types were immaterial in 1998, 1997 
and 1996. Proceeds from sales of these cash equivalent and short-term investment
debt securities in 1998, 1997 and 1996 were $647 million, $859 million and $10  
million.                                                                        

INVENTORIES                                                                     

                                                                [Download Table]

                                    Millions of Dollars
                                    ------------------ 
                                    1998           1997
                                    ----           ----
                                                       
Raw materials and purchased parts   $ 77           $105
Work in process                      354            364
Finished goods                       165            273
                                    ----           ----
Inventories                         $596           $742
                                    ====           ====

Prior to the sale of its memory business to Micron in 1998, TI
participated in DRAM manufacturing joint ventures. TI held minority interests   
in, and had long-term inventory purchase commitments with, each joint venture.  
Under the agreements, TI purchased the output of the ventures at prices based   
upon percentage discounts from TI's average selling prices.                     

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Inventory purchases from the ventures aggregated $416 million in 1998, $977     
million in 1997 and $1176 million in 1996. Receivables from and payables to the 
ventures were $135 million and $69 million at December 31, 1997. TI amortized   
its cost of the ventures over the expected initial output period of three to    
five years, and recognized its share of any cumulative venture net losses in    
excess of amortization. The related expense charged to operations was $40       
million in 1998, $88 million in 1997 and $33 million in 1996.                   

PROPERTY, PLANT AND EQUIPMENT AT COST                                           

         Millions of Dollars
         -------------------
Depreciable Lives    1998        1997           
-----------------   ------      ------          
Land                                $   88      $   94                          
Buildings and                                                                   
improvements      5-40 years       2,297       2,583                        
Machinery and                                                                   
equipment         3-10 years       3,994       4,737                        
          ------      ------
Total                               $6,379      $7,414                          
          ======      ======

         Authorizations for property, plant and equipment expenditures in future
years were approximately $541 million at December 31, 1998, and $1105 million at
December 31, 1997.                                                              

INVESTMENTS                                                                     

        At year-end 1998, equity investments primarily consisted of 28,933,092
Micron common shares, along with several other publicly traded investments. Debt
investments consisted of 6.5% Micron convertible and subordinated notes. The    
convertible note (convertible into 12,333,358 Micron common shares at $60 per   
share) and the subordinated note have face amounts of $740 million and $210     
million. The notes, which mature in 2005, have a weighted-average imputed       
interest rate of 8.7%. The Micron securities were received in 1998 in connection
with TI's sale of its memory business.                                          

        TI Ventures is an externally managed venture fund which invests in the
development of new markets. As of year-end 1998, it had invested in 14 companies
focused on next-generation applications of digital signal processors.           

         Other investments consist of mutual funds that are acquired to generate
returns that offset changes in certain liabilities related to deferred          
compensation arrangements. The mutual funds hold a variety of debt and equity   
investments.                                                                    

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Following is information on the investments:                  

                                                                [Download Table]

                                 Millions of Dollars            
                     -------------------------------------------
                                         Unrealized             
                      Fair    ----------------------------------
                     Value    Gains   (Losses)     Net     Cost 
                     ------   ------  --------   ------   ------
                                                                
1998                                                            
Equity investments   $1,516   $  643   $  (51)   $  592   $  924
Debt investments        978      139       --       139      839
TI Ventures              37        5       --         5       32
Other investments        33        5       (5)       --       33
                     ------   ------   ------    ------   ------
Total                $2,564   $  792   $  (56)   $  736   $1,828
                     ======   ======   ======    ======   ======

1997                                                            
Equity investments   $   53   $   50   $  (36)   $   14   $   39
TI Ventures              10       --       --        --       10
Other investments         6        5       --         5        1
                     ------   ------   ------    ------   ------
Total                $   69   $   55   $  (36)   $   19   $   50
                     ======   ======   ======    ======   ======

        Investments are stated at fair value, which is based on market quotes,
current interest rates or management estimates, as appropriate. Adjustments to  
fair value of the equity and debt investments, which are classified as          
available-for-sale, are recorded as an increase or decrease in stockholders'    
equity. Adjustments to fair value of the venture fund are recorded in other     
income (expense) net. Adjustments to fair value of the other investments, which 
are classified as trading, are recorded in operating expense. Cost or amortized 
cost, as appropriate, was determined on a specific identification basis.        
Proceeds from sales of equity and debt investments were zero in 1998, $26       
million in 1997 and zero in 1996. There were no gross realized gains or losses  
from sales of equity and debt investments in 1998 and 1996, and there was a $16 
million gain in 1997.                                                           

NON-CASH INVESTING ACTIVITIES                                                   

         Following are descriptions of those divestitures and acquisitions by TI
which involved significant non-cash amounts. In September, 1998, TI sold its    
memory business to Micron Technology, Inc. (Micron). As a result, TI received   
Micron common shares and notes with values of $881 million and $836 million,    
respectively. In addition to TI's memory assets, Micron received $550 million in
cash from TI to facilitate the deployment of Micron's technology throughout the 
acquired business. In the fourth quarter of 1998, TI made an additional $130    
million payment to Micron as part of the contractually required working capital.
TI deferred the estimated pretax gain of $127 million on the sale of the memory 
business until the recovery of the TI-provided financing.                       

     In July 1996, TI acquired Silicon Systems, Inc. by means of a stock
purchase agreement for $340 million in cash plus the assumption of $217 million 
of 5-year installment notes and $61 million of current liabilities. Of the      
aggregate purchase price of $618 million, TI recorded $426 million for the value
of assets acquired, $192 million for the value of acquired in-process research  
and development, and $278 million for the value of liabilities assumed.         

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ACCOUNTS PAYABLE AND ACCRUED EXPENSES                                           

                                                                [Download Table]

                                         Millions of Dollars
                                         -------------------
                                          1998         1997 
                                         ------       ------
                                                            
Accounts payable                         $  510       $  698
Accrued salaries, wages, severance                          
  and vacation pay                          320          405
Other accrued expenses and liabilities      752          979
                                         ------       ------
Total                                    $1,582       $2,082
                                         ======       ======

DEBT AND LINES OF CREDIT                                                        

                                                                [Download Table]

                                                        Millions of Dollars
                                                        -------------------
Long-Term Debt                                            1998        1997 
-------------                                            ------      ------
                                                                           
6.75% notes due 1999                                     $  200      $  200
6.875% notes due 2000                                       200         200
9.0% notes due 2001                                          55          55
6.65% notes, due in installments through 2001               159         204
9.25% notes due 2003                                        104         104
6.125% notes due 2006                                       300         300
8.75% notes due 2007                                         43          43
3.80% to 6.10% lira notes                                                  
 (9% swapped for 1.60% U.S. dollar obligation)              184         190
Other                                                        49          57
                                                         ------      ------
                                                          1,294       1,353
Less current portion long-term debt                         267          67
                                                         ------      ------
Total                                                    $1,027      $1,286
                                                         ======      ======

The coupon rates for the notes due 2006 have been swapped for 
LIBOR-based variable rates through 2006, for an effective interest rate of      
approximately 4.6% and 5.1% as of December 31, 1998 and 1997. The lira notes,   
and related swaps, are due in installments through 2005.                        

    As a result of a 1997 tender offer for any or all of the company's
9.0%, 9.25% and 8.75% notes, an aggregate of $248 million of debt principal was 
tendered at a cash price of $280 million. This resulted in an extraordinary     
charge of $22 million in the fourth quarter of 1997, after elimination of       
deferred issuance costs and recognition of an income tax effect of $12 million. 

         Interest incurred on loans in 1998, 1997 and 1996 was $85 million, $114
million and $108 million. Of these amounts, $10 million in 1998, $20 million in 
1997 and $35 million in 1996 were capitalized as a component of capital asset   
construction costs. Interest paid on loans (net of amounts capitalized) was $75 
million in 1998, $94 million in 1997 and $54 million in 1996.                   

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  Aggregate maturities of long-term debt due during the four years
subsequent to December 31, 1999, are as follows:                                

                                                                [Download Table]

            Millions of Dollars
            -------------------
                               
2000              $ 312        
2001                136        
2002                 27        
2003                161        

   The company maintains lines of credit to support commercial paper
borrowings and to provide additional liquidity. These lines of credit totaled   
$669 million at December 31, 1998, and $651 million at December 31, 1997. Of    
these amounts, at December 31, 1998 and 1997, $600 million existed to support   
outstanding commercial paper borrowings or short-term bank loans.               

FINANCIAL INSTRUMENTS AND RISK CONCENTRATION                                    

  FINANCIAL INSTRUMENTS: In addition to the swaps discussed in the
preceding note, as of December 31, 1998, the company had forward currency       
exchange contracts outstanding of $756 million to hedge net balance sheet       
exposures (including $161 million to sell yen, $132 million to buy lira and $105
million to buy deutsche marks). At December 31, 1997, the company had forward   
currency exchange contracts outstanding of $275 million to hedge net balance    
sheet exposures (including $101 million to buy lira, $73 million to buy deutsche
marks and $24 million to buy Singapore dollars). As of December 31, 1998 and    
1997, the carrying amounts and current market settlement values of these swaps  
and forward contracts were not significant. The company uses forward currency   
exchange contracts, including the lira note currency swaps, 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. The interest rate swaps  
for the company's notes due 2006 are used to change the characteristics of the  
interest rate stream on the debt from fixed rates to short-term variable rates  
in order to achieve a mix of interest rates that, over time, is expected to     
moderate financing costs. The effect of these interest rate swaps was to reduce 
interest expense by $3 million and $2 million in 1998 and 1997, and increase    
interest expense by $2 million in 1996.                                         

      In order to minimize its exposure to credit risk, the company limits
its counterparties on the forward currency exchange contracts and interest rate 
swaps to investment-grade rated financial institutions.                         

