UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition Period from to
Commission File No. 0-11438
BURR-BROWN CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 86-0445468 _
(State of Incorporation) (IRS Employer Identification
No.)
6730 South Tucson Boulevard
Tucson, Arizona 85706
(Address of Principal Executive Offices)
(520) 746-1111 _
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
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 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.
[ ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant based on the closing price as of March
4, 1998 was approximately $641,411,348.
There were 36,546,429 shares of Burr-Brown Common Stock
outstanding as of March 4, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal
year ended December 31, 1997--Incorporated by reference into Parts
I, II, and IV.
Portions of the Registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held on April 24, 1998--Incorporated
by reference into Part III.
PART I
This Annual Report on Form 10-K contains forward-looking statements
which involve risks and uncertainties. The Company's actual results
could differ materially from those projected in the forward-looking
statements as a result of certain factors, including those set forth
under "Risk Factors" below and elsewhere in this Annual Report on
Form 10-K, the materials incorporated by reference herein, and
circumstances described in other filings by the Company with the
Securities and Exchange Commission.
ITEM 1. BUSINESS
GENERAL
Burr-Brown Corporation (and its wholly-owned subsidiaries and
majority-owned affiliated companies, "Burr-Brown" or the "Company")
is a world-wide leader in the development, manufacturing, and
marketing of electronic components including precision linear, data
converters, and mixed signal integrated circuits (ICs). These
products address applications for both analog and digital signal
processing relating to communications, industrial and process
control, test and measurement, medical instrumentation, digital
audio, multimedia, and personal computer systems.
The Company offers over 1,200 high performance products that perform
analog signal processing functions such as the conditioning,
amplification, and filtering of signals, and mixed signal processing
functions such as analog-to-digital and digital-to-analog
conversion. Within its targeted markets, Burr-Brown emphasizes high
performance applications where its products are critical elements of
the overall systems architecture. The Company was incorporated in
Arizona in 1956 and reincorporated in Delaware in 1983. The
Company's management and technical team has many years of experience
in the design, development, manufacture, and world-wide marketing of
high performance analog and mixed signal semiconductor components,
and in providing unique and cost-effective solutions to the complex
signal processing requirements of its target markets.
THE INDUSTRY
Integrated circuits may be divided into three categories: analog,
digital, and mixed signal. Digital circuits such as memory devices
and microprocessors, use many repetitive circuit elements, each of
which can represent the two values ("1" and "0") required by the
binary number system that is the basis for most computation. Analog
circuits, on the other hand, are capable of representing an infinite
number of values based on a continuously varying signal. These
signals typically represent "real world" phenomena such as
temperature, pressure, position, light, speed, and sound. Mixed
signal circuits are circuits that employ both analog and digital
signal processing techniques. Analog and mixed signal circuits are
used in most electronic systems and major markets for such circuits
include telecommunications and data communications, test and
measurement, medical instrumentation, industrial process control,
manufacturing automation, digital audio and video, and personal
computers. Typical analog circuits include operational amplifiers,
instrumentation amplifiers, programmable gain amplifiers, current
transmitters, regulators, analog multipliers, and isolation
amplifiers. Typical mixed signal circuits include analog-to-digital
converters (ADCs) and digital-to-analog converters (DACs). The
technology trends driving the growth of digital ICs, such as
increased use of micro processors, portability, lower power
consumption and higher speed requirements are also driving demand
for high performance analog and mixed signal ICs. Recently, the
rapid growth of the high speed wired and wireless communication,
multimedia, portable computing, and digital audio and video markets
have created important new growth opportunities for high performance
analog and mixed signal products. ICE Corporation estimated that
analog and mixed signal circuits accounted for 15% of the $127
billion market for integrated circuits in 1997.
The market, design, and manufacture of analog circuits differ from
those of digital circuits in several important ways. In general, the
markets for analog circuits are more diverse than for digital
circuits, with each application requiring different operating
specifications relating to resolution, processing linearity, speed,
power, and signal amplitude. As a result, the customers for analog
and mixed signal circuit products generally have relatively smaller
volume requirements per application. The markets for analog circuits
are generally fragmented, and competition within those markets tends
to depend less upon price and more upon performance, functionality,
quality, and reliability. Analog circuits are often characterized by
longer life cycles and more stable pricing compared to typical
digital circuits. Given the diversity of applications, analog
product lines tend to be broader and have larger customer bases than
digital circuit. This is one of the reasons for the historic
stability of analog and mixed signal IC business as compared to
digital IC business. Furthermore, analog product lines are
characterized by a higher proportion of proprietary designs which
introduce switching costs to customers after design-in, tending to
minimize competition based on price alone. Computer-aided design and
engineering tools, which have proliferated and enhanced the design
effort for digital integrated circuits, are less effective for
analog devices. Accordingly, analog circuit design has traditionally
been highly dependent on the skills and experience of design
engineers. Also, in contrast to digital circuits, the performance
of analog circuits is more dependent on circuit design, circuit
layout, and the matching of circuit elements than on the density of
circuit elements which requires advanced capabilities in submicron
semiconductor processes. Consequently, the production of high
performance analog circuits typically requires relatively less
capital investment than the production of highly integrated digital
circuits. Because analog and mixed signal circuits are found in
most electronic systems, the growth in the use of digital systems
across a broad range of applications has in turn fueled a growth in
the demand for analog and mixed signal integrated circuits.
PRODUCTS
The Company operates predominantly in one segment, the electronic
component industry. The Company has various classes of products
within that one segment.
The following table shows the approximate product line revenues as a
percentage of total Company revenues:
PRODUCT LINE 1997 1996 1995
Analog Products 46.2% 47.3 % 42.4 %
Mixed Signal Products 49.0% 45.4 % 42.4 %
Other 4.8% 7.3 % 15.2 %
Demand for analog circuits primarily has been driven by the need for
increased productivity manifested as the need for lower cost,
faster, lower power, smaller size, greater functionality, and higher
precision products. Semiconductor technology has provided many
effective solutions to this demand. The availability of effective
solutions has accelerated with the advent of more advanced digital
processing. This has led to greater use of digital computers or
processors to provide massive computational power to control
processes and equipment and in general, to greater automation and
productivity in the industry. Since the early seventies, the
availability of low cost digital microprocessors, and later digital
signal processing in cost-effective single chip form, has enabled an
acceleration of the trend toward the digitization of systems. This
has led to increased use of computers as imbedded processors to
measure, control, monitor, or process electronic signals nearer or
adjacent to the sensor that is detecting physical conditions. This,
in turn, has created the need for products that enable digital
computers, microprocessors, and microcontrollers, and digital signal
processors (DSP's) to interact with electronic signals derived from
physical or analog phenomena. Burr-Brown designs and manufactures
the integrated circuits which perform the analog signal conditioning
and data conversion functions critical to this interaction.
Process control sensors generate continuously varying electronic
signals, called analog or linear signals, which represent the
physical phenomenon being measured or controlled. In many
circumstances these analog signals are relatively weak and
contaminated with a large amount of electrical "noise". The
Company's signal processing components are used to strengthen,
filter, transmit, and otherwise condition the signal. The resulting
signal, still in analog form, must be converted into a digital
signal before it can be processed by a computer. The Company's
Analog-Digital Converters (ADCs) effect this conversion. After the
digital signal is processed by the computer, it is often necessary
to convert the digital signal back to analog form, and the Company's
Digital-Analog Converters (DACs) also accomplish this reverse
conversion. The resulting analog signal controls the process.
The market requirements for analog signal processing and data
conversion products range from high performance industrial
applications to high volume consumer applications. The Company's
product strategy has been to concentrate on proprietary, high
precision, high performance analog, data conversion, and integrated
analog/digital (mixed signal) circuits. The Company identifies
significant markets in which new or enhanced high performance
products of this type are required. The Company then attempts to
develop and supply as complete a function as is permitted by
technological and cost constraints.
The Company's products are generally designed into a customer's
product and usually remain a part of that product throughout its
life. The Company's experience has been that there is generally a
two to four-year period before the sales level of its standard
products fully matures, and the sales life of the products may
extend from five to eight years or more once they have reached
mature production volumes. Once the Company's component has been
designed into a customer's product, the relatively low volume, high
performance characteristics of the component significantly deter
potential competitors. As a result, the Company is often a
customer's sole or primary source for that particular component.
ANALOG INTEGRATED CIRCUITS
The Company's analog circuits include operational amplifiers, power
amplifiers, instrumentation amplifiers, programmable gain
amplifiers, isolation amplifiers, current transmitters, and other
analog signal processing components. Analog linear signal processing
integrated circuits are used to process and transmit analog data
signals prior to their conversion to digital signals. These
components are used in communications equipment, automatic test
equipment, analytical instruments, medical instruments and systems,
industrial controls, personal computing, and computer peripherals.
Operational Amplifiers. Operational amplifiers are used to detect
and amplify weak (low level) analog signals and are included in many
systems. The operational amplifier is the fundamental building block
in analog and digital systems design. In addition to amplification,
operational amplifiers can perform mathematical functions such as
integration and differentiation. The Company's high performance
operational amplifiers are generally capable of amplifying typical
analog signals in the micro-volt range up to 100,000 times and
provide ultra-low drift, low bias current, low noise, high
bandwidth, and fast settling time. Certain models provide high
voltage and high current, or high speed operation for special
applications. These high performance amplifiers are required to
treat signals generated in numerous applications, including
scramblers for satellite communication systems, audio and video
systems, robotic vision systems, magnetic resonance, and computer-
aided tomography (CAT) body scanning systems.
Other Amplifiers. The Company manufactures a number of other
amplifiers, including instrumentation amplifiers, programmable gain
amplifiers, and isolation amplifiers. These products perform a
variety of functions related to the amplification and isolation of
analog signals. Among other uses, these components permit the
measurement of weak signals in the presence of unwanted "noise" and
protect sensitive instruments from the effects of transient, high-
magnitude, potentially damaging voltages caused by sources such as
lightning or the switching of high voltage equipment. These
amplifiers are used in many diverse applications including
temperature measurement in industrial processes, protection of
sensitive medical instruments, and isolation of electrical power
line disturbances and faults.
Other Signal Processing and Transmitter Components. The Company
manufactures a variety of other analog signal processing components,
including mathematical function circuits, current transmitters, and
voltage-to-frequency converters. Mathematical function circuits are
used when information sought can be effectively derived only through
its mathematical relationship to analog signals. Current
transmitters send analog signal information from a process sensor to
measurement or control equipment in the form of a current on the
same wires that produce the power to the transmitter and sensor.
Voltage-to-frequency converters convert process signal amplitude to
a frequency, making the signal immune to electrical noise and
permitting more efficient storage and processing of the information.
Isolation Products. The Company's isolation products focus on the
design, development, production, and marketing of isolation
amplifiers, isolated digital couplers, and DC-to-DC converters.
These products provide galvanic isolation of input and output
signals and thereby achieve reduced circuit noise interference and
prevent harm to people or equipment due to high voltage transients
or current leakage. The product line utilizes optical, transformer,
and capacitive techniques to produce linear transfer functions
between input and output. In certain products, isolated digital
couplers are used in lieu of opto-couplers in the galvanic isolation
of data signals. The isolation products are used in industrial
process control, communication, and in medical instrumentation among
others.
DATA CONVERSION PRODUCTS
The Company's data conversion products are integrated circuit
devices used to convert analog signals to digital form or to convert
digital signals to analog form. This conversion is necessary in
virtually all applications in which digital computers or processors
measure and control the analog signals from a physical, "real world"
process.
Precision Data Conversion Products. The majority of the Company's
mixed signal components revenue is derived from moderate speed, high
resolution, and high accuracy converters. These general purpose
converters are used primarily in manufacturing process control
instrumentation, electronic test instrumentation, automatic test
systems, and communications systems. For example, in a robot
controller, the position of the robot arm must be precisely measured
and manipulated. Analog signals from the robot's position sensors
are converted by an A/D converter for computer processing and, in
turn, a D/A converter converts the digital control signal from the
computer to analog form to drive the actuators and servo motors to
position the robot arm accurately.
High Speed Data Conversion Products. In the early 1980's, the
Company began developing high speed, high resolution A/D and D/A
converters at speeds substantially greater than general purpose
products. These products utilize a unique combination of
technologies and design expertise to achieve state-of-the-art
performance. High speed converters are used in a variety of
applications such as wireless communications systems, image
processing, digital oscilloscopes, ultrasound, radar, and sonar, as
well as the front end of advanced systems using digital signal
processing (DSP) technology.
Digital Audio and Video Products Division. The Company's digital
audio and video products focus on the design, manufacturing, and
marketing of high precision, single chip, digital-to-analog
converters, analog-to-digital converters, codecs, and video signal
processing devices for the digital audio and video market. The
Company believes that Burr-Brown was the first company to introduce
such audio products into this marketplace and is currently one of
the largest merchant market suppliers of such devices worldwide.
One product, a pulse-code-modulated ("PCM") conversion device, plays
an essential role in digital audio systems, such as compact disc
("CD") players, that use laser technology to achieve improved audio
reproduction performance. The Company's component converts the
digital signals for each stereo channel into audio. Several
generations of products of this type have been developed and
introduced for use in digital audio systems. Involvement in the CD
market also helped the Company's early entry into the Digital
Versatile Disk (DVD) and multimedia markets. Burr-Brown's PCM
converters have now been designed into musical instruments, computer
games, automobile sound systems, CD-ROMs for multimedia
applications, set top box tuners for cable and satellite TV, DVD
players, PC add-in cards, camcorders and digital cameras.
SYSTEM PRODUCTS
Intelligent Instrumentation Inc. Intelligent Instrumentation Inc.
(III), a majority-owned subsidiary, designs, manufactures, and
markets a broad line of hardware and software products for the
capture and sharing of real-time enterprise data. These products
capture sensor based data as well as human-entered data. Products
include plug-in data acquisition boards, Ethernet-based data
acquisition systems, network based data collection terminals, and
component terminals for machine interface. These products are
applied world-wide for a range of applications including predictive
maintenance, access control, time and attendance, material tracking,
product test, and resource planning. Representative customers
include Symbol Technologies, Mercedes Benz, Hewlett Packard, CTI
Cryogenics, IBM, and AMP Incorporated.
The Company has from time-to-time received indications of interest
with respect to III, and has considered, and may in the future
consider, the sale of its interest in this subsidiary in order to
focus its resources on the core business of analog and mixed signal
integrated circuits.
RESEARCH & DEVELOPMENT
Digital circuits have an exceptional amount of repetition of circuit
elements and are highly dependent upon the ability to produce chips
with very high circuit element density to minimize chip size and
cost, and maximize speed. This type of wafer processing of
extremely small dimensions leads to the need for state-of-the-art,
comparatively costly capital investment in wafer fabrication
facilities.
Analog circuits, on the other hand, require the ability to
accurately match and place transistors with respect to one another.
In addition, analog circuits may require the ability to handle large
voltages and currents and therefore, demand relatively large
transistors and spacing dimensions. Although these requirements
place stringent processing requirements on an analog wafer
fabrication facility, the necessary equipment and facilities are
substantially less costly and longer lived than that which is
required for digital circuit processing.
Analog and mixed signal circuit design is highly dependent on the
skills and experience of individual design engineers, and Burr-Brown
believes that its team of design engineers has developed extensive
core strengths in high performance analog and mixed signal
integrated circuits. Designers of analog circuits must take into
account complex interrelationships between the manufacturing
process, the circuit elements, the packaging requirements, and the
customer's application, all of which may seriously affect the
circuits' performance. The number of creative design engineers who
have the training and the experience to handle these complexities is
limited. The Company's ability to compete depends heavily on its
continued introduction of innovative and cost effective new
products. Therefore, the Company must continually invest in design
engineering talent, engineering tools, production processes and test
equipment.
The Company emphasizes the development of proprietary standard and
application specific products. The Company's product strategy is to
identify markets in which the application of microelectronics
technology may be used to provide competitive advantage for its
customers through improved methods of precision measurement,
monitoring and controlling physical processes and conditions.