     As of December 31, 1998 and 1997, the fair value of long-term debt,
based on current interest rates, was approximately $1346 million and $1390      
million, compared with the historical cost amount of $1294 million and $1353    
million.                                                                        

        RISK CONCENTRATION: Financial instruments that potentially subject the
company to concentrations of credit risk are primarily cash investments,        
accounts receivable and noncurrent investments. The company places its cash     
investments in investment-grade, short-term debt securities and limits the      
amount of credit exposure to any one commercial issuer. Concentrations          

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of credit risk with respect to the receivables are limited due to the large     
number of customers in the company's customer base and their dispersion across  
different industries and geographic areas. The company maintains an allowance   
for losses based upon the expected collectibility of accounts receivable. The   
company's noncurrent investments at year-end 1998 have an aggregate fair value  
of $2564 million. The investments are in high-technology companies and are      
subject to price volatility and other uncertainties. They include a significant 
concentration of Micron debt (fair value of $978 million) and equity instruments
(fair value of $1463 million). The company adjusts the carrying amounts of the  
investments to fair value each quarter.                                         

STOCKHOLDERS' EQUITY                                                            

   The company is authorized to issue 10,000,000 shares of preferred
stock. None is currently outstanding.                                           

      Each outstanding share of the company's common stock carries a stock
purchase right. Under certain circumstances, each right may be exercised to     
purchase one one-thousandth of a share of the company's participating cumulative
preferred stock for $200. Under certain circumstances following the acquisition 
of 20% or more of the company's outstanding common stock by an acquiring person 
(as defined in the rights agreement), each right (other than rights held by an  
acquiring person) may be exercised to purchase common stock of the company or a 
successor company with a market value of twice the $200 exercise price. The     
rights, which are redeemable by the company at 1 cent per right, expire in June 
2008.                                                                           

Changes in other comprehensive income are as follows:         

                                                                [Download Table]

                                               Millions of Dollars              
                                ------------------------------------------------
                                                     Equity, Debt and           
                                Pension Liability    Cash Investments           
                                    Adjustment           Adjustment        Total
                                -----------------    -----------------    ------
                                                                                
Balance, December 31, 1995            $ (45)              $  --           $ (45)
  Annual adjustments                      6                  43              49 
  Tax effect of above                    --                 (15)            (15)
                                      -----               -----           ----- 
Balance, December 31, 1996              (39)                 28             (11)
  Annual adjustments                    (24)                (12)            (36)
  Tax effect of above                    --                   4               4 
  Reclassification of                                                           
    realized transactions,                                                      
    net of tax of $6 million             --                 (10)            (10)
                                      -----               -----           ----- 
Balance, December 31, 1997              (63)                 10             (53)
  Annual adjustments                   (117)                717             600 
  Tax effect of above                    --                (251)           (251)
                                      -----               -----           ----- 
Balance, December 31, 1998            $(180)              $ 476           $ 296 
                                      =====               =====           ===== 

RESEARCH AND DEVELOPMENT EXPENSE                                                

        Research and development expense, which totaled $1206 million in 1998,
$1536 million in 1997 and $1181 million in 1996, included a charge in 1998 of   
$25 million for the value of acquired in-process research and development from  
two business acquisitions, GO DSP and Spectron. Research and development expense
for 1997 included a charge of $461 million for the                              

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value of acquired in-process research and development as a result of the        
acquisition of Amati Communications Corporation (Amati). The company acquired   
Amati as a result of an all-cash tender offer in fourth quarter 1997 through    
which approximately 78% of Amati's outstanding common shares were acquired for  
an aggregate of $306 million. As contractually required, the company then       
acquired the balance of the Amati shares through a second-step merger           
transaction for an aggregate of $91 million. In addition to these stock purchase
costs, the company incurred approximately $117 million of additional acquisition
costs, which included $50 million for the value of TI common stock options      
contractually required to be issued to replace outstanding Amati employee stock 
options. Research and development expense for 1996 included a charge of $192    
million for the value of acquired in-process research and development in        
connection with the 1996 acquisition of Silicon Systems, Inc. (SSi) for $618    
million. There was essentially no tax offset associated with these acquired     
in-process research and development charges.                                    

      In connection with TI's acquisitions of GO DSP and Spectron, both of
which occurred in the first quarter of l998, TI recorded charges of $10 million 
and $15 million for purchased in-process R&D (purchased R&D), based upon the    
appraised value of the related developmental projects. The Income Approach,     
which included an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing each   
purchased R&D project.                                                          

 GO DSP's and Spectron's research and development related to DSP
software tools. These software tools, which include real-time operating systems,
allow DSP systems developers to improve productivity and reduce time-to-market. 
TI's goal in these acquisitions was to extend its leadership in digital signal  
processing solutions by offering a complete development environment, simplifying
DSP development, and making TI DSP solutions even more attractive for a broad   
range of fast-growing markets.                                                  

        Significant assumptions used in determining the value of purchased R&D
for GO DSP and Spectron included projected operating cash flows and the discount
rate. Projected operating cash flows were expected to begin in late 1998. The   
discount rate selected for GO DSP's and Spectron's in-process technologies was  
30%.                                                                            

 At the time of the acquisitions, GO DSP and Spectron management
estimated the remaining cost and time to complete the purchased R&D projects was
approximately $7 million and 540 engineer-months. The term "engineer-month"     
refers to the average amount of research work expected to be performed by an    
engineer in a month. All the in-process projects were essentially completed on  
schedule. TI expects to essentially meet its original return expectations.      

        The relative stage of completion and projected operating cash flows of
the underlying in-process projects acquired were the most significant and       
uncertain assumptions utilized in the valuation analysis of the in-process      
research and development. Uncertainties regarding projected operating cash flows
could give rise to unforeseen budget over-runs and/or revenue shortfalls in the 
event that TI is unable to successfully commercialize the projects. TI          
management is primarily responsible for estimating the value of the purchased   
R&D in all acquisitions accounted for under the purchase method.                

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In connection with TI's acquisition of Amati Communications   
Corporations (Amati) in the fourth quarter of 1997, TI recorded a charge of $461
million for the value of purchased in-process R&D (purchased R&D) at the        
acquisition date, based upon the appraised value of the related developmental   
projects. The Income Approach, which included an analysis of the markets, cash  
flows, and risks associated with achieving such cash flows, was the primary     
technique utilized in valuing each purchased R&D project.                       

     Amati's research and development related to Digital Subscriber Line
(DSL) system designs for the Internet and other uses. DSL technology targets the
local exchange carrier market since the technology permits the transmission of  
data at high speeds over the existing copper lines of the local exchange        
carriers. Currently, analog modems are noted as being slow in their transmission
speed, and ADSL digital processing technology is expected to fill the need for  
additional bandwidth requirements. VDSL transmits high-speed data over short    
reaches of twisted-pair copper telephone wire, with a range of speeds that      
depends on actual line length.                                                  

        Significant assumptions used in determining the value of purchased R&D
for Amati included projected operating cash flows and the discount rate.        
Projected operating cash flows were expected to begin in 1999. The discount rate
selected for Amati's in-process technologies was 30%.                           

At the time of the acquisition, Amati management estimated the
remaining cost to complete the purchased R&D projects to be approximately $13   
million with a remaining time requirement of approximately 1,300                
engineer-months. The term "engineer-month" refers to the average amount of      
research work to be performed by an engineer in a month. All the in-process     
projects were essentially completed on schedule. Several products have been     
released, and although the DSL market has developed more slowly than expected,  
TI expects improvements in the near term in Internet-related demand. As this    
occurs, TI will be one of a very few suppliers who have demonstrated            
interoperability and standards compliance. Thus, TI expects to essentially meet 
its original return expectations.                                               

        The relative stage of completion and projected operating cash flows of
the underlying in-process projects acquired were the most significant and       
uncertain assumptions utilized in the valuation analysis of the in-process      
research and development. Uncertainties regarding projected operating cash flows
could give rise to unforeseen budget over-runs and/or revenue shortfalls in the 
event that TI is unable to successfully commercialize the projects. TI          
management is primarily responsible for estimating the value of the purchased   
R&D in all acquisitions accounted for under the purchase method.                

        In connection with TI's acquisitions of Silicon Systems, Inc. (SSi) in
the third quarter of 1996, TI recorded a charge of $192 million for the value of
purchased in-process R&D (purchased R&D) at the acquisition date, based upon the
appraised value of the related developmental projects. The Income Approach,     
which included an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing each   
purchased R&D project.                                                          

      SSi's research and development related to analog technology for hard
disk drives and removable storage devices. Historically, SSi had primarily      
emphasized producing integrated circuits for the hard disk drive market. As of  
the acquisition date, SSi's product development                                 

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activities for this market had been expanded to include other magnetic optical  
storage devices that require advanced technology and performance.               

        Significant assumptions used in determining the value of purchased R&D
for SSi included projected operating cash flows and the discount rate. Projected
operating cash flows were expected to commence in late 1996. The discount rate  
selected for SSi's in-process technologies was 22%.                             

       At the time of the acquisition SSi management estimated the remaining
cost to complete the purchased R&D projects to be approximately $16 million,    
over a 9-month period. All the in-process projects were essentially completed on
schedule. TI expects to essentially meet its original return expectations.      

        The relative stage of completion and projected operating cash flows of
the underlying in-process projects were the most significant and uncertain      
assumptions utilized in the valuation analysis of the in-process research and   
development. Uncertainties regarding projected operating cash flows could give  
rise to unforeseen budget over-runs and/or revenue shortfalls in the event that 
TI is unable to successfully commercialize the projects. TI management is       
primarily responsible for estimating the value of the purchased R&D in all      
acquisitions accounted for under the purchase method.                           

OTHER INCOME (EXPENSE) NET                                                      

                                                                [Download Table]

                                    Millions of Dollars     
                              ------------------------------
                                1998        1997        1996
                              ------      ------      ------
                                                            
Interest income               $  166      $  146      $   62
Other income (expense) net       127          46          14
                              ------      ------      ------
Total                         $  293      $  192      $   76
                              ======      ======      ======

     Other income included gains of $83 million in 1998 from the sale of
TI's interest in the TI-Acer joint venture to Acer Corporation and $66 million  
in 1997 from the sale of three divested activities, primarily software.         

STOCK OPTIONS                                                                   

     The company has stock options outstanding to participants under the
Texas Instruments 1996 Long-Term Incentive Plan, approved by stockholders on    
April 18, 1996. Options are also outstanding under the 1988 Stock Option Plan   
and the Texas Instruments Long-Term Incentive Plan; however, no further options 
may be granted under these plans. Under all these stockholder-approved plans,   
unless the options are acquisition-related replacement options, the option price
per share may not be less than 100 percent of the fair market value on the date 
of the grant. Substantially all the options have a 10-year term. Options granted
subsequent to 1996 generally vest ratably over four years. Options granted prior
to that are fully vested.                                                       

      Under the 1996 Long-Term Incentive Plan, the company may grant stock
options, including incentive stock options; restricted stock and restricted     
stock units; performance units;                                                 

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and other stock-based awards. The plan provides for the issuance of 37,000,000  
shares of the company's common stock (plus shares subject to acquisition-related
replacement options); in addition, if any award under the 1988 Stock Option Plan
or the Long-Term Incentive Plan terminates, then any unissued shares subject to 
the terminated award become available for granting awards under the 1996        
Long-Term Incentive Plan. No more than 4,000,000 shares of common stock may be  
awarded as restricted stock, restricted stock units or other stock-based awards 
under the plan. In 1998, 1997 and 1996, 117,000, 201,500 and 110,028 shares of  
restricted stock units, which vest over one to five years, were granted         
(weighted-average award-date value of $51.80, $37.78 and $22.65 per share). In  
addition, in 1998, 1997 and 1996, zero, 5,700 and 69,812 previously unissued    
shares were issued as Annual Incentive Plan stock awards (weighted-average      
award-date value of zero, $22.94 and $23.28 per share). Compensation expense for
restricted stock units and annual stock awards totaled $3.9 million, $3.5       
million and $1.6 million in 1998, 1997 and 1996.                                

         The company also has stock options outstanding under the Employee Stock
Purchase Plan approved by stockholders in 1997. The plan provides for options to
be offered semiannually to all eligible employees in amounts based on a         
percentage of the employee's compensation. The option price per share may not be
less than 85 percent of the fair market value on the date of grant. If the      
optionee authorizes and does not cancel payroll deductions that will be equal to
or greater than the purchase price, options granted become exercisable seven    
months, and expire not more than 13 months, from date of grant. There are no    
options outstanding under the 1988 Employee Stock Option Purchase Plan, the     
predecessor to the Employee Stock Purchase Plan.                                

         Under the Stock Option Plan for Non-Employee Directors adopted in April
1998, the company will grant stock options to each non-employee director, once a
year, in the period beginning January 1999 and extending through 2003. Each     
grant will be an option to purchase 5,000 shares with an option price equal to  
fair market value on the date of grant. The option will vest ratably over four  
years. Stock option transactions during 1998, 1997 and 1996 were as follows:    

                                                                [Download Table]

                               Long-Term     Weighted-  Employee        Weighted- 
                               Incentive     Average    Stock and       Average   
                               and Stock     Exercise   Stock Option    Exercise  
                               Option Plans  Price      Purchase Plans  Price     
                               ------------  ---------  --------------  ----------
                                                                                  
Balance, Dec. 31, 1995         15,765,144    $14.62      2,267,418      $28.07    
 Granted                        5,326,750     22.92      1,697,092*      28.13    
 Forfeited                       (397,478)    13.08       (799,818)      29.22    
 Expired                               --        --             --          --    
 Exercised**                     (869,320)    12.90       (772,324)      25.18    
                               ----------    ------     ----------      ------    
Balance, Dec. 31, 1996         19,825,096     16.96      2,392,368       28.66    
 Granted                       10,237,160     36.45      1,187,887*      48.30    
 Forfeited                     (2,365,382)    28.79       (763,335)      30.02    
 Expired                               --        --             --          --    
 Exercised**                   (3,874,438)    14.01     (1,487,181)      28.96    
                               ----------    ------     ----------      ------    
Balance, Dec. 31, 1997         23,822,436     24.64      1,329,739       44.71    
                               ----------    ------     ----------      ------    
 Granted                        8,064,060     47.87      1,633,095*      45.86    
 Granted, acquisition-related***1,232,189     22.13             --          --    
 Forfeited                     (1,313,987)    40.74       (243,489)      48.01    
 Expired                               --        --             --          --    
 Exercised**                   (4,076,607)    17.86     (1,570,521)      45.50    
                               ----------    ------     ----------      ------    
Balance, Dec. 31, 1998         27,728,091    $31.51      1,148,824      $44.57    
                               ==========    ======     ==========      ======    

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*    Excludes options offered but not accepted.                                 

**   Includes previously unissued shares and treasury shares of 2,039,118 and   
    3,608,010; 5,324,348 and 37,271; and 1,641,644 and zero for 1998, 1997 and
1996.                                                                 

***  Aggregate value of $52 million for two acquisitions.                       

    In accordance with the terms of APB No. 25, the company records no
compensation expense for its stock option awards. As required by SFAS No. 123,  
the company provides the following disclosure of hypothetical values for these  
non-acquisition-related awards. The weighted-average grant-date value of options
granted during 1998, 1997 and 1996 was estimated to be $22.15, $15.72 and $9.24 
under the Long-Term Incentive Plans and the 1988 Stock Option Plan (Long-Term   
Plans) and $13.34, $13.47 and $6.05 under the Employee Stock and Stock Option   
Purchase Plans (Employee Plans). These values were estimated using the          
Black-Scholes option-pricing model with the following weighted-average          
assumptions for 1998, 1997 and 1996: expected dividend yields of .71%, .93% and 
1.48% (Long-Term Plans) and .74%, .70% and 1.21% (Employee Plans); expected     
volatility of 43%, 39% and 39%; risk-free interest rates of 5.47%, 5.76% and    
5.42% (Long-Term Plans) and 5.32%, 5.69% and 6.15% (Employee Plans); and        
expected lives of 6 years (Long-Term Plans) and .8 years, .8 years and 1.5 years
(Employee Plans). Had compensation expense been recorded based on these         
hypothetical values, the company's 1998 net income would have been $328 million,
or diluted earnings per share of $0.81. A similar computation for 1997 and 1996 
would have resulted in net income of $1764 million and $40 million, or diluted  
earnings per share of $4.43 and $0.11. Because options vest over several years  
and additional option grants are expected, the effects of these hypothetical    
calculations are not likely to be representative of similar future calculations.

  Summarized information about stock options outstanding under the
Long-Term Plans at December 31, 1998, is as follows:                            

                                                                [Download Table]

                   Options Outstanding                       Options Exercisable   
---------------------------------------------------------------------------------- 
                                  Weighted-                                        
                   Number         Average       Weighted-   Number       Weighted- 
Range of           Outstanding    Remaining     Average     Exercisable  Average   
Exercise           at Dec. 31,    Contractual   Exercise    at Dec. 31,  Exercise  
Prices             1998           Life          Price       1998         Price     
---------------    -----------    -----------   ---------   -----------  ----------
                                                                                   
$  .09 to 27.24    11,916,423      5.5 years    $ 17.52     10,694,986   $ 17.04   
 30.22 to 49.79    13,851,417      8.5            39.83      1,837,430     35.00   
 50.36 to 81.07     1,960,251      9.3            57.81        128,507     66.21   
---------------    ----------      ---------    -------     ----------   -------   
$  .09 to 81.07    27,728,091      7.3          $ 31.51     12,660,923   $ 20.15   
===============    ==========      =========    =======     ==========   =======   

        At December 31, 1998, the stock options outstanding under the Employee
Plans have exercise prices of $43.04 and $49.30, depending on the date of grant,
and a remaining contractual life of three or nine months. Of the total          
outstanding options, 280,229 are exercisable at year-end 1998.                  

      At year-end 1998, 21,861,771 shares were available for future grants
under the 1996 Long-Term Incentive Plan and 7,518,268 shares under the Employees
Stock Purchase Plan. As of year-end 1998, 50,047,468 shares were reserved for   
issuance under the company's stock                                              

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option and incentive plans and 8,667,092 shares were reserved for issuance under
the Employee Stock Purchase Plan.                                               

        In 1997, the company began a stock repurchase program with the goal of
neutralizing the dilutive effect of shares to be issued upon the exercise of    
stock options under the Employee Stock Purchase Plan and Long-Term Plans.       
Treasury shares acquired in connection with this repurchase program and other   
stock transactions in 1998, 1997 and 1996 were 4,463,283 shares, 754,511 shares 
and 7,730 shares. Previously unissued common shares issued under the Long-Term  
Plans and the Annual Incentive Plan in 1998, 1997 and 1996 were 33,848 shares,  
30,174 shares and 98,072 shares. Treasury shares issued under the Texas         
Instruments Restricted Stock Unit Plan for Directors in 1998, 1997 and 1996 were
zero shares, zero shares and 2,334 shares.                                      

RETIREMENT AND INCENTIVE PLANS                                                  

       The company provides various retirement plans for employees including
pension, savings and deferred profit sharing plans. Incentive plans include     
profit sharing payments and annual performance awards.                          

      U.S. RETIREMENT PLANS: Effective January 1, 1998, for U.S. employees
hired on or after December 1, 1997, the company provides a defined contribution 
plan whereby the company contributes 2% of an employee's earnings, and a matched
savings program whereby an employee's contribution, up to 4% of the employee's  
earnings, is matched by the company at a dollar-per-dollar rate. The            
contributions may be invested in several investment funds including TI common   
stock. During a selection period in 1997, employees employed prior to December  
1, 1997, irrevocably elected whether to choose this plan or remain in the       
savings and defined benefit programs described below. Approximately 36% chose   
this plan.                                                                      

 For U.S. employees hired prior to December 1, 1997, the company
provides a matched savings program whereby an employee's contribution, up to 4% 
of the employee's earnings (subject to statutory limitations), is matched by the
company at the rate of 50 cents per dollar. Available investments are the same  
as above. Also provided is a defined benefit plan with benefits based on years  
of service and employee's compensation. The plan is a career-average-pay plan   
which has been amended periodically in the past to produce approximately the    
same results as a final-pay type plan. The board of directors of the company has
expressed an intent to make such amendments in the future, circumstances        
permitting, and the expected effects of such amendments have been considered in 
calculating U.S. pension expense.                                               

       Certain of the profit sharing plans worldwide provide that, depending
on the individual plan, a portion of the profit sharing earned by employees is  
contributed to a deferred plan. For U.S. employees, 50% of profit sharing       
amounts are deferred. Several investment options are available, including TI    
common stock. While the board of directors of the company has authorized the    
issuance of 9,233,836 shares of previously unissued TI common shares for        
deferred profit sharing and savings plans worldwide, none have been issued in   
the three years ended December 31, 1998. Instead, the trustees of these plans   
worldwide have purchased outstanding TI common shares: 3,753,084 shares in 1998,
3,535,471 shares in 1997 and 3,123,905 shares in 1996.                          

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      The company's aggregate expense for U.S. employees under the defined
contribution, deferred profit sharing and matched savings plans was $56 million 
in 1998, $55 million in 1997 and $17 million in 1996.                           