Examples of these markets include: robotics, factory automation,
process control, automatic test, medical instrumentation, computers,
communications, and digital audio. Within these markets, the Company
selects specific applications in which the Company's unique design
and processing technology will make an important contribution to its
customers, often acting as the enabling technology for the
successful commercialization of end equipment.
The Company spent approximately $34 million in 1997, $28.5 million
in 1996, and $25.7 million in 1995 for product and process
development. This represents an expenditure of approximately 13.5
percent, 12.9 percent, and 9.6 percent of revenue in 1997, 1996, and
1995, respectively. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's
Annual Report to Stockholders, incorporated by reference to Item 7
of this report.)
The Company introduced a record 79 new products in 1997. Many of
these products target emerging applications for which high
performance signal processing integrated circuits (ICs) are
absolutely required and yet the cost of these ICs must be low in
order to enable larger end-market sales volumes. By offering high
performance signal processing ICs at an effective price, Burr-Brown
has been able to partner with many high-growth companies to address
emerging applications.
PATENTS AND LICENSES
The Company owns approximately 149 United States and international
patents expiring from 1998 to 2016, and has applications for
approximately 66 additional patents pending in the United States as
well as patents issued and pending in several other countries.
Although the Company pursues a policy of maintaining a strong patent
portfolio, the Company believes that its success depends primarily
upon the experience and creative skills of its people rather than
upon the ownership of patents. As is common in the semiconductor
industry, from time to time the Company has been and may in the
future be notified of claims regarding the possible infringement of
patents issued to others, and similarly, the Company has on occasion
notified others of possible infringements of its patents.
SALES AND MARKETING
Burr-Brown markets its products in all the major markets in the
industrialized world through its direct sales force, independent
sales representatives, and distributors. Burr-Brown maintains 6
sales offices in the United States and has international sales
subsidiaries in France, Germany, Italy, the Netherlands,
Switzerland, the United Kingdom, Japan, and Singapore. The
Company's direct sales force focuses primarily on large corporate
customers, while the Company's distributors service the needs of the
Company's broad base of smaller clients. In particular, the direct
sales force and field application engineers are focused on new
design-ins to enhance the Company's long-term revenue stream.
Approximately 45% of 1997 worldwide revenue was realized through
third party distribution. In approximately 45 countries and the less
significant domestic markets where the Company does not have a
direct sales force, independent sales representatives sell all of
the Company's products. The majority of the Company's sales people
hold engineering degrees and the balance have relevant engineering
experience.
The Company sells its products to a diverse base of over 25,000
customers worldwide. Key customers of the Company include ABB,
Adtran, Alcatel, Advantest, AMP, Beckman, Elsag Bailey, Ericsson,
Fanuc, Fujitsu, General Electric, Hewlett-Packard, Hitachi,
Honeywell, Hughes Network Systems Inc., Lucent, Matra, Mitsubishi,
National Instruments, NEC, Nokia, Northern Telecom, PairGain,
Philips, Rockwell, Samsung, Siemens, Sony, Teradyne, Toshiba, and
Yamaha. The largest customer, Insight Electronics, a domestic
distributor, accounted for approximately 10 percent of sales in
1997. Sony is the largest direct customer, accounting for slightly
less than 5% of 1997 revenue. The Company has maintained long-term
relationships with major customers in the industrial process
control, instrumentation, and imaging markets, and typically serves
as the sole supplier of proprietary products. Burr-Brown has pursued
a strategy of leveraging its strengths in analog signal processing
and mixed signal design to develop a broad line of standard products
for the faster growing communications, computing, and digital audio
and imaging markets. As a result, the Company has established key
customer relationships with leading companies in the wireless and
high speed communications industry. Over 47 percent of the revenue
in 1997 for analog and data conversion integrated circuits was for
products introduced within the preceding five years.
Sales outside the United States accounted for approximately 66
percent of total revenues in 1997, 66 percent of total revenues in
1996, and 64 percent of total revenue in 1995. (See the note
labeled "Foreign Operations, Geographic and Segment Data" in "Notes
to Consolidated Financial Statements" in the Company's Annual Report
to Stockholders, incorporated by reference to Item 8 of this
report.) To support its international marketing organization, the
Company has established product development and production
facilities in Scotland and Japan. The Company also has product
development and manufacturing at the corporate headquarters in
Tucson, Arizona.
A large percentage of international sales are denominated in local
currencies and the Company's foreign revenues and net income are
therefore subject to currency exchange rate fluctuations. However,
the Company borrows funds in local currencies, maintains a
significant international presence which acts as a natural hedge,
and purchases forward contracts to hedge its foreign currency
exposure. Some of the Company's products are subject to export
regulations and other international trading restrictions, but the
Company has not experienced any material difficulties from these
limitations. No assurance can be given, however, that such material
difficulties will not be experienced in the future.
BACKLOG
Burr-Brown's products are, generally, standard items with a
relatively short delivery cycle. The Company's backlog is usually
three months or less of sales, although some portion may be
scheduled for delivery four to twelve months into the future.
Therefore, the order backlog at the end of any specific quarter is
not generally indicative of the level of sales to be expected in
succeeding quarters. It is the policy of the Company to include in
backlog only those orders that have firm scheduled delivery dates.
The Company's backlog as of December 31, 1997, 1996, and 1995, was
approximately $56.5 million, $41.0 million, and $62.3 million,
respectively.
COMPETITION
Burr-Brown estimates that it is among the top four manufacturers of
high performance analog and data conversion integrated circuits.
The Company's major competitors in the high performance analog
integrated circuits market are Analog Devices Inc., Linear
Technology Corporation, and Maxim Integrated Products Inc. With
respect to a more limited range of products, the Company also
competes with National Semiconductor Corporation, Harris
Corporation, Motorola Inc., Texas Instruments Inc., Cirrus Logic
Inc., Rockwell, Level One, and Sipex Corporation.
The Company is not aware of any significant competition from foreign
companies providing analog and data conversion integrated circuits,
however, there can be no assurance that foreign competitors will not
enter these markets in the future. The Company's PCM product line
does compete with several U.S. and foreign manufacturers of digital
audio (D/A) converters for use in digital compact disc stereo
systems, and multimedia systems, including Analog Devices Inc.,
Cirrus Logic Inc., Asahi Kasei Micro, Sony Electronics Inc., Hitachi
America Limited, Matsushita Electric Corporation of America,
Mitsubishi Corporation, and Philips Semiconductors. Many of these
competitors have greater financial, production, and marketing
resources than Burr-Brown.
The Company believes that competition with respect to component
products is based primarily on design and process innovation,
product performance and reliability, technical service, availability
of a broad range of specialized products, standard product
availability, and on price. The Company believes that reliable
performance and service are more important than price when the
Company is the sole source of a product. Price is more of a
competitive factor when an equivalent product is available from
other sources, as in the case of commodity products.
MANUFACTURING
The Company's production of integrated circuits utilizes in-house
process technologies, externally purchased wafer processing foundry
services, and purchased components that already incorporate the
desired semiconductor manufacturing technology. The Company combines
relatively diverse technologies to produce the integrated circuits
necessary to meet the stringent performance requirements of its
customers. For example, some of the Company's integrated circuit
products combine high precision linear integrated circuit wafer
fabrication processing with compatible laser-trimmed thin film
technology and dielectric isolation (DI) wafer processing.
The Company uses several bipolar, CMOS, and BiCMOS processes which
provide circuits for the analog, data conversion, and PCM markets.
Burr-Brown processes have the added capability of making high
quality capacitors and trimmable resistors that enable the Company
to manufacture high precision products. In addition to the processes
at the Company's Tucson wafer fabrication facility, foundries are
used for processes not available internally. Processes currently
used include a variety of CMOS processes ranging from 3 microns to
0.5 microns for products such as amplifiers, analog-to-digital and
digital-to-analog converters, a 2 micron BiCMOS process for PCM
DAC's and ADC's, and a very high frequency bipolar process used for
products such as video amplifiers.
The Company conducts electrical testing of integrated circuits in
both wafer and packaged form. The combination of various
functionalities makes the test process for analog and mixed-signal
devices particularly difficult. Test operations require the
programming, maintenance, and use of sophisticated computer-based
test systems and complex automatic handling systems. The Company has
special screening and qualification programs when high reliability
quality grades are required by customer specifications.
The Company has integrated circuit assembly operations in Tucson. In
addition, much of the Company's assembly demand is met by using
contract assembly companies located in Japan, Taiwan, Malaysia,
Thailand, and the Philippines. To achieve lower cost without
compromising high performance, the Company has expanded its
packaging capability to include low cost multi-chip module assembly
in its Tucson manufacturing facility. Following assembly, the
Company and its subsidiaries perform nearly all of the final
testing, marking, and inspection of the packaged units prior to
shipment to customers.
The Company has developed and implemented its Quality Program to
focus on customer satisfaction. The program includes annual
satisfaction reviews with customers to assess improvement
priorities. The Quality Program also includes Quality System
Certification (ISO9001), a comprehensive product/process reliability
monitoring program, and the Qualification Program for new products
and processes. The Company has a reputation for high quality and
highly reliable products as evidenced by the high satisfaction
rating reported by our customers for these factors.
To provide better service to its European and Japanese customers and
to achieve an improved competitive position, the Company maintains
production and product development facilities in both regions. In
Europe, a manufacturing and product development site is located in
Livingston, Scotland. This facility designs and assembles integrated
circuits for sale in Europe and for export to other markets. In
Japan, the Company's Atsugi Technical Center, near Tokyo, performs
product development, final product testing, and quality and
reliability testing for the digital audio and imaging product line
for sale in Japan and export to other markets.
The principal raw materials used by the Company in the manufacture
of its monolithic integrated circuits are silicon wafers, chemicals
and gases used in processing wafers, gold wire and ceramic, metal,
and epoxy packages that enclose the chip and provide the external
connections for the circuit. Silicon wafers and other raw materials
may be obtained from several suppliers. From time to time,
particularly during periods of increased industry-wide demand,
silicon wafers and other materials have been in short supply. As is
typical in the industry, the Company allows for a significant period
of lead time between order and delivery of raw materials. In
addition, the Company sometimes enters into long term supplier-
customer relationships with key suppliers of such materials to
mitigate possible shortage problems.
Government regulations impose various controls on the discharge of
certain chemicals and gases into the environment that have been used
in semiconductor processing. The Company believes that its
manufacturing processes conform to present environmental regulations
but there can be no assurance that future changes in such
regulations will not result in increased costs or impede operating
performance. The Company eliminated the use of ozone-depleting
chemicals in the manufacturing process on December 1, 1995.
The Company's Tucson, Arizona campus is part of the Tucson
International Airport Superfund site. The Company has agreed with
the United States Environmental Protection Agency (EPA) to implement
site remediation actions pursuant to the provisions of a Consent
Decree Agreement with the EPA. The Company incurred approximately
$200,000, $149,000, and $106,000 of remediation expense in 1997,
1996, and 1995, respectively.
HUMAN RESOURCES
At December 31, 1997, the Company employed 1,308 people worldwide,
including 755 employees in manufacturing and assembly, 221 employees
in research and development, 217 in sales and marketing, and 115 in
management and administration. Many of the Company's employees are
highly skilled and the Company's continued success will depend, in
part, on its ability to attract and retain such employees, who are
generally in great demand. At times, like other semiconductor
manufacturers, the Company has had difficulty hiring engineering
personnel. The Company has never experienced a work stoppage, no
employees are represented by labor organizations, and the Company
considers its employee relations to be very good.
RISK FACTORS
An investment in the securities of Burr-Brown involves certain
risks. In evaluating the Company and its business, prospective
investors should give careful consideration to the factors listed
below, in addition to the information provided elsewhere in this
Annual Report on Form 10-K, in the documents incorporated herein by
reference, and in other documents filed by the Company with the
Securities and Exchange Commission.
Potential Fluctuations in Operating and Financial Results. The
Company's quarterly and annual operating results are affected by a
variety of factors that could materially and adversely affect
revenue, net income, gross profit, and profitability, including the
volume and timing of orders, changes in product mix, market
acceptance of the Company's and its customers' products, competitive
pricing pressures, fluctuations in foreign currency exchange rates,
economic conditions in the United States and international markets,
the timing of new product introductions, availability of wafers and
other materials and services, and fluctuations in manufacturing
yields. The Company has experienced significant fluctuations in the
past and may likely experience such fluctuations in the future. The
semiconductor market has historically been cyclical and subject to
significant economic downturns at various times. The semiconductor
industry experienced increased demand during 1995, and production
capacity limitations affected the industry's, including the
Company's, ability to meet that demand. During 1996, customer
demand for semiconductor devices declined significantly. Although
demand has increased again since 1996, it is uncertain what the
level of demand will be in the future for the industry and for the
Company's products. Historically, average selling prices in the
semiconductor industry have decreased over the life of particular
products. If the Company is unable to introduce new products with
higher average selling prices or is unable to reduce manufacturing
costs to offset decreases in the prices of its existing products,
the Company's operating results will be adversely affected. In
addition, the Company is limited in its ability to reduce costs
quickly in response to any revenue shortfalls.
Manufacturing Risks. The fabrication of integrated circuits is a
highly complex and precise process. Manufacturing yields can be
impacted by a variety of factors, many of which are outside the
Company's control. A large portion of the Company's manufacturing
costs are relatively fixed and consequently the number of shippable
die per wafer for a given product is critical to the Company's
results of operations. To the extent the Company does not achieve
acceptable manufacturing yields or experiences product shipment
delays, its financial condition, cash flows, and results of
operations would be materially and adversely affected. To meet
anticipated future demand and to utilize a broader range of
fabrication processes, the Company intends to increase its
manufacturing capacity at some future point. Although the Company
has internal capability to produce wafers for many of its products,
it is dependent on outside wafer fabs for a significant portion of
its wafer supply. As is typical in the semiconductor industry, from
time to time the Company has experienced disruptions in the supply
of processed wafers from external fabs due to quality and yield
problems and capacity constraints. If these outside wafer foundries
are not able to produce required supplies of processed wafers
conforming to the Company's quality standards, the Company's
business and relationships with its customers for the quantities of
products produced by these foundries could be adversely affected. In
addition, the Company relies on domestic and international
subcontractors to perform assembly, packaging, and testing services.
Disruption of these services could adversely affect the Company's
operations.
International Operations. The Company desires to continue to expand
its operations outside of the United States and to enter additional
international markets, which will require significant management
attention and financial resources and subject the Company further to
the risks of operating internationally. These risks include
unexpected changes in regulatory requirements, delays resulting from
difficulty in obtaining export licenses for certain technology,
tariffs, and other barriers and restrictions, and the burdens of
complying with a variety of foreign laws. The Company is also
subject to general geopolitical risks in connection with its
international operations, such as political and economic instability
and changes in diplomatic and trade relationships. In addition,
because most of the Company's international sales are denominated in
foreign currencies, gains and losses on the conversion to U.S.
dollars of accounts receivable, and accounts payable arising from
international operations may contribute to fluctuations in the
Company's operating results.
A substantial portion of the Company's revenue is attributable to
sales in Japan and Southeast Asia. Although the recent economic
instability in certain Asian countries has not yet had a significant
impact on the Company, there can be no assurance that this
instability will not have a material adverse effect on the Company's
business, financial condition, cash flows, or operating results,
particularly to the extent that this instability impacts the sales
of products manufactured by the Company's customers.
Reliance on Independent Sales Channels. A significant portion of
the Company's sales are conducted through independent sales
representatives and distributors. These independent organizations
typically represent product lines offered by other companies. In
the event these sales organizations reduced their sales efforts with
respect to the Company's products or terminated their relationship
with the Company, the Company's operations could be adversely
impacted until the Company was able to replace such resources.