        The company's U.S. employees are currently eligible to receive, during
retirement, specified company-paid medical benefits. The plan is contributory   
and premiums are adjusted annually. For employees retiring on or after January  
5, 1993, the company has specified a maximum annual amount per retiree, based on
years of service, that it will pay toward retiree medical premiums. For         
employees who retired prior to that date, the company maintains a consistent    
level of cost sharing between the company and the retiree. Effective January 1, 
1998, new employees are eligible for this benefit when they reach 20 years of   
service, regardless of age. For a 15-year transition period, current employees  
qualify for eligibility under either the 20-year rule or the previous           
requirement, which was based upon retirement eligibility under the defined      
benefit pension plan. Coverage eligibility under the 20-year rule is only       
available at termination, i.e., no subsequent election to participate is        
allowable.                                                                      

     Expense of the U.S. defined benefit and retiree health care benefit
plans was as follows:                                                           

                                                                [Download Table]

                                                 Millions of Dollars         
                                        -------------------------------------
                                                                Retiree      
                                         Defined Benefit        Health Care  
                                        ----------------     ----------------
                                        1998  1997  1996     1998  1997  1996
                                        ----  ----  ----     ----  ----  ----
                                                                             
Service cost                            $ 36  $ 36  $ 40     $  3  $  3  $  4
Interest cost                             48    48    51       21    20    22
Expected return on plan assets           (38)  (33)  (41)      --    --    --
Amortization of prior service cost         2     3     3       --    --    --
Amortization of transition obligation     (5)   (5)   (8)      --    --    --
Recognized net actuarial loss              1     2     3       --    --    --
                                        ----  ----  ----     ----  ----  ----
Total                                   $ 44  $ 51  $ 48     $ 24  $ 23  $ 26
                                        ====  ====  ====     ====  ====  ====

       Settlement and curtailment gains (losses) of the U.S. defined benefit
plan recognized in 1998, 1997 and 1996 were zero and $(6) million; $3 million   
and $18 million; and $5 million and zero. For the retiree health care benefit   
plan they were zero and $1 million; zero and $1 million; and zero and zero.     

      Obligation data for the U.S. defined benefit and retiree health care
benefit plans and asset data for the U.S. defined benefit plan at December 31   
were as follows:                                                                

                                                                [Download Table]

                                                    Millions of Dollars       
                                              ------------------------------  
                                                                   Retiree    
                                              Defined Benefit    Health Care  
                                               1998    1997      1998   1997  
                                              ---------------    ------------ 
                                                                              
Change in benefit obligation                                                  
----------------------------                   -----   -----     -----  ----- 
Benefit obligation at beginning of year        $ 688   $ 819     $ 319  $ 312 
  Service cost                                    36      36         3      3 
  Interest cost                                   48      48        21     20 
  Plan participant's contributions                --      --         6      5 
  Benefits paid                                  (38)   (202)      (25)   (22)
  Actuarial loss                                  50      36        22     -- 
  Settlements                                    (84)    (28)       --     -- 
  Curtailments                                     9     (24)        6      1 
  Special termination benefit                      9       3        --     -- 
  Divestiture                                    (11)     --        --     -- 
                                               -----   -----     -----  ----- 
Benefit obligation at end of year                707     688       352    319 
                                               -----   -----     -----  ----- 
Change in plan assets                                                         
                                               -----   -----                  
Fair value of plan assets at beginning of year   543     611                  
  Actual return on plan assets                    88     114                  
  Employer contribution                           26      42                  
  Benefits paid                                  (28)   (196)                 
  Settlements                                    (84)    (28)                 
  Divestiture                                    (14)     --                  
                                               -----   -----                  
Fair value of plan assets at                                                  
 end of year                                     531     543                  
                                               -----   -----                  
Funded status                                   (176)   (145)     (352)  (319)
  Unrecognized net actuarial (gain)              (29)    (29)       (5)   (33)
  Unrecognized prior service cost                  6       8        (2)    (2)
  Unrecognized transition obligation             (10)    (16)        -      - 
                                               -----   -----     -----  ----- 
Accrued retirement at December 31               (209)   (182)     (359)  (354)
Less current portion                              27      40        23     19 
                                               -----   -----     -----  ----- 
Accrued U.S. retirement costs                  $(182)  $(142)    $(336) $(335)
                                               =====   =====     =====  ===== 

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       The U.S. defined benefit and retiree health care obligations for 1998
and 1997 were determined using assumed discount rates of 6.75% and 7.0%. The    
assumed average long-term pay progression rate was 4.25%. The assumed long-term 
rate of return on plan assets was 9.0%. The retiree health care benefit         
obligation was determined using health care cost trend rates of 6.0% for 1999   
decreasing to 5.0% by 2000. Increasing (decreasing) the health care cost trend  
rates by 1% would have increased (decreased) the retiree health care benefit    
obligation at December 31, 1998, by $15 million/$(15) million and 1998 plan     
expense by $1 million/ $(1) million.                                            

       NON-U.S. RETIREMENT PLANS: Retirement coverage for non-U.S. employees
of the company is provided, to the extent deemed appropriate, through separate  
plans. Defined retirement benefits are based on years of service and employee's 
compensation, generally during a fixed number of years immediately prior to     
retirement.                                                                     

   Certain non-U.S. locations provide for deferral of profit sharing
amounts with contributions generally invested in TI common stock. The related   
expense for these contributions was $3 million in 1998, $6 million in 1997 and  
zero in 1996.                                                                   

Expense of the non-U.S. defined benefit plans was as follows: 

                                                                [Download Table]

                                                  Millions of Dollars       
                                            ------------------------------- 
                                              1998         1997        1996 
                                            ------       ------      ------ 
                                                                            
Service cost                                $   53       $   59      $   64 
Interest cost                                   31           35          34 
Expected return on plan assets                 (40)         (38)        (35)
Amortization of prior service cost              (1)           1           1 
Amortization of transition obligation            2            2           2 
Recognized net actuarial loss                   12            9          10 
                                            ------       ------      ------ 
Total                                       $   57       $   68      $   76 
                                            ======       ======      ====== 

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   Settlement and curtailment gains (losses) of the non-U.S. defined
benefit plans recognized in 1998 and 1997 were $(5) million and zero; and $(3)  
million and zero. There were no such items in 1996.                             

     Obligation and asset data for the non-U.S. defined benefit plans at
September 30 were as follows:                                                   

                                                                [Download Table]

                                                  Millions of Dollars 
                                                 -------------------- 
                                                  1998           1997 
                                                 -----           ---- 
                                                                      
Change in benefit obligation                                          
----------------------------------------------   -----          ----- 
Benefit obligation at beginning of year          $ 999          $ 940 
  Service cost                                      53             59 
  Interest cost                                     31             35 
  Benefits paid                                    (20)           (19)
  Actuarial gain                                   (83)           (16)
----------------------------------------------   -----          ----- 
Benefit obligation at end of year ............     980            999 
----------------------------------------------   -----          ----- 
Change in plan assets                                                 
----------------------------------------------   -----          ----- 
Fair value of plan assets at beginning of year     543            500 
  Actual return on plan assets                      21             59 
  Employer contribution                             36             38 
  Benefits paid                                    (20)           (19)
  Actuarial gain                                   (40)           (35)
----------------------------------------------   -----          ----- 
Fair value of plan assets at end of year .....     540            543 
----------------------------------------------   -----          ----- 
Funded status                                     (440)          (456)
  Unrecognized net actuarial loss                  250            252 
  Unrecognized prior service cost                    8              9 
  Unrecognized transition obligation                 9             13 
  Adjustments from Sept. 30 to Dec. 31              (4)             4 
----------------------------------------------   -----          ----- 
Net non-U.S. amount recognized ...............   $(177)         $(178)
==============================================   =====          ===== 
Amounts recognized in the balance sheet                               
consist of:                                                           
  Accrued retirement, current                    $  (2)         $  (3)
  Accrued retirement, noncurrent                  (377)          (254)
  Prepaid benefit cost                              14             10 
  Intangible asset                                   8              6 
  Accumulated other comprehensive income           180             63 
----------------------------------------------   -----          ----- 
Total                                            $(177)         $(178)
                                                 =====          ===== 

      The range of assumptions used for the non-U.S. defined benefit plans
reflects the different economic environments within the various countries.      

    The defined benefit obligations were determined as of September 30
using a range of assumed discount rates of 2.5% to 7.0% and a range of assumed  
average long-term pay progression rates of 3.0% to 6.0%. The range of assumed   
long-term rates of return on plan assets was 7.0% to 8.0%. Accrued retirement at
September 30, 1998 and 1997 includes projected benefit obligations of $841      
million and $883 million and accumulated benefit obligations of                 

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$630 million and $636 million, versus plan assets of $395 million and $408      
million, for three plans whose obligations exceed their assets.                 

RESTRUCTURING ACTIONS                                                           

        In the second quarter of 1998, the company announced that, as a result
of the various business divestitures over the past several years, the pending   
sale of its memory business and weakness in the current semiconductor market    
environment, it was implementing a severance/manufacturing efficiency program in
order to more closely match the size and cost of its support functions with the 
company's overall size and to further combine manufacturing resources for more  
efficient operations. The program, which primarily affected the company's       
corporate activities and semiconductor business, included the elimination of    
3,441 jobs around the world through voluntary programs, attrition, outsourcing  
and layoffs, as well as the closing of several facilities. As a result, the     
company took a pretax charge of $219 million in the second quarter, of which    
$126 million was included in marketing, general and administrative expense and  
$93 million in cost of revenues. Of the $219 million charge, $161 million was   
for severance, $41 million for asset write-downs and $17 million for vendor     
cancellation and lease charges. Of the $41 million for asset write-downs, $25   
million was for U.S. semiconductor inventories and $16 million was for fixed    
assets, primarily accelerated depreciation on assets phased out during 1998 in  
connection with the winding down of production at a semiconductor manufacturing 
facility in Singapore. The fixed assets were subsequently sold for scrap at a   
nominal value. Of the $17 million for vendor cancellation and lease charges, $15
million was for required vendor fees for cancellation of purchase contracts for 
chemicals, supplies and equipment as a result of a U.S. facility shutdown. At   
year-end 1998, the program had essentially been completed, with most severance  
costs paid except for $49 million, which will primarily be paid in 1999. Of the 
3,441 jobs, 3,260 had been eliminated, and 181 will be eliminated in 1999.      

         In the third quarter of 1998, the company recorded a $14 million charge
for additional depreciation on fixed assets primarily located in the            
semiconductor manufacturing facility in Singapore. This action was taken in     
connection with the severance/manufacturing efficiency program announced during 
the second quarter of 1998. This asset write down charge was included in cost of
revenues.                                                                       

  In the fourth quarter of 1998, the company took further steps to
enhance manufacturing efficiency, including the announced closing of a          
semiconductor assembly operation and sale of a materials & controls             
manufacturing operation, both in Europe. The sale was completed on December 31, 
1998. The assembly operation closing, which is ongoing, affected 740 employees. 
As a result of these actions, the company took a fourth-quarter 1998 pretax     
charge of $72 million, of which $27 million was included in cost of revenues,   
$24 million in other income (expense) net and $21 million in marketing, general 
and administrative expense. Of this $72 million charge, $35 million was for     
severance, $35 million for other cash-related costs and $2 million for asset    
write-downs, primarily to adjust fixed assets in the European materials &       
controls operation to actual sale value. Of the $35 million severance charge,   
$19 million had been paid by year-end 1998 and $16 million will be paid in 1999.
Of the other $35 million charge, $20 million was a cash payment required as part
of an agreement with the third-party buyer of a materials & controls            
manufacturing operation in Europe. The balance was for                          

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previously-received government grants expected to be repaid as a result of the  
closing of the European semiconductor assembly operation.                       

     In the first quarter of 1997, the company sold its mobile computing
business and terminated its digital imaging printing development program. As a  
result of these divestitures, the company took a first-quarter pretax charge of 
$56 million, of which $28 million was included in cost of revenues and $28      
million in marketing, general and administrative expense. Of this $56 million   
charge, $27 million was for severance for involuntary reductions worldwide.     
These severance actions were essentially completed by the end of the quarter and
affected approximately 1,045 employees. The balance of $29 million was for other
costs associated with the business sale and program termination, including      
vendor cancellation and lease charges. Essentially all costs were paid in 1998. 
In the second quarter of 1997, TI sold several activities, principally software,
for a pre-tax gain of $66 million, after transaction costs. These transaction   
costs totaled $54 million and included severance of $17 million for 372         
employees, who left TI within three months of the related divestitures, $24     
million for vendor and warranty obligations, which extend through 2002, $4      
million for professional fees, and $9 million for various other costs. In the   
fourth quarter of 1997, the company took a pretax charge of $42 million, of     
which $30 million was included in cost of revenues and $12 million in marketing,
general and administrative expense, primarily for severance costs related to    
cost-reduction actions by the materials & controls business. These actions,     
which are expected to be completed in first-quarter 1999, affected approximately
260 employees. The terminated employees were in plants located in Holland,      
Italy, Canada and Michigan. Costs of $5 million were paid by year-end 1998.     
Remaining severance is to be paid in installments through 2002.                 

         In the fourth quarter of 1996, the company took a pretax charge of $208
million, of which $169 million was included in cost of revenues and $39 million 
was included in marketing, general and administrative expense. Of the $208      
million, $91 million was for severance for employment reduction actions in the  
United States and selected reductions worldwide. These actions, which primarily 
involved the semiconductor business as well as divested activities, were        
essentially completed by year-end 1996 and affected approximately 2,600         
employees. Of the severance cost of $91 million, $34 million was paid in 1996   
and $57 million was paid in 1997. The balance of this charge, $117              
million, was for vendor cancellation and other cash-related costs of $47 million
and asset write-downs of $70 million on several product lines, primarily mobile 
computing, an operation divested in first-quarter 1997. The asset write-downs   
were to adjust inventory and fixed assets to actual sale value. Of the $70      
million asset write-down charge, $54 million was for mobile computing.          

        With respect to this $54 million charge, $47 million was for inventory
and $7 million was for fixed assets. The balance of $16 million included a $6   
million charge against operating assets for the impact of the expected first    
quarter 1997 termination of TI's digital imaging printing development program.  
The remainder, $10 million, was to write down the operating assets of TI's      
Telecom business, which was held for sale.                                      

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        Set forth below is a reconciliation of individual restructuring accruals
(in millions of dollars).                                                       

                                                        [Enlarge/Download Table]

                                                                         Year of Charge                                      
                                                          1996                                   1997                        
                                                 -----------------------------   ------------------------------------------- 
   Description*        Total    Balance, prior     Employment     MCB/DIPD/TELE   Divestiture of    M&C cost     Reserves    
                               actions -- grant   reductions --    write-downs    MCB/termination   reduction     against    
                                  repayment       SC & divested                      of DIPD          action     gains on    
                                  and lease        activities                                                  business sales
                               obligation costs                                                                              
------------------     -----   ----------------  --------------   -------------   ---------------   ---------  --------------
                                                                                                                             
BALANCE,                                                                                                                     
DECEMBER 31, 1995      $  15         $ 15                                                                                    

CHARGES:                                                                                                                     
Severance                 91                          $ 91                                                                   

Vendor and warranty                                                                                                          
obligations               47                                          $ 47                                                   

Various charges            7                                             7                                                   

Asset write-downs         70                                            70                                                   

DISPOSITIONS:                                                                                                                

Severance payments       (34)                          (34)                                                                  

Various payments          (7)                                           (7)                                                  

Non-cash write-downs                                                                                                         
of assets                (70)                                          (70)                                                  

Adjustments-net                                                                                                              
reversal to income        (3)          (3)                                                                                   
                       -----         ----             ----            ----                                                   
BALANCE,                                                                                                                     
DECEMBER 31, 1996        116           12               57              47                                                   
                       -----         ----             ----            ----                                                   

CHARGES:                                                                                                                     
Severance                 73                                                            $  27          $ 29         $ 17     

Vendor and warranty                                                                                                          
obligations               42                                                               18                         24     

Transaction costs,                                                                                                           
including professional                                                                                                       
fees                       4                                                                                           4     

Various charges           33                                                               11            13            9     

DISPOSITIONS:                                                                                                                

Severance payments       (88)                          (57)                               (24)                        (7)    

Vendor and warranty                                                                                                          
obligations              (16)                                                             (16)                               

Transaction cost                                                                                                             
payments                  (2)                                                                                         (2)    

Various payments         (10)                                                             (10)                               

Adjustments-net                                                                                                              
reversal to income        --                                                                4                         (4)    
                       -----         ----             ----            ----              -----          ----         ----     
BALANCE,                                                                                                                     
DECEMBER 31, 1997        152           12               --              47                 10            42           41     
                       -----         ----             ----            ----              -----          ----         ----     

CHARGES:                                                                                                                     
Severance                196                                                                                                 
Vendor and warranty                                                                                                          
obligations               17                                                                                                 

Grant Repayment           15                                                                                                 

Cash payment owed to                                                                                                         
buyer                     20                                                                                                 

Various charges            7                                                                                                 

Asset write-downs         57                                                                                                 

DISPOSITIONS:                                                                                                                

Severance payments      (140)                                                              (1)           (5)          (5)    

Vendor and warranty                                                                                                          
obligations              (66)                                          (47)                (1)                        (1)    

Cash payment to buyer    (20)                                                                                                

Transaction cost                                                                                                             
payments                  (2)                                                                                         (2)    

Non-cash write-down                                                                                                          
of assets                (57)                                                                                                

Adjustments-net                                                                                                              
reversal to income       (16)         (12)                                                  8           (16)          (9)    
                       -----         ----             ----            ----              -----          ----         ----     

BALANCE                                                                                                                      
DECEMBER 31, 1998      $ 163         $ --             $ --            $ --              $  16          $ 21         $ 24     
                       =====         ====             ====            ====              =====          ====         ====     

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                                                                [Download Table]

                                                    1998                          
                             -----------------------------------------------------
   Description*               SC and             Singapore           SC operation 
                               Corp.              and U.S.           closing & M&C
                              actions           write-downs             sale of   
                                                                       operation  
------------------            -------           -----------          -------------
                                                                                  
BALANCE,  DECEMBER 31, 1995                                                       

CHARGES:                                                                          
Severance                                                                         

Vendor and warranty                                                               
obligations                                                                       

Various charges                                                                   

Asset write-downs                                                                 

DISPOSITIONS:                                                                     

Severance payments                                                                

Various payments                                                                  

Non-cash write-downs                                                              
of assets                                                                         

Adjustments-net                                                                   
reversal to income                                                                

BALANCE,  DECEMBER 31, 1996                                                       

CHARGES:                                                                          
Severance                                                                         

Vendor and warranty                                                               
obligations                                                                       

Transaction costs,                                                                
including professional                                                            
fees                                                                              

Various charges                                                                   

DISPOSITIONS:                                                                     

Severance payments                                                                

Vendor and warranty                                                               
obligations                                                                       

Transaction cost                                                                  
payments                                                                          

Various payments                                                                  

Adjustments-net                                                                   
reversal to income                                                                

BALANCE,  DECEMBER 31, 1997                                                       

CHARGES:                                                                          
Severance                     $161                                   $ 35         

Vendor and warranty                                                               
obligations                     17                                                

Grant Repayment                                                        15         

Cash payment owed to                                                              
buyer                                                                  20         

Various charges                 --                                      7         

Asset write-downs                               $  55                   2         

DISPOSITIONS:                                                                     

Severance payments            (110)                                   (19)        

Vendor and warranty                                                               
obligations                    (17)                                               

Cash payment to buyer                                                 (20)        

Transaction cost                                                                  
payments                                                                          

Non-cash write-down                                                               
of assets                      (55)                                    (2)        

Adjustments-net                                                                   
reversal to income              (2)                                    15**       
                              ----              -----                ----         
BALANCE,  DECEMBER 31, 1998   $ 49              $  --                $ 53         
                              ====              =====                ====         

*Abbreviations                                                        
SC       = Semiconductor Business                                     
MCB      = Mobile Computing Business                                  
DIPD     = Digital Imaging Printing Development Program               
TELE     = Telecommunications Business                                
M&C      = Materials and Controls Business                            
Corp.    = Corporate Division                                         

**Includes the effect of an $8 million reclassification of            
    semiconductor-related grant repayment obligations from the "Balance, prior
actions" column and an $8 million reclassification of M&C-related     
    liabilities, primarily for grant repayment obligations, from the "1997 M&C
cost reduction action" column. These reclassifications did not affect 
income.                                                               

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BUSINESS SEGMENT AND GEOGRAPHIC AREA DATA                                       

 Texas Instruments develops, manufactures and sells a variety of
products used in the commercial electronic and electrical equipment industry,   
primarily for industrial and consumer markets. The company's principal          
businesses are based on TI's broad semiconductor technology and application of  
this technology to digital solutions for the networked society.                 

        TI HAS THREE PRINCIPAL BUSINESSES: Semiconductor, Materials & Controls
and Educational & Productivity Solutions. Each of these is a business segment,  
with its respective financial performance detailed in this report.              

    Semiconductor consists of digital signal processors, analog chips,
standard logic, application-specific integrated circuits, reduced               
instruction-set computing microprocessors and microcontrollers. These           
semiconductors are sold primarily to original-equipment manufacturers and       
through distributors.                                                           

      Materials & Controls consists primarily of electrical and electronic
control devices, electronic connectors and clad metals. They are sold primarily 
to original-equipment manufacturers and through distributors.                   