Intellectual Property Protection. The Company's success depends in
part on its ability to obtain patents and licenses and to preserve
other intellectual property rights covering its manufacturing
processes, products, and development and testing tools. The Company
seeks patent protection for those inventions and technologies for
which it believes such protection is suitable and is likely to
provide a competitive advantage for the Company. The process of
seeking patent protection can be long and expensive and there can be
no assurance that its current patents or any new patents that may be
issued will be of sufficient scope or strength to provide any
meaningful protection or any commercial advantage to the Company.
The Company may in the future be subject to or initiate intellectual
property litigation in the United States or elsewhere, which can
demand significant financial and management resources.
As is common in the semiconductor industry, from time to time the
Company has been, and may in the future be notified of claims
regarding the possible infringement of patents issued to others and
that it may be infringing the intellectual property rights of third
parties. There can be no assurance that such infringement claims by
third parties will not be asserted in the future or that such
assertions, if proven to be true, will not materially adversely
effect the Company's business, financial condition, cash flows, or
operating results. Any litigation relating to the intellectual
property rights of third parties, whether or not determined in the
Company's favor or settled by the Company, would at a minimum be
costly and could divert the efforts and attention of the Company's
management and technical personnel, which could have a material
adverse effect on the Company's business, financial condition, cash
flows, or operating results.
Dependence on New Products and New Markets. The Company's success
depends upon its ability to develop new analog and mixed signal
products for existing and new markets, to introduce such products in
a timely manner and to have such products gain market acceptance.
The development of new products is highly complex, and from time to
time the Company has experienced delays in developing and
introducing new products. Successful product development and
introduction depends on a number of factors, including proper new
product definition, timely completion of design and testing of new
products, achievement of acceptable manufacturing yields, and market
acceptance of the Company's and its customers' products. Moreover,
successful product design and development is dependent on the
Company's ability to attract, retain, and motivate qualified analog
design engineers, of which there is a limited number. There can be
no assurance that the Company will be able to meet these challenges
or adjust to changing market conditions as quickly and cost-
effectively as necessary to compete successfully. Due to the
complexity and variety of products manufactured by the Company, the
limited number of analog circuit designers and the limited
effectiveness of computer-aided design systems in the design of
analog circuits, there can be no assurance that the Company will be
able to successfully develop and introduce new products on a timely
basis. Although the Company seeks to design products that have the
potential to become broadly accepted for high volume applications,
there can be no assurance that any products introduced by the
Company will achieve such market success. The Company's failure to
develop and introduce new products successfully could materially and
adversely affect its business and operating results. The Company has
targeted new markets in which it has relatively little experience,
including the market niches for wireless applications for the
communications industry, power management applications for the
computing industry, and CD-ROM, digital imaging, and PC sound
applications for the digital audio and video industry. There can be
no assurance that the Company's products will adequately meet the
requirements of such new markets, or that the Company's products
will achieve market acceptance.
Dependence on Key Personnel. The Company's success depends to a
significant extent upon the continued service of its executive
officers, key management, and technical personnel, particularly its
experienced analog design engineers, and on its ability to continue
to attract, retain, and motivate qualified personnel.
Competition. The semiconductor industry is intensely competitive and
is characterized by price erosion, rapid technological change,
product obsolescence, and heightened international competition in
many markets. Many of the Company's competitors have substantially
greater financial, technical, marketing, distribution, and other
resources, broader product lines, and longer standing relationships
with customers than the Company. In the event of a downturn in the
market for analog circuits, companies that have broader product
lines and longer standing customer relationships may be in a
stronger competitive position than the Company. Competitors with
greater financial resources or broader product lines also may have
more resources than the Company to engage in sustained price
reductions in the Company's primary markets to gain market share.
Year 2000 Compliance. Many existing computer programs use only two
digits to identify a year in a date field. These programs were
designed and developed without considering the impact of the Year
2000. The Company has recognized that solving the Year 2000 problem
is an issue to be addressed. However, the major operating internal
software systems of the Company are fairly new and therefore are
already Year 2000 compliant. A plan has been formulated to convert
other minor systems to be Year 2000 compliant. A majority of the
Company's vendors have been queried and the responses received
indicate that the vendors are compliant or will be by the Year 2000.
The rest of the evaluation by the Company has not been completed and
expected future costs cannot be estimated at this time. There can be
no assurance that Year 2000 compliance issues will not have an
adverse effect on the Company's future operating results.
ITEM 2. PROPERTIES
Burr-Brown has manufacturing and technical facilities in Tucson,
Arizona; Atsugi, Japan; and Livingston, Scotland. In 1994, Burr-
Brown established business units in these locations to bring greater
focus on their respective served markets and accelerate new product
development. The Company's major manufacturing and engineering
facilities and administrative offices are located in four company-
owned buildings, aggregating 220,000 square feet, on its 18 acre
site in Tucson, Arizona. The Company also leases approximately
88,800 square feet in Tucson. All of this leased space is on short
term contracts of two years or less. The major single building
lease is for 61,000 square feet and will expire in March 1999. The
aggregate current gross rental for all Tucson properties is
approximately $549,000 per year. The Company also owns approximately
113 acres of land in Tucson which is being held in reserve for
future expansion.
In Filderstadt, Germany, the Company's sales office occupies 30,000
square feet of space leased for a ten year period; this lease
expires in 1999. The Company has the option to sublease and renew
this lease for three to five years. The Company's Scottish
manufacturing subsidiary leases a 32,000 square foot building on
6.65 acres in Livingston, Scotland; this lease expires in 1999. The
Company also owns approximately 20 acres of land in Livington,
Scotland. The Company's Atsugi Technical Center in Atsugi, Japan, is
a 44,500 square foot building which houses sales, product testing,
and research and development activities; the Company has a fifteen
year lease on this facility which expires in 2001. Also, the Company
has other various sales offices that lease space under agreements
with varying maturities.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in legal proceedings of a
character normally incident to its business, including various
threatened and pending claims seeking damages from the Company. Such
incidental litigation includes claims related to employment,
environmental, personal injury, contract, product liability, and
intellectual property matters. The Company does not believe that an
adverse decision in any presently pending or threatened claim, or
any amounts it would be required to pay by reason thereof, would
have a material adverse effect on its financial condition, cash
flows, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security
holders during the quarter ended December 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
At December 31, 1997, there were 4 individuals designated as
executive officers by the Board of Directors. The following sets
forth certain information with regard to the two executive officers
of Burr-Brown who are not Directors:
J. Scott Blouin - Chief Financial Officer Age 47
Mr. Blouin is responsible for all aspects of worldwide financial
management for the Company, including Accounting, Treasury, and Tax.
He joined Burr-Brown in 1995 as Corporate Controller and was
promoted to CFO in 1996. Prior to that, he was employed for 17
years at Analog Devices where he held a series of increasingly more
senior positions in financial management. Mr. Blouin holds a BS
from the University of New Hampshire and an MBA from Wake Forest
University.
Kenneth G. Wolf - Executive Vice President Age 57
Mr. Wolf is responsible for Worldwide Operations for the Company,
including Fabrication and Technology Development, Assembly and Test
Operations, Materials Management, Quality, and Product Engineering.
He joined Burr-Brown in April 1997. Previously, he was Corporate
Vice President at Motorola from 1965 to 1987, President and CEO of
Synergy Semiconductor from 1987 to 1992, Vice President and General
Manager of Mass Storage and Logic Products at National Semiconductor
from 1993 to 1997. Mr. Wolf holds BS and MS degrees in electrical
engineering from the University of Wyoming and is a graduate of the
Motorola Executive Management Institute.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by reference
to the section entitled "Quarterly Market and Dividend Information"
in the 1997 Annual Report to Stockholders on page 26, which is
included as Exhibit 13 to this report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference
to the section entitled "Five Year Financial Summary" in the 1997
Annual Report to Stockholders on page 33, which is included as
Exhibit 13 to this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
The information required by this item is incorporated by reference
to the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 26 through
32 of the 1997 Annual Report to Stockholders, which is included as
Exhibit 13 to this report. Quantitative and qualitative disclosures
about market risk are not presented therein, as such guidance is not
yet applicable to the Company due to its market capitalization.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this
item appear in the 1997 Annual Report to Stockholders on pages 12
through 25, which is included as Exhibit 13 to this report and is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item for the Company's Directors is
incorporated by reference to the section entitled "Election of
Directors" on pages 4 and 5 in the Registrant's Proxy Statement for
the 1998 Annual Meeting of Stockholders. The information required by
this item for the other executive officers of the Company is
included at the end of Part I hereof under the caption "Executive
Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information, with respect to Executive Compensation, appearing
under the caption "Executive Compensation and Other Information" on
pages 6 through 10 of the Registrant's Proxy Statement for the 1998
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information appearing under the caption "Principal and
Management Stockholders" on pages 2 and 3 of the Registrant's Proxy
Statement for the 1998 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
a(1) Financial Statements:
The following consolidated financial statements are
incorporated by reference under Part II, Item 8, from the
Registrant's 1997 Annual Report to Stockholders:
PAGES OF 1997 ANNUAL
REPORT TO STOCKHOLDERS
INCORPORATED BY REFERENCE
Report of Ernst & Young LLP, Independent Auditors 25
Consolidated Statements of Income for the years ended
December 31, 1997, 1996, and 1995 12
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996,
and 1995 13
Consolidated Balance Sheets at December 31, 1997,
1996, and 1995 14
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995 15
Notes to Consolidated Financial Statements 16-24
a(2) Financial Statement Schedules for the years ended Form 10-K
December 31, 1997, 1996, and 1995: Page
Schedule II - Valuation and Qualifying Accounts 18
All other schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements.
a(3) Exhibits
3.1 Restated Certificate of Incorporation of the Registrant,
incorporated by reference as Exhibit 3.1 to the Registrant's
10-K filing for the period ended December 31, 1987. Amendment
of Restated Certificate of Incorporation dated May 15, 1996,
incorporated by reference as Exhibit 3.1 to Registrant's 10-K
filing for the period ended December 31, 1996.
3.2 Restated By-laws of the Registrant dated October 21,
1994, incorporated by reference as Exhibit 3.2 to the
Registrant's 10-K filing for the period ended December 31,
1994.
4.1 Rights Agreement dated July 21, 1989, between the
Registrant and Valley National Bank of Arizona, incorporated
by reference as Exhibit 4.2 to the Registrant's 10-K filing
for the period ended December 31, 1989.
9.1 Brown Management Limited Partnership Agreement dated
November 11, 1988, among Thomas R. Brown, Jr., Mary B. Brown
and Sarah B. Smallhouse, incorporated by reference as Exhibit
9.3 to the Registrant's 10-K filing for the period ended
December 31, 1988.
10.1 Registrant's Stock Bonus Plan. Incorporated by
reference as Exhibit 10.7 to the Registrant's 10-K filing for
the period ended December 31, 1987. Amendment thereof, dated
June 27, 1989, incorporated by reference as Exhibit 10.7 to
the Registrant's 10-K filing for the period ended December 31,
1989. Amendment to Registrant's Stock Bonus Plan, naming Syrus
P. Madavi as Co-trustee, dated August 18, 1996, incorporated
by reference as Exhibit 10.2 to Registrant's 10-K filing for
the period ended December 31, 1996.
10.2 Lease dated October 1, 1986, between Yugen Kaisha Kato
Shoji and Registrant, incorporated by reference as Exhibit
10.9 to the Registrant's 10-K filing for the period ended
December 31, 1986.
10.3 Lease dated February 28, 1985, between Livingston
Development Corporation and the Registrant as amended,
incorporated by reference as Exhibit 10.13 to the Registrant's
10-K filing for the period ended December 31, 1984.
10.4 Lease dated June 1, 1988, between EMBE Leasing Agency
Ltd. and Registrant. Translation only incorporated by
reference as Exhibit 10.19 to the Registrant's 10-K filing for
the period ended December 31, 1988.
10.5 Restated Burr-Brown Corporation Employee Retirement Plan
dated January 1, 1988, incorporated by reference as Exhibit
10.17 to the Registrant's 10-K filing for the period ended
December 31, 1994. Amendment to Employee Retirement Plan
dated July 18, 1996, incorporated by reference as Exhibit 10.9
to the Registrant's 10-K filing for the period ended December
31, 1996.
10.6 Consent Decree filed with the United States District Court
on March 13, 1990, between the United States of America on
behalf of the Administrator of the United States Environmental
Protection Agency (EPA) and Burr-Brown Corporation.
Incorporated by reference as Exhibit 10.32 to the Registrant's
10-K filing for the period ended December 31, 1991.
10.7 Trust Agreement for Future Investment Trust dated October
12, 1993, between Burr-Brown Corporation and Wells Fargo Bank,
N.A., incorporated by reference to Exhibit 10.37 of the
Registrant's 10-K filing for the period ended December 31,
1993.
10.8 Burr-Brown Corporation 1993 Stock Incentive Plan Amended and
Restated through February 16, 1996, incorporated by reference
to Exhibit 10.16 to the Registrant's 10-K filing for the
period ended December 31, 1996.
10.9 Future Investment Trust Plan Amended and Restated dated July
18, 1996, incorporated by reference as Exhibit 10.17 to the
Registrant's 10-K filing for the period ended December 31,
1996.
10.10 Burr Brown's Cash Profit Sharing Plan dated April 21, 1995,
incorporated by reference to Exhibit 10.18 of the Registrant's
10-K filing for the period ended December 31, 1995.
10.11 Loan Agreement dated January 31, 1996, between Burr-Brown
Corporation and Wells Fargo Bank, N.A., incorporated by reference to
Exhibit 10.19 of the Registrant's 10-K filing for the period ended
December 31, 1995. Amendment to Loan Agreement dated November 15,
1996, incorporated by reference as Exhibit 10.19 to Registrant's 10-
K filing for the period ended December 31, 1996. Amendment to Loan
Agreement dated December 21, 1997, filed herein.
13. Portions of the Annual Report to Stockholders for the year
ended December 31, 1997
are expressly incorporated by reference to the Annual
Report Form 10-K, filed herein.
21. Subsidiaries of the Registrant, filed herein.
23. Consent of Ernst & Young LLP, Independent Auditors, filed
herein.
24. Power of Attorney, filed herein.
27. Financial Data Schedules, filed herein.
b. No reports on Form 8-K have been filed during the fourth quarter
of 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BURR-BROWN CORPORATION
Registrant
By: SYRUS P. MADAVI Date: March 27, 1998
Syrus P. Madavi
President and Chief Executive Officer
J. SCOTT BLOUIN Date: March 27, 1998
J. Scott Blouin
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Syrus P. Madavi or J. Scott
Blouin, his attorney-in-fact, with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report
on Form 10-K, and to file the same, with the exhibits thereto and
other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the Requirements of the Securities and Exchange Act of
1934 this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Name Title Date
SYRUS P. MADAVI President and Chief March 27, 1998
Syrus P. Madavi Executive Officer
J. SCOTT BLOUIN Chief Financial Officer March 27, 1998
J. Scott Blouin
THOMAS R. BROWN, Jr. Chairman of the Board March 27, 1998
Thomas R. Brown, Jr.
FRANCIS J. AGUILAR Director March 27, 1998
Francis J. Aguilar
JOHN S. ANDEREGG, Jr.Director March 27, 1998
John S. Anderegg, Jr.
MARCELO A. GUMUCIO Director March 27, 1998
Marcelo A. Gumucio
BURR-BROWN CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of dollars)
Years Ended December 31, 1997, 1996, And 1995
COL. A COL. B COL. C COL. D COL. F
Additions Deductions
Balance at Charges & Currency Balance
Beginning To Costs Translation At End
Classification Of Period & Expenses Effect (1) Of Period
1997
Allowance for
Doubtful Accounts $1,081 $125 $(181) $1,025
1996
Allowance for
Doubtful Accounts $1,346 $45 $(310) $1,081
1995
Allowance for
Doubtful Accounts $870 $479 $(3) $1,346
(1) Uncollectible accounts written off, net of recoveries.