      Educational & Productivity Solutions, which includes educational and
graphing calculators, are marketed primarily through retailers and to schools   
through instructional dealers.                                                  

         Operating profits of the three principal businesses include the effects
of profit sharing and exclude the effects of special charges and gains. The     
results for semiconductor include the effects of all royalty revenues from      
semiconductor-related cross-license agreements. Business assets are the owned or
allocated assets used by each business.                                         

  Included in corporate activities are general corporate expenses,
elimination of intersegment transactions (which are generally intended to       
approximate market prices), results for TI's emerging digital imaging operation 
and royalty revenues from computer-related cross-license agreements. Assets of  
corporate activities include unallocated cash, short-term investments,          
noncurrent investments and deferred income taxes.                               

         Divested activities include the historical operating results and assets
of memory (sold in 1998), mobile computing and software (both sold in 1997),    
custom manufacturing services and printers (both sold in 1996) and other smaller
divestitures.                                                                   

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BUSINESS SEGMENT NET REVENUES                                                   

                                                                [Download Table]

                                                    Millions of Dollars      
                                              -------------------------------
                                                1998        1997        1996 
                                              -------     -------     -------
                                                                             
Semiconductor                                                                
  Trade                                       $ 6,267     $ 6,490     $ 5,340
  Intersegment                                     23          24          45
                                              -------     -------     -------
                                                6,290       6,514       5,385
                                              -------     -------     -------
Materials & Controls                                                         
  Trade                                           943         950         887
  Intersegment                                      1           4           3
                                              -------     -------     -------
                                                  944         954         890
                                              -------     -------     -------
Educational & Productivity Solutions                                         
  Trade                                           456         447         422
Corporate activities                              140         154          91
Divested activities                               630       1,681       3,152
                                              -------     -------     -------
Total                                         $ 8,460     $ 9,750     $ 9,940
                                              =======     =======     =======

BUSINESS SEGMENT PROFIT (LOSS)                                                  

                                                                [Download Table]

                                                     Millions of Dollars      
                                               ------------------------------ 
                                                 1998        1997        1996 
                                               ------      ------      ------ 
                                                                              
Semiconductor                                  $1,439      $1,546      $1,012 
Materials & Controls                              142         123          90 
Educational & Productivity Solutions               76          59          56 
Corporate activities                             (235)       (273)       (312)
Special charges and gains                        (466)       (532)       (400)
Interest on loans/other income (expense) net,                                 
 excluding 1998 and 1997 net gains of                                         
 $59 million and $66 million included above       159          32           3 
Divested activities                              (498)       (242)       (472)
                                               ------      ------      ------ 
Income (loss) from continuing operations                                      
 before provision for income taxes                                            
 and extraordinary item                        $  617      $  713      $  (23)
                                               ======      ======      ====== 

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Details of special charges and gains are as follows:          

                                                                [Download Table]

                                                      Millions of Dollars     
                                               ------------------------------ 
                                                 1998        1997        1996 
                                               ------      ------      ------ 
                                                                              
Severance/manufacturing efficiency program     $ (233)     $   --      $   -- 
Closing of a semiconductor operation and                                      
 sale of a materials & controls operation,                                    
 of which $(24) million was included in other                                 
 income (expense) net                             (72)         --          -- 
Discontinuance of TI-Hitachi joint venture       (219)         --          -- 
Sale of interest in TI-Acer joint venture          83          --          -- 
Acquired in-process R&D charge                    (25)       (461)       (192)
Severance and other costs, primarily                                          
 from the divestiture of mobile                                               
 computing                                         --         (56)         -- 
Other income:  gain on sale of three                                          
 divested activities, primarily                                               
 software                                          --          66          -- 
Termination of Thailand joint venture                                         
 agreements                                        --         (44)         -- 
Severance and other costs, primarily                                          
 for materials & controls cost                                                
 reductions                                        --         (42)         -- 
Asset write-downs and other costs,                                            
 primarily mobile computing                        --          --        (117)
Severance costs for employment reductions,                                    
 primarily for semiconductor and                                              
 divested activities                               --          --         (91)
Other                                              --           5          -- 
                                               ------      ------      ------ 
Total                                          $ (466)     $ (532)     $ (400)
                                               ======      ======      ====== 

BUSINESS SEGMENT ASSETS                                                         

                                                                [Download Table]

                                                     Millions of Dollars     
                                              -------------------------------
                                                1998        1997        1996 
                                              -------     -------     -------
                                                                             
Semiconductor                                 $ 4,710     $ 4,798     $ 4,763
Materials & Controls                              397         391         380
Educational & Productivity Solutions              117         151         141
Corporate activities                            5,932       4,309       2,197
Divested activities                                94       1,200       1,350
Net assets of discontinued operations              --          --         529
                                              -------     -------     -------
Total                                         $11,250     $10,849     $ 9,360
                                              =======     =======     =======

BUSINESS SEGMENT PROPERTY, PLANT AND EQUIPMENT                                  

                                                                [Download Table]

                                                     Millions of Dollars     
                                              -------------------------------
Depreciation                                    1998        1997        1996 
                                              -------     -------     -------
                                                                             
Semiconductor                                 $   913     $   853     $   655
Materials & Controls                               47          46          41
Educational & Productivity Solutions                1           1          --
Corporate and other activities                     74          58          56
Divested activities                               134         151         152
                                              -------     -------     -------
Total                                         $ 1,169     $ 1,109     $   904
                                              =======     =======     =======

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                                                                [Download Table]

                                                     Millions of Dollars     
                                              -------------------------------
Additions                                        1998        1997        1996
                                              -------     -------     -------
                                                                             
Semiconductor                                 $   731     $   858     $ 1,633
Materials & Controls                               49          49          53
Educational & Productivity Solutions                1           1          --
Corporate activities                               32         147         225
Divested activities                               218         183         152
                                              -------     -------     -------
Total                                         $ 1,031     $ 1,238     $ 2,063
                                              =======     =======     =======

     The following geographic area data include trade revenues, based on
product shipment destination and royalty payor location, and property, plant and
equipment based on physical location:                                           

GEOGRAPHIC AREA NET TRADE REVENUES                                              

                                                                [Download Table]

                                                     Millions of Dollars     
                                              -------------------------------
                                                 1998        1997        1996
                                              -------     -------     -------
                                                                             
United States                                 $ 2,722     $ 3,216     $ 3,548
Japan                                           1,619       1,971       1,832
Singapore                                         798       1,110         866
Rest of world                                   3,321       3,453       3,694
                                              -------     -------     -------
Total                                         $ 8,460     $ 9,750     $ 9,940
                                              =======     =======     =======

GEOGRAPHIC AREA PROPERTY, PLANT AND EQUIPMENT (NET)                             

                                                                [Download Table]

                                                     Millions of Dollars     
                                              -------------------------------
                                                 1998        1997        1996
                                              -------     -------     -------
                                                                             
United States                                 $ 2,440     $ 2,640     $ 2,619
Japan                                             417         478         519
Rest of world                                     516       1,062       1,024
                                              -------     -------     -------
Total                                         $ 3,373     $ 4,180     $ 4,162
                                              =======     =======     =======

INCOME TAXES                                                                    

      Income (Loss) from Continuing Operations before Provision for Income
Taxes and Extraordinary Item                                                    

                                                                [Download Table]

                                       Millions of Dollars      
                                ------------------------------- 
                                  U.S.      Non-U.S.     Total  
                                -------     -------     ------- 
                                                                
1998                            $   201     $   416     $   617 
                                -------     -------     ------- 
1997                                 93         620         713 
                                -------     -------     ------- 
1996                               (529)        506         (23)
                                -------     -------     ------- 

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PROVISION (CREDIT) FOR INCOME TAXES                                             

                                                                [Download Table]

                                            Millions of Dollars               
                                 -------------------------------------------- 
                                 U.S. Federal   Non-U.S.   U.S. State   Total 
                                 ------------   --------   ----------   ----- 
                                                                              
1998   Current                     $   4         $ 263       $  (7)     $ 260 
       Deferred                      (13)          (36)         (1)       (50)
----------------------------       -----         -----       -----      ----- 
Total                              $  (9)        $ 227       $  (8)     $ 210 
============================       =====         =====       =====      ===== 
1997   Current                     $ 112         $ 286       $   4      $ 402 
       Deferred                       51           (44)          2          9 
----------------------------       -----         -----       -----      ----- 
Total                              $ 163         $ 242       $   6      $ 411 
============================       =====         =====       =====      ===== 
1996   Current                     $(125)        $ 202       $  (3)     $  74 
       Deferred                      (44)           (6)         (1)       (51)
----------------------------       -----         -----       -----      ----- 
Total                              $(169)        $ 196       $  (4)     $  23 
============================       =====         =====       =====      ===== 

       Principal reconciling items from income tax computed at the statutory
federal rate follow.                                                            

                                                                [Download Table]

                                                    Millions of Dollars      
                                              ------------------------------ 
                                               1998        1997        1996  
                                              ------      ------      ------ 
                                                                             
Computed tax at statutory rate                $  216      $  249      $   (8)
Effect of acquired in-process R&D                  4         161          67 
Effect of non-U.S. rates                          76         (11)         (3)
Research and experimentation tax credits         (20)        (30)        (11)
Effect of U.S. state income taxes                (14)          4          (3)
Effect of joint venture costs                    (48)         31          12 
Other                                             (4)          7         (31)
                                              ------      ------      ------ 
Total provision for income taxes              $  210      $  411      $   23 
                                              ======      ======      ====== 

   Included in the effect of non-U.S. rates for 1996 is a $4 million
benefit from tax loss carryforward utilization reduced by certain non-U.S. taxes
and losses for which no benefit was recognized. Provision has been made for     
deferred taxes on undistributed earnings of non-U.S. subsidiaries to the extent 
that dividend payments from such companies are expected to result in additional 
tax liability. The remaining undistributed earnings (approximately $620 million 
at December 31, 1998) have been indefinitely reinvested; therefore, no provision
has been made for taxes due upon remittance of these earnings. Determination of 
the amount of unrecognized deferred tax liability on these unremitted earnings  
is not practicable.                                                             

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         The primary components of deferred income tax assets and liabilities at
December 31 were as follows:                                                    

                                                                [Download Table]

                                                    Millions of Dollars
                                                    -------------------
                                                      1998        1997 
                                                     ------     ------ 
                                                                       
Deferred income tax assets:                                            
 Accrued retirement costs (pension and                                 
  retiree health care)                               $  322     $  221 
 Inventories and related reserves                       242        216 
 Accrued expenses                                       251        195 
 Loss and credit carryforwards                           49         80 
 Other                                                   59        210 
                                                     ------     ------ 
                                                        923        922 
                                                     ------     ------ 
Less valuation allowance                               (173)      (121)
                                                     ------     ------ 
                                                        750        801 
                                                     ------     ------ 
Deferred income tax liabilities:                                       
 Investments                                           (256)        (5)
 Property, plant and equipment                         (104)      (165)
 International earnings                                 (19)       (38)
 Other                                                 (146)      (170)
                                                     ------     ------ 
                                                       (525)      (378)
                                                     ------     ------ 
Net deferred income tax asset                        $  225     $  423 
                                                     ======     ====== 

        As of December 31, 1998 and 1997, the net deferred income tax asset of
$225 million and $423 million was presented in the balance sheet, based on tax  
jurisdiction, as deferred income tax assets of $606 million and $711 million and
deferred income tax liabilities of $381 million and $288 million. The valuation 
allowance shown above reflects the company's ongoing assessment regarding the   
realizability of certain non-U.S. deferred income tax assets. The balance of the
deferred income tax assets is considered realizable based on carryback          
potential, existing taxable temporary differences and expectation of future     
income levels comparable to recent results. Such future income levels are not   
assured because of the nature of the company's businesses, which are generally  
characterized by rapidly changing technology and intense competition.           