Note: Column E - Other is zero
EXHIBIT 21
BURR-BROWN CORPORATION AND SUBSIDIARIES
JURISDICTION
NAME OF CORPORATION OF INCORPORATION
1. Burr-Brown International Holding Corporation Delaware
2. Burr-Brown Europe Limited United Kingdom
3. Burr-Brown Japan Limited Japan
4. Burr-Brown International S.A. France
5. Burr-Brown International S.R.L. Italy
6. Burr-Brown International BV The Netherlands
7. Burr-Brown International GmbH Germany
8. Burr-Brown AG Switzerland
9. Burr-Brown Foreign Sales Corporation Barbados
10.Burr-Brown Pte Ltd Singapore
11.Burr-Brown Ltd. Cayman Islands
12.Intelligent Instrumentation, Inc. Arizona
13.Intelligent Instrumentation GmbH Germany
14.Intelligent Instrumentation S.R.L. Italy
15.Intelligent Instrumentation S.A. France
16.Intelligent Instrumentation, Inc.
Foreign Sales Corporation Barbados
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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Exhibit 27 - 1997 Financial Data Schedule
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<SECURITIES> 44,767 50,944 43,738
<RECEIVABLES> 55,689 39,546 55,173
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<INVENTORY> 44,533 49,570 47,852
<CURRENT-ASSETS> 172,548 153,528 196,243
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0 0 0
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<CGS> 125,075 109,228 138,257
<TOTAL-COSTS> 125,075 109,228 138,257
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<LOSS-PROVISION> 125 45 479
<INTEREST-EXPENSE> 448 700 1,131
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<INCOME-TAX> 13,998 10,160 10,805
<INCOME-CONTINUING> 32,662 29,684 29,212
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
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1997 Financial Data Schedule (Q3 Restated)
<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-28-1997 SEP-27-1997
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<SECURITIES> 43,960 41,060
<RECEIVABLES> 53,704 58,936
<ALLOWANCES> 961 937
<INVENTORY> 56,617 50,176
<CURRENT-ASSETS> 155,698 167,924
<PP&E> 163,604 171,315
<DEPRECIATION> 89,987 92,313
<TOTAL-ASSETS> 273,150 290,719
<CURRENT-LIABILITIES> 53,897 63,320
<BONDS> 0 0
0 0
0 0
<COMMON> 252 253
<OTHER-SE> 214,383 223,084
<TOTAL-LIABILITY-AND-EQUITY> 273,150 290,719
<SALES> 117,277 183,205
<TOTAL-REVENUES> 117,277 183,205
<CGS> 58,637 91,306
<TOTAL-COSTS> 58,637 91,306
<OTHER-EXPENSES> 15,733 24,500
<LOSS-PROVISION> 19 19
<INTEREST-EXPENSE> 215 323
<INCOME-PRETAX> 20,456 32,676
<INCOME-TAX> 6,137 9,803
<INCOME-CONTINUING> 14,319 22,873
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,319 22,873
<EPS-PRIMARY> 0.40 0.64
<EPS-DILUTED> 0.38 0.60
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CAPTION>
1997 Financial Data Schedule (Q2 Restated)
<S> <C> <C>
<PERIOD-TYPE> 3-MOS-Restated 6-MOS-Restated
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-29-1997 JUN-28-1997
<CASH> 37,340 32,523
<SECURITIES> 42,032 43,960
<RECEIVABLES> 45,144 53,704
<ALLOWANCES> 919 961
<INVENTORY> 56,016 56,617
<CURRENT-ASSETS> 147,935 155,698
<PP&E> 156,194 163,604
<DEPRECIATION> 86,021 89,987
<TOTAL-ASSETS> 262,899 273,150
<CURRENT-LIABILITIES> 52,178 53,897
<BONDS> 0 0
0 0
0 0
<COMMON> 250 252
<OTHER-SE> 204,662 214,383
<TOTAL-LIABILITY-AND-EQUITY> 262,899 273,150
<SALES> 54,772 117,277
<TOTAL-REVENUES> 54,772 117,277
<CGS> 27,400 58,637
<TOTAL-COSTS> 27,400 58,637
<OTHER-EXPENSES> 7,270 15,733
<LOSS-PROVISION> 20 19
<INTEREST-EXPENSE> 102 215
<INCOME-PRETAX> 9,388 20,456
<INCOME-TAX> 2,816 6,137
<INCOME-CONTINUING> 6,572 14,319
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,572 14,319
<EPS-PRIMARY> 0.18 0.40
<EPS-DILUTED> 0.17 0.38
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CAPTION>
1997 Financial Data Schedule (Q1 Restated)
<S> <C>
[PERIOD] 3-MOS-Restated
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-29-1997
<CASH> 37,340
<SECURITIES> 42,032
<RECEIVABLES> 45,144
<ALLOWANCES> 919
<INVENTORY> 56,016
<CURRENT-ASSETS> 147,935
<PP&E> 156,194
<DEPRECIATION> 86,021
<TOTAL-ASSETS> 262,899
<CURRENT-LIABILITIES> 52,178
<BONDS> 0
0
0
<COMMON> 250
<OTHER-SE> 204,662
<TOTAL-LIABILITY-AND-EQUITY> 262,899
<SALES> 54,772
<TOTAL-REVENUES> 54,772
<CGS> 27,400
<TOTAL-COSTS> 27,400
<OTHER-EXPENSES> 7,270
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> 9,388
<INCOME-TAX> 2,816
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,572
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CAPTION>
Exhibit 27.1 - 1996 Financial Data Schedule (Restated)
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR-RestatedYEAR-RestatedYEAR-Restated
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1996 DEC-31-1995 DEC-31-1994
<EXCHANGE-RATE> 1 1 1
<CASH> 38,433 42,477 9,925
<SECURITIES> 43,738 0 0
<RECEIVABLES> 39,546 55,173 39,642
<ALLOWANCES> 1,081 1,346 870
<INVENTORY> 49,570 47,852 40,092
<CURRENT-ASSETS> 153,528 196,243 92,172
<PP&E> 151,497 127,449 113,968
<DEPRECIATION> 83,967 76,075 68,072
<TOTAL-ASSETS> 261,588 252,249 143,008
<CURRENT-LIABILITIES> 55,614 66,335 46,549
<BONDS> 0 0 0
<COMMON> 166 165 97
0 0 0
0 0 0
<OTHER-SE> 199,240 178,980 87,525
<TOTAL-LIABILITY-AND-EQUITY> 261,588 252,249 143,008
<SALES> 219,997 269,162 194,196
<TOTAL-REVENUES> 219,997 269,162 194,196
<CGS> 109,228 138,257 106,242
<TOTAL-COSTS> 109,228 138,257 106,242
<OTHER-EXPENSES> 80,654 90,370 77,427
<LOSS-PROVISION> 45 479 690
<INTEREST-EXPENSE> 700 1,131 1,725
<INCOME-PRETAX> 39,844 40,017 8,291
<INCOME-TAX> 10,160 10,805 1,826
<INCOME-CONTINUING> 29,684 29,212 6,465
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 29,684 29,212 6,465
<EPS-PRIMARY> .82 .87 .20
<EPS-DILUTED> .79 .83 .20
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CAPTION>
1996 Financial Data Schedule (Q3 Restated)
<S> <C> <C>
<PERIOD-TYPE> 6-MOS-Restated 9-MOS-Restated
<FISCAL-YEAR-END> DEC-31-1996 DEC-31,1996
<PERIOD-END> JUN-29-1996 SEP-28-1996
<CASH> 73,086 66,268
<SECURITIES> 19,888 24,044
<RECEIVABLES> 47,649 43,398
<ALLOWANCES> 1,333 1,450
<INVENTORY> 48,027 48,363
<CURRENT-ASSETS> 201,665 195,202
<PP&E> 136,090 140,933
<DEPRECIATION> 79,088 82,358
<TOTAL-ASSETS> 262,462 257,848
<CURRENT-LIABILITIES> 66,620 58,464
<BONDS> 0 0
0 0
0 0
<COMMON> 166 166
<OTHER-SE> 189,216 192,846
<TOTAL-LIABILITY-AND-EQUITY> 262,462 257,848
<SALES> 119,355 169,464
<TOTAL-REVENUES> 119,355 169,464
<CGS> 58,924 83,941
<TOTAL-COSTS> 58,924 83,941
<OTHER-EXPENSES> 43,526 62,115
<LOSS-PROVISION> (35) 34
<INTEREST-EXPENSE> 370 502
<INCOME-PRETAX> 25,285 32,746
<INCOME-TAX> 7,080 8,841
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 18,205 23,905
<EPS-PRIMARY> .50 .66
<EPS-DILUTED> .48 .64
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CAPTION>
1996 Financial Data Schedule (Q2 Restated)
<S> <C> <C>
<PERIOD-TYPE> 3-MOS-Restated 6-MOS-Restated
<FISCAL-YEAR-END> DEC-31-1996 DEC-31,1996
<PERIOD-END> MAR-30-1996 JUN-29-1996
<CASH> 29,838 73,086
<SECURITIES> 63,971 19,888
<RECEIVABLES> 49,150 47,649
<ALLOWANCES> 1,398 1,333
<INVENTORY> 49,358 48,027
<CURRENT-ASSETS> 201,077 201,665
<PP&E> 127,020 136,090
<DEPRECIATION> 76,405 79,088
<TOTAL-ASSETS> 255,523 262,462
<CURRENT-LIABILITIES> 64,812 66,620
<BONDS> 0 0
0 0
0 0
<COMMON> 166 166
<OTHER-SE> 184,897 189,216
<TOTAL-LIABILITY-AND-EQUITY> 255,523 262,462
<SALES> 61,174 119,355
<TOTAL-REVENUES> 61,174 119,355
<CGS> 30,497 58,924
<TOTAL-COSTS> 30,497 58,924
<OTHER-EXPENSES> 22,172 43,526
<LOSS-PROVISION> 57 (35)
<INTEREST-EXPENSE> 198 370
<INCOME-PRETAX> 16,108 25,285
<INCOME-TAX> 4,510 7,080
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,598 18,205
<EPS-PRIMARY> .32 .50
<EPS-DILUTED> .30 .48
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CAPTION>
1996 Financial Data Schedule (Q1 Restated)
<S> <C>
[PERIOD] 3-MOS-Restated
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-30-1996
<CASH> 29,838
<SECURITIES> 63,971
<RECEIVABLES> 49,150
<ALLOWANCES> 1,398
<INVENTORY> 49,358
<CURRENT-ASSETS> 201,077
<PP&E> 127,020
<DEPRECIATION> 76,405
<TOTAL-ASSETS> 255,523
<CURRENT-LIABILITIES> 64,812
<BONDS> 0
0
0
<COMMON> 166
<OTHER-SE> 184,897
<TOTAL-LIABILITY-AND-EQUITY> 255,523
<SALES> 61,174
<TOTAL-REVENUES> 61,174
<CGS> 30,497
<TOTAL-COSTS> 30,497
<OTHER-EXPENSES> 22,172
<LOSS-PROVISION> 57
<INTEREST-EXPENSE> 198
<INCOME-PRETAX> 16,108
<INCOME-TAX> 4,510
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,598
<EPS-PRIMARY> .32
<EPS-DILUTED> .30
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CAPTION>
Exhibit 27.2 - 1995 Financial Data Schedule (Restated)
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR-Restated YEAR-Restated YEAR-Restated
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1993
<EXCHANGE-RATE> 1 1 1
<CASH> 42,477 9,925 13,066
<SECURITIES> 0 0 0
<RECEIVABLES> 55,173 39,642 34,822
<ALLOWANCES> 1,346 870 807
<INVENTORY> 47,852 40,092 44,036
<CURRENT-ASSETS> 196,243 92,172 95,026
<PP&E> 127,449 113,968 101,049
<DEPRECIATION> 76,075 68,072 58,622
<TOTAL-ASSETS> 252,249 143,008 142,062
<CURRENT-LIABILITIES> 66,335 46,549 45,570
<BONDS> 0 0 0
<COMMON> 165 97 97
0 0 0
0 0 0
<OTHER-SE> 178,980 87,525 79,454
<TOTAL-LIABILITY-AND-EQUITY>252,249 143,008 142,062
<SALES> 269,162 194,196 168,577
<TOTAL-REVENUES> 269,162 194,196 168,577
<CGS> 138,257 106,242 86,975
<TOTAL-COSTS> 138,257 106,242 86,975
<OTHER-EXPENSES> 90,370 77,427 73,817
<LOSS-PROVISION> 479 690 807
<INTEREST-EXPENSE> 1,131 1,725 2,338
<INCOME-PRETAX> 40,017 8,291 4,547
<INCOME-TAX> 10,805 1,826 1,730
<INCOME-CONTINUING> 29,212 6,465 2,817
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 29,212 6,465 2,817
<EPS-PRIMARY> .87 .20 .09
<EPS-DILUTED> .83 .20 .09
</TABLE>
Exhibit 13 - Annual Report
<TABLE>
<CAPTION>
Financial Highlights
(In thousands, except per share amounts)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Revenue $252,102 $219,997 $269,162* $194,196 $168,577
Income From $43,568 $30,115 $40,535 $10,527 $7,785
Operations
Net Income $32,662 $29,684 $29,212* $6,465 $2,817
Diluted $0.86 $0.79 $0.83 $0.20 $0.09
Earnings Per
Share
Return On 14% 15% 16% 7% 4%
Equity
<FN>
*Includes $26 million revenue and $1.14 million of net income from a
subsidiary that was sold in 1st Quarter 1996.
</TABLE>
Corporate Profile
Burr-Brown Corporation designs, manufactures, and markets a broad
line of analog and mixed-signal integrated circuits used in the
processing of real-world electronic signals. These products are used
in a wide range of markets and applications, including industrial
and process control, telecommunications, test and measurement,
medical and scientific instrumentation, medical imaging, digital
audio and video, personal computing and multimedia.
Burr-Brown's product strategy is to design innovative, proprietary
products which bring a very high level of functional value to our
customers' applications. There are currently over 1200 products in
our portfolio. We produce both standard products which are used in a
broad range of applications, and specially developed products
optimally suited for emerging, fast growth, target applications such
as audio signal processing and broadband communications.
Burr-Brown's product lines include analog-to-digital converters,
digital-to-analog converters, operational amplifiers,
instrumentation amplifiers, programmable gain amplifiers, isolation
amplifiers, DC-to-DC converters, voltage references, regulators,
voltage-to-frequency converters, opto-electronic amplifiers, as well
as application specific products which integrate many of these
standard product functions. Our products are manufactured using a
variety of semiconductor processes including bipolar, complementary
bipolar, BiCMOS, and CMOS with lithography requirements down to the
0.5 micron level.
We distribute our products worldwide through our direct sales force,
independent sales representatives and third-party distributors. Burr-
Brown maintains sales offices throughout the United States and
international sales subsidiaries in France, Germany, Italy, the
Netherlands, Switzerland, the United Kingdom, Japan, and Singapore.
Through these sales channels, our products reach over 25,000
customers worldwide. Sales are divided evenly throughout the world,
with approximately one third coming from the United States, one
third from Europe, and the remainder from Japan and the Southeast
Asian region.
The Company employs over 1,300 people worldwide with manufacturing
and technical facilities located in Tucson, Arizona; Atsugi, Japan;
and Livingston, Scotland. Corporate headquarters are located in
Tucson, Arizona. The Company was incorporated in 1956. Burr-Brown
stock is traded on the NASDAQ exchange under the symbol: BBRC.
To Our Shareholders
1997 was a record year for Burr-Brown in a number of significant
ways. It was the most profitable year in the Company's history. A
record number of new products were introduced for the third
consecutive year. We continued to strengthen our presence in our
served markets and were able to achieve higher efficiencies and to
expand capabilities in manufacturing and sales channels.
Consequently, Burr-Brown is very well positioned for 1998 and
beyond.
Financial Highlights
For the year, revenue of $252.1 million resulted in a record $32.7
million in net income. As compared to the prior year, 1997 net
income increased by 34.2% on revenue growth of 16.2% when excluding
the net gain and revenue from a subsidiary divested in 1996.
The following table represents a graph which has been omitted for the
electronic filing.
1994 1995 1996 1997
New Product
Introductions 28 38 65 79
Moreover, we reported sequential gains in both revenue and profits
throughout the year. This was accomplished as other key financial
ratios such as gross margin and sales, marketing, and general
administrative expenses as a percent of revenue continued to
improve. We also increased our research and development investment
by more than 19% over the previous year. Burr-Brown's balance sheet
position continues to be solid with cash and investment balances
increasing to over $99 million and stockholders' equity increasing
by 17.8% to $234.9 million at year end.
Positioning for Growth
In positioning Burr-Brown for growth, 79 new products were
introduced in 1997. These products, along with the products
introduced during the prior year, are being well received by
customers and we have been able to secure a record number of
significant design-wins. Many of these products target emerging
applications for which high performance signal processing integrated
circuits (ICs) are absolutely required and yet the cost of these ICs
must be low in order to enable larger end-market sales volumes. By
offering high performance signal processing ICs at an effective
price, Burr-Brown has been able to partner with many fast-growing
companies to address emerging applications.
We believe this strategy to bring high performance to high volume
applications is compelling and will fuel the end-market demand.
Served Markets
Even though Burr-Brown has traditionally enjoyed a well diversified
customer base, it has been our objective to further diversify our
markets by penetrating the communications market, one of the fastest
growing markets served by the Company. To this end, 1997 was a year
of significant progress and focus on wireless communications and
wired broadband communications is bearing results.
The following table represents a graph which has been omitted for
the electronic filing.
Revenue From Communications Market
1994 1997
Communications 6% 20%
Other Markets 94% 80%
During 1997, our revenue contribution from communications applications
increased to 20% of total revenue, up from only 6% in 1994. At the same
time, we have continued to strengthen our market position in industrial
and process control, test and instrumentation, and digital audio and
video by addressing emerging applications such as motor control,
smart sensors, digital cameras, scanners, camcorders, and DVD
players.
Outlook
As we look ahead, we remain optimistic that 1998 will be another
excellent year for Burr-Brown. Demand for our standard linear ICs
(SLICs) continues to be very strong and many of the design-wins
secured previously, will start production volumes in 1998.
Additionally, as we continue to focus on emerging markets requiring
application specific standard products (ASSPs), we expect to further
accelerate revenue growth. We also expect our new product
development effort will continue to gather momentum. These trends,
coupled with our continuing internal initiatives to improve cost and
manufacturing efficiencies, will provide additional opportunities to
expand revenue and profit margin. Finally, having the very best
group of employees in the industry, Burr-Brown is blessed with
capabilities that will help bring increasingly better results in
1998 and beyond.
We thank you, our shareholders, for your support.
Focus on New Products
Based on over four decades of experience, Burr-Brown has earned a
highly respected reputation for offering innovative, high
performance components for processing real-world signals. More
recently, Burr-Brown has established itself as a supplier of high
performance analog and mixed-signal semiconductor components to cost
sensitive, fast growing applications.
Analog and mixed-signal products, as compared to digital devices,
are characterized by broad product lines, a high proportion of
proprietary designs, relatively stable pricing and extended product
life cycles. These factors combine to give the Company a stable
foundation for revenue and income.
Building on this foundation, Burr-Brown is leveraging its
engineering, technology, and marketing expertise to develop new,
high performance products for high volume, large market
applications, thereby accelerating its growth.
Setting a new annual record for the third consecutive year, 79 new
products were introduced in 1997. The majority of new products are
Standard Linear Integrated Circuits (SLICs), which are utilized by a
wide variety of customers and applications, and give Burr-Brown a
diversified and stable base business. Also introduced are an
increasingly higher number of Application Specific Standard Products
(ASSPs) which focus on high volume applications. Examples are high
speed, high resolution mixed-signal components designed to interface
directly to digital video cameras and analog front ends that
integrate all analog signal processing circuitry needed onto a
single chip, making it possible to communicate at high speed over
existing copper wire telephone infrastructure. In many instances,
these products represent the enabling technology for the development
of large and rapidly growing new market segments. By virtue of their
market potential, the Company believes that ASSPs will continue to
be an increasingly greater source of revenue thereby accelerating
growth potential.
As a result of this dramatic gain in new product introductions, an
increasing proportion of the Company's revenues are derived from new
products that serve the fastest growing segments of the electronics
industry, particularly applications for the communications,
computing, and digital audio and video markets. Nearly half of Burr-
Brown's 1997 revenue is derived from new products introduced in the
last 5 years, up 20% over last year and nearly 70% higher than 1995.
By offering innovative and cost effective solutions to challenging
signal processing problems, Burr-Brown both satisfies customer
requirements and provides the enabling technology that allows a
market opportunity to develop. Incorporating high performance into
high volume applications, the Company will take full advantage of
the potential that exists in the markets which offer great volume
elasticity.
Three page foldout with photographs of products representing key
Burr Brown markets presented here.
Enabling New Technologies, Creating Large Market Opportunities
Burr-Brown is providing its customers higher performance at lower
cost, thus enabling new technologies to evolve into large market
opportunities. The result is potential for growth similar to what
was experienced in 1997 with the emergence of several high growth
products and customer applications.
High-Speed Access to Internet
In 1997, a significant new communications technology emerged-
digital subscriber line (DSL). DSL holds promise of revolutionizing
telecommunications by transmitting data at high speed over standard
phone lines.
Companies such as Adtran, Pairgain, and Paradyne introduced systems
that transform regular copper wire telephone lines and on-site
wiring into a unified, high-speed network at low cost. These systems
enable data transmission speeds, both downstream and upstream, of
more than 25 times the speed of today's industry-standard 28.8
kilobytes-per-second modem for high-speed network access, video-
conferencing and Internet access.
Burr-Brown collaborated with these communications companies to
create a system-level analog signal processor. In one application, a
single Burr-Brown AFE chip replaces more than 18 integrated circuits
and dozens of passive components. Providing the high level of system
performance demanded in digital network access, Burr-Brown's analog
front end chip lowers power consumption, dramatically shrinks board
space, and reduces overall system cost.
Touch Screen Control
for Personal Digital Assistants (PDAs)
Another example of enabling technology creating mass-market
potential is the mixed-signal product Burr-Brown designed in
conjunction with a large manufacturer of handheld PDAs. Burr-Brown
provides a highly integrated IC that not only performs the signal
conversion, but also provides the transistor drivers required to
supply power to the touch screen. The component replaces several
circuit devices while increasing the resolution for reading screen
location and reducing the power requirement-critical in battery-
powered products.
Signal Processing for Digital Cameras
Working with a major Japanese consumer electronics company, Burr-
Brown developed a complete signal processing solution for a battery-
powered video camera. This mixed-signal IC provides all necessary
circuitry for fast video signal conditioning and high-resolution,
analog-to-digital signal conversion. To the camera designer, this
means a simple single chip solution at a lower overall system cost;
to the consumer, it means improved video and longer battery life.
Home Theater Audio
The emergence of Digital Versatile Disc (DVD) has enhanced the
quality of both television picture and sound. In conjunction with
several major manufacturers of consumer electronics, Burr-Brown
developed products that provide the circuitry and signal output
necessary to drive a surround sound home theater system. To the
system's designer, this means fewer components at less cost; to the
consumer, it means lifelike sound in the living room.
These examples demonstrate Burr-Brown's ability to integrate
multiple, complex, mixed-signal functions onto a single chip. By
increasing functionality while reducing cost, Burr-Brown's
engineering and technology expertise has enabled the introduction of
high performance low-cost products for mass-market applications,
thus opening new market opportunities for Burr-Brown and its
customers.
Focus on Strategic Markets
As part of its focus on high performance, high-volume analog and
mixed-signal products, Burr-Brown has concentrated development
efforts on five key markets determined to provide the largest growth
opportunities in coming years.
Industrial and Process Control
This is a traditional Burr-Brown market with a broad range of
applications requiring the acquisition and conditioning of `real-
world' signals from sensors and conversion to the digital domain.
This market accounted for the largest percentage of Burr-Brown's
revenues in 1997.
Test and Instrumentation
This diverse market requires extensive sensor interface and data
conversion solutions. Three key segments are medical, analytical,
and automatic test equipment. New demands for lower power, higher
speed, and smaller size drive the design of Burr-Brown's newer, high
performance products.
Communications
Targeting two of the fastest growing sectors, wireless basestations
and wired broadband applications, Burr-Brown's communications sales
grew rapidly in 1997. Explosive growth is anticipated in Personal
Communications Service (PCS), Digital Subscriber Line (DSL), and
wireless applications.
Digital Video and Audio
An acknowledged leader in this dynamic market largely focused on
digital-to-analog and analog-to-digital signal conversion, Burr-
Brown serves the premier audio and video consumer and professional
product manufacturers worldwide.
Computing and Multimedia
This market is growing rapidly and is the largest served by the
Company. Key products facilitate the expanding functionality of
personal computers, particularly addressing the requirement for CD-
quality sound in multimedia systems and the diverse and increasingly
more complex needs of power management.
Consolidated Statements of Income
Burr-Brown Corporation and Subsidiaries-In thousands, except per
share amounts
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Net revenue $252,102 $219,997 $269,162
Cost of goods sold 125,075 109,228 138,257
Gross margin 127,027 110,769 130,905
% of revenue 50% 50% 49%
Expenses:
Research and development 33,951 28,452 25,733
% of revenue 13% 13% 10%
Sales, marketing, general,
and administrative 49,508 52,202 64,637
% of revenue 20% 24% 24%
Total operating expenses 83,459 80,654 90,370
% of revenue 33% 37% 34%
Income from operations 43,568 30,115 40,535
% of revenue 17% 14% 15%
Interest expense 448 700 1,131
Gain from sale of subsidiary (7,180)
Other income (3,540) (3,249) (613)
Income before income taxes 46,660 39,844 40,017
% of revenue 19% 18% 15%
Provision for income taxes 13,998 10,160 10,805
Effective tax rate 30% 25% 27%
Net income $32,662 $29,684 $29,212
% of revenue 13% 13% 11%
Basic earnings per common share $.91 $.82 $.87
Shares used in basic per share
calculation 36,054 36,003 33,500
Diluted earnings per common share $.86 $.79 $.83
Shares used in diluted per share
calculation 37,935 37,510 35,315
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
Consolidated Statements of Changes in Stockholders' Equity
Burr-Brown Corporation and Subsidiaries-In thousands
<TABLE>
<CAPTION>
Additional Cumulative
Common Stock Paid-In Retained Translation
Shares Amount Capital Earnings Adjustment
<S> <C> <C> <C> <C> <C>
Balance at
January
1, 1995 9,714 $97 $26,400 $58,842 $3,504
Net income 29,212
Foreign currency
translation
adjustment (342)
Stock split at
three-for-two 4,859 37 (37)
Stock options
exercised 213 13 2,094
Stock offering 1,750 18 61,195
Treasury stock
acquired
Affiliate's
stock activity 46 (253)
Balance at
December 31,
1995 16,536 165 89,698 87,801 3,162
Net income 29,684
Foreign currency
translation
adjustment (281)
Stock options
exercised 78 1 628
Treasury stock
acquired
Affiliate's
stock activity (18)
Balance at
December 31,
1996 16,614 166 90,326 117,467 2,881
Net income 32,662
Foreign currency
translation
adjustment (1,693)
Stock split at
three-for-two 8,343 84 (84)
Stock options
exercised 366 3 4,664
Treasury stock
acquired
Affiliate's
stock activity (214)
Unrealized gain
on investments
Announced stock
split at three-
for-two 12,662 127 (127)
Balance at
December 31,
1997 37,985 $380 $94,779 $149,915 $1,188
</TABLE>
Changes in Stockholders' Equity - Continued
<TABLE>
<CAPTION>
Unrealized
Treasury Stock Gain on
Shares Amount Investments Total
<S> <C> <C> <C> <C>
Balance at
January 1, 1995 145 $(1,221) $87,622
Net income 29,212
Foreign currency
translation
adjustment (342)
Stock split at
three-for-two 81
Stock options
exercised 2,107
Stock offering 61,213
Treasury stock 26 (460) (460)
acquired
Affiliate's
stock activity (207)
Balance at
December 31,
1995 252 (1,681) 179,145
Net income 29,684
Foreign currency
translation
adjustment (281)
Stock options
exercised 629
Treasury stock
acquired 492 (9,753) (9,753)
Affiliate's
stock activity (18)
Balance at
December 31,
1996 744 (11,434) 199,406
Net income 32,662
Foreign currency
translation
adjustment (1,693)
Stock split at
three-for-two 373
Stock options
exercised 4,667
Treasury stock
acquired 3 (105) (105)
Affiliate's
stock activity (214)
Unrealized gain
on investments 193 193
Announced stock
split at three-
for-two 560
Balance at
December 31,
1997 1,680 $(11,539) $193 $234,916
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
Consolidated Balance Sheets
Burr-Brown Corporation and Subsidiaries-In thousands
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $54,284 $38,433 $42,477
Short-term investments 14,407 43,738
Trade receivables 55,689 39,546 55,713
Inventories 44,533 49,570 47,852
Deferred income taxes 7,973 6,705 3,273
Other 10,069 4,867 3,190
Total Current Assets 172,548 153,528 196,243
Long-Term Investments 44,767 36,537
Land, Buildings, and Equipment
Land 3,418 3,427 3,393
Buildings and improvements 25,690 25,344 23,294
Equipment 145,411 122,726 100,812
174,519 151,497 127,499
Less accumulated depreciation (95,053) (83,967) (76,075)
79,466 67,530 51,424
Other Assets 2,607 3,993 4,582
$299,388 $261,588 $252,249
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $9,991 $14,533 $17,904
Accounts payable 18,203 17,641 17,359
Accrued expenses 4,678 3,568 8,703
Accrued employee compensation
and payroll taxes 9,299 8,194 8,929
Deferred profit from distributors 8,318 7,462 6,198
Income taxes payable 7,370 3,129 6,092
Current portion of long-term debt 672 1,087 1,150
Total Current Liabilities 58,531 55,614 66,335
Long-Term Debt 1,482 1,830 1,808
Deferred Gain 1,122 2,619
Deferred Income Taxes 3,774 1,709 159
Other Long-Term Liabilities 685 1,907 2,183
Commitments
Stockholders' Equity
Preferred stock, $.01 par
value-authorized 2,000 shares:
none issued or outstanding
Common stock, $.01 par value-
authorized 80,000 shares; issued
and outstanding, including treasury
shares: 1997-37,985 shares, 1996-37,381
shares, 1995-37,206 shares 380 166 165
Additional paid-in capital 94,779 90,326 89,698
Retained earnings 149,915 117,467 87,801
Equity adjustment from foreign
currency translation 1,188 2,881 3,162
Unrealized gain on investments 193
Treasury stock, at cost: 1997-1,680
shares, 1996-1,674 shares,
1995-567 shares (11,539) (11,434) (1,681)
234,916 199,406 179,145
$299,388 $261,588 $252,249
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
Consolidated Statements of Cash Flows
Burr-Brown Corporation and Subsidiaries-In thousands
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Operating Activities
Net Income $32,662 $29,684 $29,212
Adjustments to Reconcile
Net Income to Net Cash Provided by
Operating Activities:
Depreciation and amortization 13,834 13,272 12,712
Amortization of deferred gain (1,122) (1,497) (1,497)
Provision for (benefit from)
deferred income taxes 589 (1,908) (3,983)
Increase in deferred profit
from distributors 856 1,264 4,406
Gain from sale of subsidiary (7,180)
Other 418 (129) 778
Changes in Operating Assets and Liabilities:
(Increase) decrease in
trade receivables (19,368) 10,969 (17,256)
(Increase) decrease
in inventories 3,781 (5,482) (8,223)
(Increase) decrease in
other assets (4,266) (2,400) (561)
Increase (decrease) in
accounts payable 1,264 2,341 5,269
Increase (decrease) in accrued
expenses and other liabilities 6,376 (7,921) 10,072
Net Cash Provided by Operating
Activities 35,024 31,013 30,929
Investing Activities
Purchases of investments (103,484) (50,944) (43,738)
Maturities of investments 109,979 43,738
Purchases of land, buildings,
and equipment (25,637) (31,919) (17,574)
Proceeds from sale of equipment 85 415 191
Proceeds from sale of subsidiary 12,804
Net Cash Used In
Investing Activities (19,057) (25,906) (61,121)
Financing Activities
Proceeds from short-term and
long-term borrowings 770 1,374
Payments on short-term and
long-term borrowings (4,348) (1,160) (1,681)
(Payments for) proceeds from
capital stock activity, net 4,343 (9,142) 62,653
Net Cash (Used In) Provided
by Financing Activities (5) (9,532) 62,346
Effect of exchange rate changes
on cash and cash equivalents (111) 381 398
Increase (Decrease) in Cash and
Cash Equivalents 15,851 (4,044) 32,552
Cash and cash equivalents at
beginning of year 38,433 42,477 9,925
Cash and Cash Equivalents
at End of Year $54,284 $38,433 $42,477
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
Notes to Consolidated Financial Statements
Burr-Brown Corporation and Subsidiaries-In thousands, except per
share amounts
December 31, 1997
Accounting Policies
Organization: Burr-Brown Corporation develops, manufactures, and
markets electronic components including precision linear, data
conversion, and mixed signal integrated circuits. These products
address applications for both analog and digital signal processing
relating to communications, industrial and process control, test and
measurement, medical instrumentation, digital audio, multimedia,
imaging, and personal computer systems. Principal markets for these
products are North America (principally the United States), Europe
(Germany, the United Kingdom and elsewhere), and Asia (principally
Japan). Revenue from these applications in these markets can be
volatile and is dependent on general economic conditions.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles, requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements
include the accounts of Burr-Brown Corporation and its majority
owned subsidiaries (the Company), of which all but one are wholly-
owned. Investments in which ownership is at least 20% but not over
50% are accounted for under the equity method. Other investments are
accounted for using the cost method. All significant intercompany
accounts and transactions are eliminated.