       The company has aggregate U.S. and non-U.S. tax loss carryforwards of
approximately $125 million. Of this amount, $117 million expires through the    
year 2013, and $8 million of the loss carryforwards has no expiration.          

         Income taxes paid were $162 million, $1145 million and $240 million for
1998, 1997 and 1996.                                                            

RENTAL EXPENSE AND LEASE COMMITMENTS                                            

         Rental and lease expense was $153 million in 1998, $168 million in 1997
and $175 million in 1996. The company conducts certain operations in leased     
facilities and also leases a portion of its data processing and other equipment.
The lease agreements                                                            

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frequently include purchase and renewal provisions and require the company to   
pay taxes, insurance and maintenance costs.                                     

     At December 31, 1998, the company was committed under noncancelable
leases with minimum rentals in succeeding years as follows:                     

                                                                [Download Table]

                   Millions of Dollars
                   -------------------
                                      
1999                      $ 86        
2000                        61        
2001                        34        
2002                        27        
2003                        26        
Thereafter                 129        

DIVESTITURES                                                                    

In the first quarter of 1998, TI's U.S. DRAM semiconductor    
manufacturing joint venture with Hitachi, Ltd. was discontinued as a result of a
combination of severe price declines and overcapacity in the DRAM market. As    
part of this first quarter discontinuance, TI purchased the assets of the       
venture for approximately $98 million. Also as part of this first quarter       
discontinuance, TI and Hitachi decided to assume and share equally in the       
payment of the venture's obligations. TI's share of those payments was $219     
million, which was paid and charged to cost of revenues in the first quarter.   

     In the second quarter of 1998, the company sold its interest in the
TI-Acer DRAM manufacturing joint venture to Acer Corporation for $120 million in
cash. This sale resulted in a pretax gain of $83 million. On September 30, 1998,
TI sold its memory business, including its remaining DRAM manufacturing joint   
venture interests in TECH Semiconductor Singapore (TECH) and KTI Semiconductor  
in Japan to Micron Technology, Inc. (Micron). As a result, TI received          
28,933,092 Micron common shares, a $740 million note convertible into an        
additional 12,333,358 Micron common shares and a $210 million subordinated note.
The $740 million face amount Micron convertible note contains an embedded call  
option that allows TI to convert the note, at any time prior to its 2005        
maturity, into 12,333,358 Micron common shares, at an effective conversion price
equal to $60 per common share. The market value of the seven year, 6.5%         
convertible and subordinated notes was approximately $836 million at closing,   
with an average imputed interest rate of 8.7%. In addition to TI's memory       
assets, Micron received $550 million in cash from TI to facilitate the          
deployment of Micron's technology throughout the acquired business. In the      
fourth quarter of 1998, TI made an additional $130 million payment to Micron as 
part of the contractually required working capital. TI deferred the estimated   
pretax gain of $127 million on the sale until the recovery of the TI-provided   
financing. The deferred gain is subject to change to the extent actual          
transaction costs vary from estimates. In connection with the sale, TI agreed to
guarantee the payment obligations of TECH under a newly syndicated $450 million 
principal amount credit facility for debt maturing 2002. As of year-end 1998,   
TECH had borrowed $240 million under the facility. As a result of the guarantee,
TI was granted a security interest in TECH's assets. In addition, the guarantee 
is partially offset by certain contingent funding obligations of TECH's         
shareholders. In another matter, 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 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                          

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criminal investigation concerning a portion of the grants relating to specified 
research and development activities. TI believes that the grants were obtained  
and used in compliance with applicable law and contractual obligations.         

    In July, 1997 the company sold its Defense Systems and Electronics
business (DSE) to Raytheon Company for $2.95 billion in cash. The net gain on   
sale of this discontinued operation, after income taxes of $876 million, was    
$1473 million. The consolidated financial statements of TI present the DSE      
operations as discontinued operations. Summarized results of discontinued       
operations prior to the close were as follows:                                  

                                                                [Download Table]

                                                 Millions of Dollars
                                                 -------------------
                                                   1997      1996   
                                                  -----    ------   
                                                                    
Net revenues                                      $ 812    $1,773   
Income before provision for income taxes             84       175   
Provision for income taxes                           32        66   
Income from discontinued operations                  52       109   

        TI provided various ongoing services to DSE including, but not limited
to, facilities management, data processing, security, payroll and employee      
benefits administration, insurance administration and duplicating and           
telecommunications services. Their inclusion in discontinued operations was     
based upon TI's intercorporate allocation procedures for such services. The     
allocation basis of these expenses and all other central operating costs was    
first on the basis of direct usage when identifiable, with the remainder        
allocated among DSE and other TI businesses on the basis of their respective    
revenues, head count or other measures. These expenses allocated to DSE totaled 
$76 million in 1997 and $163 million in 1996. TI has agreements to receive      
payments from Raytheon for continuing to provide certain of these services on an
ongoing basis and others on a transition basis to DSE.                          

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Report of Ernst & Young LLP,                                                    
Independent Auditors                                                            

The Board of Directors                                                          
Texas Instruments Incorporated                                                  

       We have audited the accompanying consolidated balance sheets of Texas
Instruments Incorporated and subsidiaries (the Company) at December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity,  
and cash flows for each of the three years in the period ended December 31,     
1998. These financial statements are the responsibility of the Company's        
management. Our responsibility is to express an opinion on these financial      
statements based on our audits.                                                 

        We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Texas       
Instruments Incorporated and subsidiaries at December 31, 1998 and 1997, and the
results of its operations and cash flows for each of the three years in the     
period ended December 31, 1998, in conformity with generally accepted accounting
principles.                                                                     

                                                             Ernst & Young LLP

Dallas, Texas                                                                   
January 19, 1999                                                                

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Summary of Selected Financial Data                                              

                                                                [Download Table]

                                                   Millions of Dollars         
Years Ended December 31,              1998     1997     1996     1995     1994 
                                    -------  -------  -------  -------  -------
                                                                               
Millions of Dollars                                                            
Net revenues                        $ 8,460  $ 9,750  $ 9,940  $11,409  $ 8,608
Operating costs and expenses          8,061    9,135    9,966    9,970    7,682
                                    -------  -------  -------  -------  -------
Profit (loss) from operations           399      615      (26)   1,439      926
Other income (expense) net              293      192       76       79        6
Interest on loans                        75       94       73       48       45
                                    -------  -------  -------  -------  -------
Income (loss) from continuing                                                  
 operations before provision                                                   
 for income taxes and extraordinary                                            
 item                                   617      713      (23)   1,470      887
Provision for income taxes              210      411       23      474      295
                                    -------  -------  -------  -------  -------
Income (loss) from continuing                                                  
 operations before extraordinary                                               
 item                               $   407  $   302  $   (46) $   996  $   592
                                    =======  =======  =======  =======  =======
Diluted earnings (loss) per                                                    
 common share from                                                             
 continuing operations                                                         
 before extraordinary item          $  1.02  $   .76  $  (.12) $  2.58  $  1.56
                                    =======  =======  =======  =======  =======
Basic earnings (loss) per                                                      
 common share from                                                             
 continuing operations                                                         
 before extraordinary item          $  1.04  $   .78  $  (.12) $  2.65  $  1.61
                                    =======  =======  =======  =======  =======
Dividends declared per                                                         
 common share                       $ 0.255  $   .34  $   .34  $   .32   $ .235
                                    -------  -------  -------  -------  -------
Average common and dilutive                                                    
 potential common shares                                                       
 outstanding during year,                                                      
 in thousands                       400,929  397,727  379,388  387,262  381,709
                                    -------  -------  -------  -------  -------
As of December 31,                    1998     1997     1996     1995     1994 
                                    -------  -------  -------  -------  -------
Millions of Dollars                                                            
Working capital                     $ 2,650   $3,607   $1,968   $2,566   $1,965
Property, plant and                                                            
 equipment (net)                      3,373    4,180    4,162    2,894    2,277
Total assets                         11,250   10,849    9,360    8,748    6,468
Long-term debt                        1,027    1,286    1,697      804      808
Stockholders' equity                  6,527    5,914    4,097    4,095    3,039
                                    -------  -------  -------  -------  -------
Employees                            35,948   44,140   59,927   59,574   56,333
Stockholders of record               29,258   29,550   32,804   30,034   28,740
                                    =======  =======  =======  =======  =======

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 See Notes to Financial Statements and Management Discussion and
Analysis of Financial Condition and Results of Operations.                      