Inventories: Inventories are valued at the lower of cost (first-in,
first-out basis) or market. The Company maintains a valuation
reserve which reflects the Company's estimate of the impact on
inventories of potential obsolescence, excess quantities, and
declines in market prices.
Land, Buildings, and Equipment: Land, buildings, and equipment are
stated at cost. Depreciation on buildings and equipment is computed
by the straight-line method over the estimated useful lives ranging
from three to forty years.
Revenue Recognition: A portion of the Company's revenue is from
sales made to domestic distributors under agreements which provide
for certain price protection and limited product return privileges.
As a result, the Company defers recognition of the gross profit on
such sales until the merchandise is sold by the distributors. All
other sales are recognized when the
product is shipped.
Income Taxes: Income taxes are determined utilizing the liability
method. This
method gives consideration to the future tax consequences associated
with temporary differences between the carrying amounts of assets
and liabilities for financial statement purposes and the amounts
used for income tax purposes.
Foreign Currency Translation: The financial statements of foreign
subsidiaries have been translated in accordance with Statement of
Financial Accounting Standards (SFAS) No. 52, Foreign Currency
Translation. The gains and losses resulting from the change in
exchange rates from year to year have been reported separately as a
component of stockholders' equity. Transaction gains and losses,
which are not significant for all years presented, are currently
reflected in income.
Concentration of Credit Risk: Financial instruments which could
potentially subject the Company to significant concentrations of
credit risk consist principally of cash equivalents, short-term
investments, long-term investments, and trade receivables.
The Company maintains cash and cash equivalents at various financial
institutions. These financial institutions are located throughout
the world, and Company policy is designed to limit exposure at any
one institution and takes into account the relative credit standing
of these institutions. The Company's short-term and long-term
investments are purchased through high credit quality financial
institutions. The cost of these investments approximated their fair
value in 1996 and 1995 while at 1997 year-end, fair value exceeded
cost by $319 (see Cash Equivalents and Investments.)
Credit risk, with respect to trade receivables, is limited due to
the large number of entities comprising the Company's customer base
and their dispersion across many different industries. Furthermore,
management continually monitors and adjusts allowances associated
with these receivables.
In 1997, sales to a domestic distributor accounted for approximately
10% of consolidated net revenues. There were no sales to a single
distributor or customer that exceeded 10% of consolidated net
revenues in 1996 or 1995.
Stock Issued to Employees: Stock options are granted to employees
under the Company's Stock Incentive Plan with an exercise price
equal to the fair value of the shares at date of grant. The Company
accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees, and accordingly,
recognizes no compensation expense for the stock option grants.
Earnings per Share: In 1997, the Financial Accounting Standards
Board issued SFAS No. 128, Earnings per Share. SFAS No. 128 replaced
the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously computed fully diluted
earnings per share. All earnings per share amounts for all periods
have been presented, and where appropriate, restated to conform to
SFAS No. 128 requirements. References to share and per share amounts
have been restated to reflect a three-for-two stock split effective
April, 1997, as well as a three-for-two stock split declared on
February 23, 1998 for distribution on March 20, 1998 to stockholders
of record on March 6, 1998.
Impact of Recently Issued Accounting Standards: In June 1997, the
Financial Accounting Standards Board issued SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in
the financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. The Company is in the process of determining its preferred
format. The adoption of SFAS No. 130 will have no impact on the
Company's consolidated results of operations, financial position, or
cash flows.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997, and therefore the
Company will adopt the new requirements retroactively in 1998.
Management has not completed its review of SFAS No. 131, but does
not anticipate that the adoption of this statement will have a
significant effect on the Company's reported segments.
Cash Equivalents and Investments
The Company classifies its investments as cash equivalents, short-
term, or long-term investments based on the number of days between
the purchase date and the original maturity dates, reset dates, or
call dates of its investments. Investments classified as cash
equivalents have a range of days from 1 to 90 days, short-term
investments have a range of days from 91 to 365 days, and long-term
investments have a range of days over 365 days. At December 31,
1997, the Company had no investments maturing after December 1,
1999.
The fair value of cash equivalents and investments at December 31,
1997, 1996, and 1995 classified as available for sale in 1997 and
1996, classified as held to maturity in 1995 consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
U.S. Treasury and Government
Agency Securities $18,900 $21,963 $78,677
Municipal Bonds 31,065 25,979
Mutual Funds investing in various
debt securities 16,342 27,869
$66,307 $75,811 $78,677
</TABLE>
Fair value exceeded cost by $319 at December 31, 1997, while
approximating cost at December 31, 1996 and 1995. The unrealized
gain at December 31, 1997, net of tax, is reported as a separate
component of stockholders' equity. Fair value for such securities is
determined based on quoted market price.
Income received from cash equivalents and investments was $3,624,
$3,740, and $1,160, in 1997, 1996, and 1995, respectively.
Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C> <C> <C>
Finished goods $12,206 $18,383 $16,180
Work-in-process 22,719 20,227 17,830
Raw materials 9,608 10,960 13,842
$44,533 $49,570 $47,852
</TABLE>
Foreign Currency Forward Contracts
As a result of selling its products in overseas markets, the Company
is exposed to the effect of foreign exchange rate fluctuations on
the U.S. dollar value of its foreign currency receivables; primary
foreign market currency exposures are in Japanese Yen, German Marks,
and British Pounds. The Company currently nets the receivables and
payables, due from subsidiaries to the Company, creating a natural
hedge against foreign currency rate fluctuations. Net receivables
are further hedged periodically through the purchase of foreign
currency put options and forward contracts. The Company marks to
market the foreign currency forward contracts and the underlying
hedged transactions at the end of each reporting period. The
realized and unrealized gains and losses resulting from the change
in foreign currency exchange rates from period to period are
included in other income in the period in which the changes occur.
Such realized and unrealized gains and losses are insignificant for
all periods presented.
The Company maintains relationships with a few major U.S. and
foreign banks and arranges foreign currency hedging products with
such banks. As of December 31, 1997, no foreign currency put options
or forward contracts were outstanding.
Notes Payable
The Company has available short-term credit facilities of
approximately $26,642 with $9,991 outstanding as of December 31,
1997. There are no compensating balance requirements. All of the
available short-term credit facilities are in foreign currencies and
are used to support the Company's foreign operations. Interest rates
are tied to prevailing national base rates, and the weighted-average
rates for 1997, 1996, and 1995 were 1.7%, 3.3%, and 3.6%,
respectively. These credit facilities are renewable annually at
various dates.
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C> <C> <C>
Capitalized lease arrangements-
various terms and interest rates $2,154 $2,812 $2,745
Other 105 213
2,154 2,917 2,958
Less current portion 672 1,087 1,150
$1,482 $1,830 $1,808
</TABLE>
The Company has a $10 million revolving line of credit with a major
U.S. bank. The Company can borrow at LIBOR + 1.25% or the bank's
Prime rate or the bank's "bid rate." The Company may select terms of
30, 60, 90, and 120 days for LIBOR borrowings. The revolving line of
credit carries an annual commitment fee of 1/4% on the unused
portion of the commitment. The loan agreement has current ratio and
net worth covenants. As of December 31, 1997, the Company is in
compliance with all covenants and conditions contained in the loan
agreement. The loan agreement does not require compensating
balances. The Company's revolving line of credit terminates at May
3, 1999.
Under the various long-term debt agreements consisting exclusively
of capital lease obligations, the Company is obligated to pay the
following principal amounts for each of the next five years:
1998 $672
1999 $643
2000 $537
2001 $227
2002 $75
Interest paid on all debt amounted to $453, $566, and $947 in 1997,
1996, and 1995, respectively.
Income Taxes
Income before income taxes is
comprised as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Domestic $32,999 $36,468 $31,077
Foreign 13,661 3,376 8,940
$46,660 $39,844 $40,017
The components of the provision
(benefit) for income taxes
are as follows:
Years Ended December 31, 1997 1996 1995
Current:
U.S. Federal $4,275 $8,183 $8,785
State 931 1,577 2,701
Foreign 7,995 2,282 3,284
13,201 12,042 14,770
Deferred:
U.S. Federal 2,107 (1,983) (3,617)
State (102) 145 (406)
Foreign (1,208) (44) 58
797 (1,882) (3,965)
$13,998 $10,160 $10,805
</TABLE>
Actual current tax liabilities are lower than the amounts reflected
above by the tax benefit from stock option activity of $2,576, $155,
and $841 in 1997, 1996, and 1995, respectively. The tax benefit from
stock option activity is recorded as a reduction in current income
taxes payable and an increase in additional paid-in capital.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation $(3,623) $(1,910) $(2,331)
Total gross deferred
tax liabilities (3,623) (1,910) (2,331)
Deferred tax assets:
Inventory reserves and
capitalization 2,396 2,471 2,809
Tax credit carryforwards 2,569 1,300
Sale leaseback 456 1,057
Intercompany transactions 833 1,247 1,816
Foreign loss carryforwards 692 637 520
Distributor reserves 3,267 3,030 2,583
Employee benefits reserves 695 592 1,102
Other, net 631 781 1,319
Total gross deferred tax assets 11,083 10,514 11,206
Valuation allowance (3,261) (3,608) (5,761)
Total deferred tax assets 7,822 6,906 5,445
Net deferred tax assets $4,199 $4,996 $3,114
</TABLE>
At December 31, 1997, the Company recorded valuation allowances to
reflect the estimated amount of deferred tax assets which may not be
realized from foreign loss and state tax credit carryforwards. Prior
to 1997, valuation allowances were recorded to offset deferred tax
assets which could only be realized by earning taxable income in
future years. At that time, management established the valuation
allowances because it could not be assured that such income would be
earned.
A reconciliation of the U.S. Federal statutory income tax rate to
the effective tax rate follows:
<TABLE>
<CAPTION>
Percent of Pretax Income
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 1.2 2.8 3.7
Foreign taxes in excess of (less than)
U.S. Federal statutory rate 1.3 0.3 (0.8)
Foreign sales corporation (2.9) (2.5) (1.5)
Research and development credit (2.0) (0.8)
Tax exempt investment income (1.3) (0.7)
Research and development and minimum
tax credit carryforwards (10.2)
Domestic temporary differences
not previously benefited (9.4)
Other (1.3) 0.8 0.8
Effective tax rate 30.0% 25.5% 27.0%
</TABLE>
Undistributed earnings of foreign subsidiaries were $16,378 at
December 31, 1997. No provision for U.S. tax has been made on these
undistributed earnings as they are intended to be permanently
reinvested or will be remitted substantially free of additional tax.
Certain foreign subsidiaries have net operating loss carryforwards
totaling $996, of which virtually all can be carried forward
indefinitely. The Company has state tax credit carryforwards
totaling $2,569 which expire at various dates beginning in 2009.
Net income taxes paid amounted to $5,773, $12,987, and $8,970 in
1997, 1996, and 1995, respectively.
Stockholders' Equity-Share amounts in thousands
The Company adopted an Incentive Stock Plan in 1981 which was
amended and restated in 1983. Under this plan, options were granted
to key employees, subject to certain limitations to purchase an
aggregate of 3,167 shares of common stock at not less than the fair
market value on the date of the grant. All options under the plan
must be exercised within ten years from the date of the grant. This
plan expired in 1993, and no further options will be granted under
this plan. However, all options outstanding under this plan will
continue to have full force and effect in accordance with their
terms.
In 1993, the Company adopted the 1993 Stock Incentive Plan. This
plan is intended to benefit the Company by providing an incentive to
certain key employees, directors, and consultants. The aggregate
number of shares which may be issued under this plan shall not
exceed 5,889 shares, including 1,614 shares available from the 1981
Plan. This plan is administered by a committee of the Board of
Directors. The option price per share shall be fixed by the
committee, but in no event shall the option price per share be less
than the fair market value on the date of the grant. The committee
also determines the date on which granted options will become
exercisable, although all options under this plan must be exercised
within ten years from the date of grant.
As of December, 1996, the Company had a plan in place to purchase up
to 2,250 shares of the Company's common stock in the open market.
Purchase activity will be ongoing and timed to take advantage of
what the Company considers to be a favorable price for its stock.
The acquired shares will be used to provide shares for the employee
stock option programs.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, Accounting for Stock-Based Compensation,
and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the
following assumptions for 1997, 1996, and 1995, respectively: risk-
free interest rates ranging from 5.90% to 6.93%, 5.00% to 5.34%, and
5.30% to 6.12%; dividend yields of 0.0%; volatility factor of the
expected market price of the Company's common stock of 0.508; and an
expected life of an option of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's
opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
SFAS No. 123 requires the Company to present pro forma disclosures
for options granted in 1995 and thereafter. Because prior years'
awards were not included in these disclosures, they would not be
indicative of future amounts.
For purposes of pro forma disclosures, the estimated fair value of
the options was amortized to expense over the options' vesting
period. The Company's pro forma information follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Net Income
As reported $32,662 $29,684 $29,212
Pro forma $31,444 $29,202 $29,042
Earnings per share
Basic as reported $.91 $.82 $.87
Basic pro forma $.87 $.81 $.87
Diluted as reported $.86 $.79 $.83
Diluted pro forma $.83 $.78 $.82
</TABLE>
A summary of the Company's stock option activity, and related
information follows:
<TABLE>
<CAPTION>
Shares Option Price Weighted
Under Per Average
Option Share Exercise Price
<S> <C> <C> <C>
Balance at January 1,
1995 2,244 $1.93 - $4.74 $2.31
Granted 675 3.78 - 15.55 5.87
Exercised (484) 1.93 - 4.74 2.68
Canceled (81) 2.00 - 3.78 2.81
Balance at December 31,
1995 2,354 1.93 - 15.55 3.23
Granted 759 7.55 - 10.55 8.39
Exercised (176) 1.93 - 7.11 2.82
Canceled (273) 1.93 - 14.67 4.70
Balance at December 31,
1996 2,664 2.00 - 15.55 4.57
Granted 913 11.33 - 23.92 14.90
Exercised (595) 2.00 - 14.89 3.37
Canceled (102) 2.07 - 11.33 7.40
Balance at December 31,
1997 2,880 $2.00 -$23.92 $7.97
</TABLE>
The weighted-average fair value of options granted during 1997,
1996, and 1995 was $9.26, $7.35, and $4.68, respectively. The
weighted-average remaining contractual life for options outstanding
as of December 31, 1997, was 7.7 years.