Quarterly Financial Data                                      

                                                                [Download Table]

                                   Millions of Dollars, Except Per-share Amounts
                                   -------------------------------------------- 
1998                                  1st         2nd         3rd         4th   
----                                ------      ------      ------      ------  
                                                                                
Net revenues                        $2,187      $2,167      $2,113      $1,993  
Gross profit                           670         725         791         880  
Profit (loss) from operations          (22)        (38)        189         270  
                                    ------      ------      ------      ------  
Net income                          $   11      $   52      $  155      $  189  
                                    ======      ======      ======      ======  
Diluted earnings per common share   $  .03      $  .13      $  .39      $  .47  
                                    ======      ======      ======      ======  
Basic earnings per                                                              
 common share                       $  .03      $  .13      $  .40      $  .48  
                                    ======      ======      ======      ======  

                                                                [Download Table]

                                  Millions of Dollars, Except Per-Share Amounts
                                  ---------------------------------------------
1997                                  1st         2nd         3rd         4th  
----                                ------      ------      ------      ------ 
                                                                               
Net revenues                        $2,263      $2,559      $2,500      $2,428 
Gross profit                           791         962         982         948 
Profit (loss) from operations          171         287         358        (201)
Income (loss) from continuing                                                  
 operations before extraordinary                                               
 item                                  102         224         239        (263)
Discontinued operations:                                                       
 Income from operations                 27          25          --          -- 
 Gain on sale                           --          --       1,473          -- 
Extraordinary item                      --          --          --         (22)
                                    ------      ------      ------      ------ 
Net income (loss)                   $  129      $  249      $1,712      $ (285)
                                    ======      ======      ======      ====== 
Diluted earnings (loss) per                                                    
 common share:                                                                 
  Continuing operations                                                        
   before extraordinary item        $  .26      $  .56      $  .60      $ (.67)
  Discontinued operations:                                                     
   Income from operations              .07         .07          --          -- 
   Gain on sale                         --          --        3.68          -- 
  Extraordinary item                    --          --          --        (.06)
                                    ------      ------      ------      ------ 
  Net income (loss)                 $  .33      $  .63      $ 4.28      $ (.73)
                                    ======      ======      ======      ====== 
Basic earnings (loss) per common share:                                        
  Continuing operations                                                        
   before extraordinary item        $  .27      $  .58      $  .62      $ (.67)
  Discontinued operations:                                                     
   Income from operations              .07         .07          --          -- 
   Gain on sale                         --          --        3.81          -- 
  Extraordinary item                    --          --          --        (.06)
                                    ------      ------      ------      ------ 
  Net income (loss)                 $  .34      $  .65      $ 4.43      $ (.73)
                                    ======      ======      ======      ====== 

       At the request of the Securities and Exchange Commission, the results
of operations for the second and third quarters of 1998 have been restated to   
reflect the shift of $14 million of pretax manufacturing costs from the second  
quarter to the third quarter. The $14 million, which was previously recorded as 
part of a $55 million asset write-down in the second quarter, is now reflected  
as                                                                              

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accelerated depreciation in the third quarter for assets phased out in that     
quarter in connection with the winding down of production at a semiconductor    
manufacturing facility located in Singapore. This restatement increased net     
income and diluted earnings per share by $9 million and $0.02 in the second     
quarter, and decreased these items by the same amounts in the third quarter. The
restatement had no impact on the Company's revenues or earnings for the year.   

       Results for the first quarter of 1998 include a pretax charge of $219
million, included in cost of revenues, for discontinuance of the TI-Hitachi     
joint venture and a charge of $25 million for the value of acquired research and
development from two business acquisitions. The second quarter of 1998 includes 
a pretax operating charge of $219 million for a severance/manufacturing         
efficiency program and a pretax gain of $83 million for the company's sale of   
its interest in the TI-Acer joint venture. The third quarter of 1998 includes a 
pretax operating charge of $14 million relating to the severance/manufacturing  
efficiency program implemented during the second quarter of 1998. Fourth-quarter
1998 results include a pretax operating charge of $72 million, essentially all  
of which is for the disposition of two European operations. In the first quarter
of 1997, the company took a pretax charge of $56 million related to the sale of 
its mobile computing business and termination of its digital imaging printing   
development program. Results for the second quarter of 1997 include a pretax    
operating charge of $44 million for the termination of agreements related to    
proposed Thailand joint ventures and a $66 million pretax gain from the sale of 
three divested activities, principally software. Results for the third quarter  
of 1997 reflect the sale of TI's defense business, which was closed with        
Raytheon Company on July 11 for $2.95 billion in cash. The net gain from this   
sale, after income taxes of $876 million, was $1473 million and was included in 
discontinued operations. As a result of the 1997 acquisition of Amati           
Communications Corporation, the company took a charge of $461 million in the    
fourth quarter for the value of acquired in-process research and development.   
Also in the fourth quarter, the company took a pretax charge of $42 million,    
primarily for severance costs related to cost-reduction actions by the materials
& controls business. Diluted earnings (loss) per common share are based on      
average common and dilutive potential common shares outstanding (402,230,699    
shares and 389,695,136 shares for the fourth quarters of 1998 and 1997).        

 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 62 hereof.                               

3.   Exhibits:                              

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                                                                [Download Table]

Designation                                                                     
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).                

      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).       

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                                                                [Download Table]
                                                                                
      3(j)        Certificate of Elimination of Designation of Preferred Stock  
                  of the Registrant (previously filed).                         

      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).*    

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                                                                [Download Table]
                                                                           
10(d)        Texas Instruments Executive Officer Performance Plan          
             (incorporated by reference to the Registrant's Quarterly      
             Report on Form 10-Q for 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
             (previously filed).                                           

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. (previously filed).                   

11           Computation of Earnings Per Common and Dilutive Potential     
             Common Share (previously filed).                              

12           Computation of Ratio of Earnings to Fixed Charges (previously 
             filed).                                                       

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                                                                [Download Table]
                                                                       

21           List of Subsidiaries of the Registrant (previously filed).

23           Consent of Ernst & Young LLP.                             

24           Powers of Attorney (previously filed).                    

27           Financial Data Schedule (previously filed).               

*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).                                                

(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 Form 10-K/A includes "forward-looking statements" intended to qualify for  
the safe harbor from liability established by the Private Securities Litigation 
Reform Act of                                                                   

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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,
such 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.                           

-    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.                                 

-    Timely completion of announced acquisitions.                               

-    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 Form 10-K 
as originally filed. The forward-looking statements included in this Form 10-K/A
are made only as of the date of this Form 10-K/A and TI undertakes no           
obligation to publicly update the forward-looking statements to reflect         
subsequent events or circumstances.                                             

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        Pursuant to the requirements of Rule 12b-15 of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment to be signed on its  
behalf by the undersigned, thereunto duly authorized, on August 6, 1999.        

                                              TEXAS INSTRUMENTS INCORPORATED

                                             By: /s/ WILLIAM A. AYLESWORTH
                                                   -----------------------------
                                               William A. Aylesworth
                                               Senior Vice President
                                       Treasurer and
                                                 Chief Financial Officer

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TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES 

 INDEX TO FINANCIAL STATEMENTS
 AND FINANCIAL STATEMENT SCHEDULES

(Item 14(a))

                                                                [Download Table]

                                                        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                                 18                      

      Balance sheet at December 31,                                             
      1998 and 1997                                     19                      

      Cash flows for each of the three years                                    
      in the period ended December 31, 1998          20-21                      

      Stockholders' equity for each of                                          
      the three years in the period ended                                       
      December 31, 1998                                 22                      

      Notes to financial statements                  23-25                      

      Report of Independent Auditors                    52                      

Consolidated Schedule for each of the three                                     
years in the period ended December 31, 1998:                                    

      II.    Allowance for Losses and                                           
             Cash-Related Special Charges               63                      

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.                                      

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 TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES
 ALLOWANCE FOR LOSSES AND CASH-RELATED SPECIAL CHARGES
(IN MILLIONS OF DOLLARS)
 Years Ended December 31, 1998, 1997, 1996

                                                        [Enlarge/Download Table]

                       Balance at      Additions                                       
                       Beginning    Charged to Costs                        Balance at 
    Description         of Year       and Expenses     Usage   Adjustments  End of Year
    -----------        ----------   ----------------   -----   -----------  -----------
                                                                                       
Allowance for losses:                                                                  

       1998               $ 73            $101         $ (77)       --          $ 97   
       1997               $ 90            $133         $(150)       --          $ 73   
       1996               $ 45            $163         $(118)       --          $ 90   

Note: Allowance for losses from uncollectible accounts, returns, etc., are             
deducted from accounts receivable in the balance sheet.                                

Cash-related special charges:                                                          

       1998               $148            $255         $(228)     $(20)         $155   
       1997               $116            $152         $(116)     $ (4)         $148   
       1996               $15             $145         $ (41)     $ (3)         $116   

Note: Adjustments are to reflect changes in estimated costs and are either      
reversals to income or increases in expense.                                    

Cash-related activity for special charges is included in the above schedule. See
analysis in the Restructuring Actions note to the financial statements for      
non-cash, as well as cash-related, activities for special charges.              

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EXHIBIT INDEX                                                                   

                                                                [Download Table]

Designation                                                                     
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).                

     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).       

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                                                                [Download Table]
                                                                                
      3(j)        Certificate of Elimination of Designation of Preferred Stock  
                  of the Registrant (previously filed).                         

      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).*                      

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                                                                [Download Table]
                                                                           
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 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
             (previously filed).                                           

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. (previously filed).                   

11           Computation of Earnings Per Common and Dilutive Potential     
             Common Share (previously filed).                              

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                                                                [Download Table]
                                                                          

12           Computation of Ratio of Earnings to Fixed Charges (previously
             filed).                                                      

21           List of Subsidiaries of the Registrant (previously filed).   

23           Consent of Ernst & Young LLP.                                

24           Powers of Attorney (previously filed).                       

27           Financial Data Schedule (previously filed).                  

*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).                                    

67

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K405/A’ Filing		Date		First		Last			Other Filings
		12/31/99		29					10-K405,  10-K405/A,  PRE 14A
Filed on:		8/9/99							10-Q/A
		8/6/99		61
		2/22/99		2					10-K405
		1/19/99		52
For Period End:		12/31/98		1		63			10-K405,  DEF 14A
		10/15/98		58		66			8-K
		10/1/98		59					8-K
		9/30/98		23		66			10-Q,  3,  8-K
		9/23/98		57		65
		9/18/98		57		65
		6/23/98		57		65			8-A12B
		6/18/98		57		66			8-K
		3/31/98		58		66			10-Q
		1/1/98		36		37
		12/31/97		11		63			10-K,  DEF 14A,  PRE 14A
		12/4/97		57		65			8-K
		12/1/97		36
		9/30/97		39		67			10-Q
		6/30/97		57		67			10-Q
		3/31/97		58		67			10-Q
		1/4/97		58		66			8-K
		12/31/96		30		63			10-K,  DEF 14A
		6/30/96		56		67			10-Q
		4/18/96		33					PRE 14A,  PREM14A
		12/31/95		22		43			10-K,  10-K/A,  DEF 14A
		1/5/93		37
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