Stock options for 836, 954, and 683 shares were exercisable at
December 31, 1997, 1996, and 1995, respectively. The weighted-
average exercise price for exercisable options was $3.23, $2.75, and
$2.52 at December 31, 1997, 1996, and 1995, respectively.
During 1989, the Board of Directors declared a dividend distribution
of one common stock purchase right for each outstanding share of
common stock. The rights are exercisable only if a person or group
acquires 20% or more of the Company's common stock or announces a
tender offer which would result in ownership by a person or group of
20% or more of the common stock. At that time, a right plus $0.1407
may be exchanged for one one-hundredth share of common stock of the
Company. Upon the acquisition of 40% or more of the Company's common
stock (unless at least 80% is acquired in a cash tender offer), the
holders of rights (other than the acquirer) will have the right to
purchase shares of the Company's common stock at half its market
value. In addition, the rights provide that upon the merger or
transfer of 50% or more of the assets or earning power of the
Company to a person who has acquired at least 20% of the common
stock, the holders of rights will have the right to purchase shares
of the acquirer's common stock at half its
market value.
The rights are subject to mandatory redemption for $0.003 per right
at the discretion of the Company's Board of Directors. All rights
expire on August 9, 1999, unless extended or redeemed by the Company
and do not have dividend or voting privileges while outstanding.
Shares used in the basic per share calculation represent weighted-
average shares in the applicable period. The additional 1,881,
1,507, and 1,815 shares used in the dilutive share calculation in
1997, 1996, and 1995, respectively, represent the dilutive effect of
employee stock options.
Commitments
Approximate aggregate future commitments under noncancelable
operating leases, primarily for equipment and office
facilities, are summarized as follows:
1998 $ 2,224
1999 $ 1,586
2000 $ 1,360
2001 $ 824
2002 $ 176
Rental expense was $4,586, $4,932, and $5,352 in 1997, 1996, and
1995, respectively.
Foreign Operations, Geographic, and Segment Data
The Company operates predominately in one segment, the electronic
component industry.
The consolidated financial statements include the accounts of wholly-
owned foreign subsidiaries. Transfers of inventories to these
foreign subsidiaries are negotiated based on market prices.
The following summary, by operational area, includes both net
revenue from unaffiliated customers and transfers between geographic
areas. The Far Eastern Operations consist of activity primarily from
Japan. The United States operations include corporate activity that
benefits the Company as a whole.
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Net Revenue:
North American Operations:
Unaffiliated customers $86,959 $75,757 $95,667
Foreign unaffiliated customers 27,325 5,376 17,250
Consolidated subsidiaries 76,486 83,044 87,721
190,770 164,177 200,638
European Operations:
Unaffiliated customers 42,455 55,679 64,794
Consolidated subsidiaries 7,143 12,165 13,225
49,598 67,844 78,019
Far Eastern Operations:
Unaffiliated customers 95,363 83,185 91,451
Consolidated subsidiaries 5,545 3,632 4,037
100,908 86,817 95,488
Eliminations (89,174) (98,841) (104,983)
$252,102 $219,997 $269,162
Income (Loss) Before Income Taxes:
North American Operations $39,282 $45,920 $33,446
European Operations 796 1,074 5,428
Far Eastern Operations 12,865 2,271 3,402
Eliminations - primarily United States(6,283) (9,421) (2,259)
$46,660 $39,844 $40,017
Identifiable Assets:
North American Operations $258,263 $226,444 $206,405
European Operations 25,592 25,075 28,790
Far Eastern Operations 42,007 32,541 43,642
Eliminations (26,474) (22,472) (26,588)
$299,388 $261,588 $252,249
</TABLE>
Employee Benefit Plans
The Company has a defined contribution plan, the Future Investment
Trust (FIT). The FIT is a 401(k) salary deferral plan and allows
eligible participating U.S. employees to defer up to 15% of their
salaries. Employee contributions are matched by the Company at a
rate of 25% of the employee's contribution. The Company's
contributions vest at 25% per year and become fully vested to the
employee after four years of service. Additional voluntary Company
contributions may be made to FIT participants' profit sharing
accounts.
The Company has a noncontributory defined benefit pension plan which
covers all eligible U.S. employees and generally provides
benefits to retired employees based on their length of service, age,
and a percentage of qualifying compensation during the final years
of employment. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected
to be earned in the future. The Company's policy is to contribute
amounts sufficient to at least meet the Employee Retirement Income
Security Act's minimum funding requirements.
A summary of the components of net periodic pension expense follows:
<TABLE>
<CAPTION>
1997 1996 1995
U.S. Foreign U.S. Foreign U.S.Foreign
Years Ended December 31, Plans Plans Plans Plans Plans Plans
<S> <C> <C> <C> <C> <C> <C>
Defined benefit pension plans:
Service cost-benefits
earned during the period $487 $340 $478 $351 $392 $321
Interest cost on projected
benefit obligation 736 140 665 155 620 189
Net amortization 1,205 14 770 11 1,142 4
Return on plan assets (2,048) (35) (1,505) (33)(1,732) (49)
Net periodic pension expense
of defined benefit plans 380 459 408 484 422 465
Defined contribution plan
- - Matching FIT 776 747 626
Total employee benefit
expense $1,156 $ 459 $1,155 $484 $1,048 $465
</TABLE>
Assumptions used in computing pension expense for the defined benefit
plans were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
U.S. Foreign U.S. Foreign U.S. Foreign
Plans Plans Plans Plans Plans Plans
<S> <C> <C> <C> <C> <C> <C>
Years Ended December 31,
Weighted-average
discount rate 7.25% 3.1%-7.0% 7.75% 2.5%-7.0% 8.5% 5.5%-7.5%
Rates of increase in
compensation levels 4.0% 3.0% 4.5% 3.0% 5.0% 4.5%
Expected long-term
rate of return on
assets 9.5% 3.0%-7.0% 9.5% 3.7%-7.0% 8.5% 4.1%-7.0%
</TABLE>
The following table sets forth the funded status and amounts
recognized in the consolidated balance sheets at December 31, 1997, 1996,
and 1995; for the Company's defined benefit pension plans:
<TABLE>
<CAPTION>
1997 1996 1995
U.S. Foreign U.S. Foreign U.S. Foreign
Plans Plans Plans Plans Plans Plans
December 31,
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit
obligation $7,902 $2,456 $6,148 $2,083 $6,036 $1,879
Accumulated benefit
obligation $8,905 $2,673 $7,351 $2,684 $7,155 $2,225
Projected benefit
obligation for services
rendered to date $(11,054)$(3,200)$(9,439)$(3,376)$(9,208)$(3,004)
Plans assets at
fair value 13,772 1,526 12,049 1,474 9,826 1,486
Excess (shortfall)
of plan assets
over (under)
projected benefit
obligation 2,718 (1,674) 2,610 (1,902) 618 (1,518)
Unrecognized net
loss (gain) (2,906) 148 (2,634) 330 (1,500) 28
Unrecognized prior
service cost 878 1,094 1,333
Unrecognized net
transition obligation (22) 171 (50)
Net pension asset
(liability) $ 690 $(1,548) $1,070 $(1,401) $ 451 $(1,540)
</TABLE>
U.S. plan assets consist of investments in equities, bonds, and cash
equivalents. Foreign plans' assets consist of securities, real estate,
loans, and cash equivalents.
Report of Independent Auditors
Board of Directors
Burr-Brown Corporation
We have audited the accompanying consolidated balance sheets of Burr-
Brown Corporation and Subsidiaries as of December 31, 1997, 1996,
and 1995, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1997. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Burr-Brown Corporation and Subsidiaries at December 31,
1997, 1996, and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Tucson, Arizona
January 22, 1998,
except for the note entitled Accounting Policies-Earnings per Share,
as to which the date is
February 23, 1998
Summarized Quarterly Data (Unaudited)
The following is a summary of quarterly financial data for 1997,
1996, and 1995:
<TABLE>
<CAPTION>
Quarter Ended 1997
March 29 June 28 Sept. 27 Dec. 31
<S> <C> <C> <C> <C>
Net revenue $54,772 $62,505 $65,928 $68,897
Gross margin 27,372 31,268 33,259 35,128
Net income 6,572 7,747 8,554 9,789
Basic earnings per
share .18 .22 .24 .27
Diluted earnings
per share .17 .20 .22 .26
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended 1996
March 30 June 29 Sept. 28 Dec. 31
<S> <C> <C> <C> <C>
Net revenue $61,174 $58,181 $50,109 $50,533
Gross margin 30,677 29,754 25,092 25,246
Net income 11,598 6,607 5,700 5,779
Basic earnings
per share .32 .18 .16 .16
Diluted earnings
per share .30 .18 .15 .16
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended 1995
April 1 July 1 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Net revenue $59,547 $69,594 $70,218 $69,803
Gross margin 28,186 33,798 34,411 34,510
Net income 4,657 6,845 8,287 9,423
Basic earnings
per share .14 .21 .25 .26
Diluted earnings
per share .14 .20 .24 .25
</TABLE>
The 1995, 1996, and first three quarters of 1997 earnings per share
amounts have been restated to comply with Statement of Financial
Accounting Standards No. 128, Earnings Per Share. All earnings per
share amounts have also been restated to reflect the three-for-two
stock split declared February 23, 1998.
Quarterly Market & Dividend Information
<TABLE>
<CAPTION>
1997 Close Quotation 1996 Close Quotation
1997 1997 1996 1996
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $15 1/4 $10 7/8 $13 5/16 $7
Second Quarter 22 1/16 13 10 7/8 6 3/4
Third Quarter 25 9/16 21 1/4 9 7/16 6 3/4
Fourth Quarter 25 3/16 16 3/4 12 1/4 8 11/16
</TABLE>
The Company's common stock has been traded on the National Market
System under the symbol BBRC since March 1984. As of December 31,
1996, there were approximately 6,000 stockholders of record, which
include those listed in company records and stockholders who hold
their shares in a broker's name.
The Company has never paid any cash dividends on its common stock.
It is the present policy of the Board of Directors to retain
earnings to finance expansion of the Company's operations, and the
Company does not expect to pay dividends in the foreseeable future.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Annual Report on Form 10-K contains forward-looking statements
which involve risks and uncertainties. The Company's actual results
could differ materially from those projected in the forward-looking
statements as a result of certain factors, including those set forth
under " Risk Factors" below and elsewhere in this Annual Report on
Form 10-K, the materials incorporated by reference herein and in
other filings by the Company with the Securities and Exchange
Commission.
1997 Compared to 1996
The Company reported 1997 revenue of $252.1 million, which was 14.6%
above 1996 revenue. All geographic regions were up over last year.
The U.S. and southeast Asia showed the most strength. Domestic sales
increased significantly, led by a strong distribution channel. Sales
into the southeast Asian (SEA) region excluding Japan more than
doubled. Japan's growth was impacted by a weakening Yen. Within
industrial market products, data and high speed products grew at a
faster rate than did linear products. Revenue from both the
communications and digital audio and video markets contributed a
larger proportion of the Company's total revenue. Revenue from the
communications market had the highest percentage increase when
compared to 1996. The percentage of revenue derived from the digital
audio and video and computer markets also increased over 1996
levels. Industrial and process control and test and instrumentation,
a market in which the Company maintains a very strong position,
accounted for slightly less than one-half of total revenues. It is
the Company's strategic intent to expand its participation in these
traditional markets while increasing its penetration of the higher
volume and faster growing communications, digital audio and video,
and computer markets.
At 50.4% of revenue, gross margin for the year was even with 1996.
Gross margin improved to 51% of revenue during the fourth quarter of
1997, reflecting a higher level of internal factory utilization and
increased operating leverage from higher total sales. Mix continues
to shift toward higher volume products with lower average selling
prices without having an adverse effect on aggregate gross margin.
Fourth quarter unit sales volume increased by 23% sequentially and
by 75% over the fourth quarter of 1996. This is consistent with the
Company's strategy to offer high performance analog and mixed signal
ICs for high volume, fast growing, emerging applications. Consistent
with past experience, like product pricing remained stable. Factory
yields remained steady at record levels for the entire year.
Reliance upon externally sourced wafers inhibited further gross
margin expansion. However, favorable foundry wafer pricing allowed
the Company to participate in higher volume applications without a
negative impact on gross margin. The Company's long term objective
for gross margin is 53% and financial plans call for further
progress toward that objective with continued revenue growth during
1998. The Company believes it can significantly expand internal
wafer fabrication capacity with relatively modest capital
investments in certain bottleneck equipment. The Company believes it
has sufficient commitments for external wafer foundry capacity to
meet its near-term requirements. Assembly and test capacity will be
expanded throughout 1998 as required by volume increases. The
Company's plan anticipates continuing gross margin improvements as
revenue growth accelerates.
Operating expenses for the year increased to $83.5 million from
$80.7 million in 1996 but declined as a percentage of sales to 33.1%
from 36.7%. The reduction in this ratio was realized exclusively in
Sales, Marketing, and General and Administrative expenses (SMG&A),
an area in which the Company continues to drive toward a lower model
level.
Investment in Research and Development (R&D) expense was increased
by $5.5 million or 19% to $34 million. A record 79 new products were
introduced during the year; the third consecutive year in which a
new record was established. Nearly half of the Company's 1997
revenue was derived from new products introduced in the last 5
years, up 20% over 1996 and nearly 70% higher than 1995. A prime
focus of the Company's new product program is to offer highly
integrated application specific standard products (ASSPs) that
target large and fast-growing markets such as broadband
communications,
digital audio and video, medical imaging, and intelligent motor
control. Much progress was made on the development of advanced
manufacturing processes including the next generation analog wafer
fabrication processes. For most of 1997, R&D spending was near the
Company's long-term objective of 14% of sales. The Company intends
to remain at that level during 1998.
SMG&A expenses declined to $49.5 million or 19.6% of sales from
$52.2 million or 23.7% in 1996. SMG&A expense declined to 17.6% of
revenue during the fourth quarter of 1997. These improvements were
the result of consolidation of selling, logistics, and
administration activity in Europe, expanded use of third party
distribution in all regions and improvements in administrative
efficiency. The Company's long term objective for SMG&A is 18% of
revenue. In order to support this objective, the Company is
continuing to consolidate all administrative, logistics, and
inventory functions in three regional service centers worldwide. The
adoption of a common worldwide information system is also expected
to reduce administrative costs. Significant progress has been made
in the adoption of this system. Implementation in all of Europe was
completed in 1997 and Asia is expected to be completed in 1998. An
anticipated increase in the proportion of large order opportunities
inherent in the strategy to bring high performance to high volume
applications also should reduce the overall cost of selling. The
increased use of the third-party distribution channel has not only
increased revenue, but has also reduced selling costs. Approximately
half of the Company's 1997 revenues were derived from this channel,
up from 40% in 1996 and 35% in 1995. Increases in sales engineering
support, marketing communications, and information systems cost is
expected to maintain SMG&A expenses at approximately 19% of sales for
most of 1998.
During 1997, the Company was able to increase its investment in R&D
by more than $5 million while reducing SMG&A spending by $3 million.
This reflects a continuing strategy to maintain a substantial level
of R&D investment as the primary driver of future revenue growth while
reducing SMG&A expenses to more competitive levels.
The Company reported 1997 operating income of $43.6 million or 17.3%
of revenue, a significant increase from $30.1 million or 13.7% of
revenue in 1996. Operating income for the fourth quarter of 1997 set
a new quarterly record both in absolute dollars and as a percent of
sales. This improvement is primarily due to improved revenue growth
and operating expense control. As compared to 1996, the Company was
able to improve operating income by 45% while devoting 19% more
resources to new product development activities. The Company's
operating profit objective is 21% and the Company expects further
progress to be made toward this objective during 1998. The Company
plans to achieve this objective through continued gross margin
expansion, by continued constraint on SMG&A expenses, and by revenue
growth. Revenue growth is expected to be driven by R&D investments,
increased penetration of traditional markets, and expanded
participation in emerging markets.
Other income and expense consists primarily of net interest income
on invested cash and gains and losses on foreign currency
transactions. Included in 1996 other income was a $7.2 million gain
realized from the sale of a subsidiary in the first quarter of that
year.
The 1997 tax rate was 30%, up from 25.5% in 1996. The increase was
due to a shift in the mix of earnings among the different tax
jurisdictions in which the Company does business and a certain one
time benefit recorded in 1996. The 1997 tax rate was less than the
U.S. federal statutory tax rate of 35% due mainly to the benefits
from a foreign sales corporation, research and development credits,
and tax exempt investment income. At December 31, 1997, based on
previous taxable income and projections for future taxable income,
management believes that with the exception of foreign loss and
state credit carryforwards for which valuation allowances have been
provided, it is more likely than not that the Company will earn
sufficient taxable income in future years to realize the recorded
deferred tax assets. Prior to 1997, valuation allowances were
recorded to offset deferred tax assets which could only be realized
by earning taxable income in future years. At that time, management
established the valuation allowances because it could not be assured
that such income would be earned.
Net income for the year of $32.7 million was the highest in the
Company's history. This was up $3 million or 10% over 1996. When
excluding a $5.3 million gain realized in 1996 from the sale of a
subsidiary, net income increased by 34.2% on a consolidated revenue
gain of 14.6%. Diluted earnings per share (EPS) was $.86 for 1997,
8.9% higher than the $.79 of 1996. When excluding the $5.3 million
or $.14 per diluted share gain realized from the sale of a
subsidiary, 1997 EPS increased by 32.3%. The Company's long-term
operating objective for profit after tax is 15%.
Per share information in this Management's Discussion and Analysis
has been restated to reflect a 3-for-2 stock split effective March 1998.
1996 Compared to 1995
For the year ended December 31, 1996, revenue was $220 million
compared to revenue of $269.2 million in 1995. When excluding
revenue of a subsidiary divested in the first quarter of 1996,
revenues from ongoing operations were 10.6% lower than 1995. This
decline was the result of industry conditions which prevailed for
most of the year. The magnitude of this decline was consistent with
that reported for the industry as a whole for 1996. Customer
inventories and supply in the distribution channel remained high
throughout the year, due largely to very strong 1995 demand and
shortened lead times. Revenue declined in the third quarter and
remained stable for the remainder of the year. A recovery began in
the fourth quarter as new order bookings exceeded revenue for the
first time during the year.
The Company's core analog and mixed signal integrated circuit (IC)
products accounted for 91% of total revenue, up from 85% in 1995.
Much of this increase was the result of the divestiture of a non-
core subsidiary and represented
further progress in the strategy to become a pure analog IC company.
Over 50% of sales were derived from the markets for industrial and
process control and test and instrumentation equipment. The Company
maintained a very strong position in these markets by virtue of long
standing relationships with customers and the high performance
applications requirements in terms of precision, speed, and cost.
Sales into these markets exhibited the most stability year-to-year,
the result of a very broad customer, product, and application base.
Approximately 20% of sales were into digital audio and video
applications. Given the high consumer product content, sales into
this market were most affected by industry conditions. Further, as a
high proportion of these sales were to Japanese customers, the
significant devaluation of the Yen as compared to 1995 had some
adverse impact on dollar revenues. The telecommunications market was
the source of 15% of sales and represents an area of significant
growth opportunity for the Company. The overall growth rate of this
market is among the highest addressed by Burr-Brown, and
requirements are particularly well suited to the Company's core
competency of high performance analog and mixed signal ICs. Revenue
from this sector was relatively even with the prior year but
increased as a percent of total sales. Sales into the personal
computer and multimedia market, which accounted for only 6% of
revenue, declined from 1995 levels, again due to overall
semiconductor market conditions. The remainder of the Company's
sales were realized from a broad range of sources including military
applications and were, in total, roughly consistent with prior year
levels.
Geographically, all regions, with the notable exception of SEA,
contributed to the overall revenue decline. The U.S. sales decline
included only a slight decrease in the domestic third-party
distribution channel. Japan sales declined as a result of conditions
in the consumer audio market and devaluation of the Yen. The
European sales decline was reflective of overall business conditions
in that region. SEA sales grew year over year as the Company
increased its penetration in the developing, faster growing markets
within the People's Republic of China and the Four Tigers countries.
Gross margin as a percent of sales improved to 50.4% in 1996 from
48.6% in 1995. Some of this improvement was due to the divestiture
of a relatively low gross margin business unit. As is characteristic
for analog ICs, exclusive of currency impacts, like product pricing
remained stable, and product mix was somewhat more favorable. More
significantly, manufacturing cost reductions and gains in efficiency
contributed to gross margin expansion despite lower revenue
levels. Product yield increased by over 10%, and manufacturing
headcount was reduced by 21%, exclusive of the impact of a
subsidiary divestiture. Much of this improvement was driven by
capital investment in factory automation. The first phase of a new
manufacturing execution system was completed with installation in
the Tucson wafer fabrication facility occurring at mid-year.
Progress was made in the standardization of test systems employed in
final test operations. The benefits of this strategy include both an
overall lower cost of ownership, due to the reduction of support
costs required, and improved yields. Throughput yields have also
benefited from process equipment upgrades in the Tucson wafer fab.
An excess of industry capacity resulted in favorable pricing on
externally sourced wafers and assembly services. Further gross
margin expansion was precluded by the loss of operating leverage due
to lower sales volume.
Total operating expenses were reduced by $9.7 million or 10.8%. R&D
spending was increased by $2.7 million or 10.6%. SMG&A spending was
reduced by $12.4 million or 19.2% as compared to 1995. This was
consistent with the Company's strategy to increase R&D investments
as the primary driver of revenue growth while reducing SMG&A
expenses in order to expand profit margins.
As a percent of revenue, R&D investments increased to 12.9% in 1996
from 9.6% in 1995. This increase was consistent with the conviction
that effective R&D spending is the critical success factor in
revenue growth and increased market penetration. This increased
spending was in the form of expanding the design and technical
staff, acquiring improved development tools, and in the development
of proprietary, next generation analog wafer fab processes. The
benefits of increased R&D investment became apparent in the
introduction of 65 new products during 1996, nearly twice the
previous record. Among these products were a number of highly
innovative application specific standard products (ASSPs) which
target the large and rapidly growing telecommunication and computer
and multimedia markets.
SMG&A expenses during 1996 were $52.2 million or 23.7% of revenue as
compared to 24.0% of revenue in 1995, despite an overall decline in
revenue. SMG&A expenses decreased by $12.4 million or 19.2% of
revenue as compared to an overall revenue decline of 18.3%.
Throughout 1996, opportunities to reduce cost in this area were
aggressively pursued. SMG&A headcount declined by 8% from 1995
levels, exclusive of the effect of the subsidiary sale. Critical to
this effort was expanded use of third party distribution and the
consolidation and increased efficiency of administrative functions.
Although the primary reason for increased use of external
distributors is revenue growth through expanded market coverage, it
also allowed for significant reductions in worldwide selling costs.
Despite lower revenue, operating profit was $30.1 million or 13.7%
of revenue. A pre-tax gain of $7.2 million was realized from the
sale of a subsidiary and included in other income. Net interest
income on invested funds was the primary source of the remaining
$2.5 million of other income.
The effective tax rate for 1996 was 25.5% compared to 27% in 1995.
Several discrete events contributed to this tax rate reduction,
including the reinstatement of the federal R&D tax credit, a tax
benefit from an investment previously written off for book purposes,
and increased use of tax advantaged instruments for invested cash.
The 1996 tax rate was less than the U.S. federal statutory rate of
35% due mainly to the reduction in deferred tax asset valuation
allowances against net deductible temporary book to tax differences.
Deferred tax valuation allowances were recorded by the Company to
offset deferred tax assets which could only be realized by earning
taxable income in future years. Management established the valuation
allowances because it could not be assured that such income would be
earned. There were no changes in 1996 to the assumptions and
methodology used in determining the valuation allowances.
Net income for 1996 was $29.7 million or 13.5% of sales as compared
to $29.2 million or 10.9% of revenue in 1995. Excluding the effect
of the one time gain from the sale of a subsidiary of $5.3 million,
net income for 1996 was $24.3 million or 11.1% of revenue, a level
slightly higher than the profitability of 1995. Diluted earnings per
share was $.79 for 1996 as compared to $.83 for the prior year, a
decline of 5.0% on a 6.2% increase in the number of shares used.
Liquidity and Capital Resources
The Company believes that its financial position as of December
31, 1997 remains very sound. Despite nearly $26 million in capital
spending and debt reduction of $4.3 million, cash, equivalents, and
investments were $99.1 million at year end, an increase of $9.7
million or 11% during the year.
Inventories declined by $5 million or 10% during the year to $44.5
million at December 31, 1997. The benefits of an inventory reduction
program which includes cost and cycle time reductions, increased use
of the distribution channel, consolidation of inventories in
regional service centers, and improvements in manufacturing planning
are continuing to yield efficiencies. The Company's expectation for
1998 is for inventory to remain relatively flat in absolute terms
and further decline as a percent of sales. Currently, annual
inventory turns are nearing 3 up from 2 at this time last year. The
Company's 1998 objective is to improve this to over 3.
During the year, net accounts receivable increased by 41%, roughly
consistent with the increase in the fourth quarter of 1997 revenue
over fourth quarter of 1996. Days sales outstanding increased to 77
days at December 31, 1997 from 74 days at the end of the prior year.
This is planned to improve in 1998 due to increased use of
distribution, improved shipment linearity, and tighter credit
control.
Capital expenditures totaled $25.6 million for 1997, $6.3 million or
20% lower than 1996. Modernization and standardization of
manufacturing equipment, capacity expansion due to increased unit
volume, next generation technology development, and development of
information systems were the primary uses of capital spending. The
Company plans to have 1998 capital expenditures within the range of
$26 million to $30 million, consisting in large part of capacity
expansion measures and improvements in computer-aided design tools.
At 1997 year end, total debt was $12.1 million of which $2.2 million
was term debt. This represented a $4.3 million decrease in total
debt over 1996. Most of this debt was held internationally and
represented an interest rate arbitrage situation for the Company.
In addition to term debt, credit facilities of approximately $36.6
million, including overdraft credit facilities, with both domestic and
international banks were available to the Company, of which approximately
$10 million or 27.3% was utilized. The current ratio improved to 2.95 in
1997 from 2.76 in 1996. The debt to equity ratio improved year over year
from .09 to .05. Stockholders' equity increased by $35.5 million or 18%
during 1997.
The Company's balance sheet continues to be strong and management
believes that it possesses more than sufficient capital resources to
meet the anticipated requirements of the next twelve months.
International markets constitute a majority of the Company's
revenue. The resulting transactions have exchange rate fluctuation
risk associated with them. The Company acts to minimize the impact
of foreign currency exchange rate transactions through natural
hedges afforded by its significant foreign operations and through
the use of financial hedges in the form of forward contracts and
option contracts. These contracts are in three primary currencies:
Japanese Yen, British Pounds, and German Marks. Exchange rate
fluctuations can also affect the Company's reported revenue as the
international subsidiaries' sales are primarily in foreign
currencies but reported in the consolidated financial statements in
U.S. dollars using weighted-average exchange rates.
The impact of inflation on the Company's financial position and
results of operations has not been significant during the three year
period ended December 31, 1997.
Many existing computer programs use only two digits to identify a
year in a date field. These programs were designed and developed
without considering the impact of the Year 2000. The Company has
recognized that solving the Year 2000 problem is an issue to be
addressed. However, the major operating internal software systems of
the Company are fairly new and therefore are already Year 2000
compliant. A plan has been formulated to convert other minor systems
to be Year 2000 compliant. A majority of the Company's vendors have
been queried and the responses received indicate that the vendors
are compliant or will be by the Year 2000. The rest of the
evaluation by the Company has not been completed and expected future
costs cannot be estimated at this time. There can be no assurance
that Year 2000 compliance issues will not have an adverse effect on
the Company's future operating results.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in the financial statements. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. The Company is
in the process of determining its preferred format. The adoption of
SFAS No. 130 will have no impact on the Company's consolidated
results of operations, financial position, or cash flows.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, Disclosures about Segments of an Enterprise and Related
Information, which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Management has not completed its review of SFAS No. 131,
but does not anticipate that the adoption of this statement will
have significant effect on the Company's reported segments.
Litigation
The Company is from time to time involved in legal proceedings of a
character normally incident to its business, including various
threatened and pending claims seeking damages from the Company. Such
incidental litigation includes claims related to employment,
environmental, personal injury, contract, product liability, and
intellectual property matters. The Company does not believe that an
adverse decision in any presently pending or threatened claim, or
any amounts it would be required to pay by reason thereof, would
have a material adverse effect on its financial condition or results
of operations.
Business Outlook
In order to provide our shareholders with better insight to our
future plans, directions, and objectives, the following forward
looking statements are provided.
Markets: The Company intends to continue to emphasize the industrial
and process control and test and instrumentation markets in which it
holds a leadership position in order to protect and enhance market
penetration. The Company expects to hold a steady market position in
the digital audio market. In addition, it will endeavor to improve
its market position in the relatively larger and faster growth
communications, computing, and digital video/imaging markets.
Products: The Company possesses very strong core competencies in the
development, manufacture, and marketing of high performance analog
and mixed signal integrated circuits. It also maintains a strong
presence in digital audio applications. The Company believes that,
by using these capabilities to address the requirements of its
target markets, it can sustain substantial growth over the next five
years. To capitalize on rapid growth opportunities, the Company is
seeking to increase its number of product offerings and reduce the
time required to bring new products to market. The Company is also
seeking to design products for a wide customer base. Product
offerings will include both standard linear products which will
serve a wide range of market applications and, on a selective basis,
products which target specific needs of very high growth market
segments.
Gross Margin: The Company's plans call for a continually expanding
gross margin over the next five years. Product pricing is expected
to remain stable and continue to reflect the high value-added
content of these products. Accordingly, the Company's ability to
increase revenues will depend in part upon its ability to increase
unit sales volumes of existing products and to introduce and sell
new products. Increased volume and improved manufacturing efficiency
are expected to continue to reduce product costs. Some products
targeting very high volume, rapid growth applications will be
characterized by relatively lower gross margins but will require
lower levels of operating costs in contrast to products serving more
traditional markets.
Operating Expenses: In order to support acceleration of new product
development, the Company will increase its R&D expense. The Company
intends to constrain SMG&A expenses to a rate substantially lower
than that of revenue growth. The goal is continual expansion of
operating margins with sales growth while allowing for increased
research and development investment as the primary engine of that
growth.
Investments: The Company believes the growth opportunities inherent
in this strategy will require significant additions to manufacturing
capacity and technological capabilities over the next five years.
This will be met in the form of internal capital investments and
development of source of supply arrangements with third party
vendors as well as potential timely and synergistic business
acquisitions.
Factors Affecting Future Results: The foregoing plans are subject to
a number of risks and uncertainties. Factors that could materially
and adversely affect net revenue, gross margin, and profitability
include the volume and timing of orders, changes in product mix,
market acceptance of the Company's and its customers' products,
competitive pricing pressures, fluctuations in foreign currency
exchange rates, the timing of new product introductions, and
fluctuations in manufacturing yields. Average selling prices
typically decrease over the life of particular products. If the
Company is unable to introduce new products with higher average
selling prices or reduce manufacturing costs to offset decreases in
the prices of its existing products, the Company's operating results
will be adversely affected. In addition, the Company is limited in
its ability to reduce costs quickly in response to any revenue
shortfalls.
Frequent claims and litigation involving patents and other
intellectual property rights are common in the semiconductor
industry. The Company has in the past been, and may in the future
be, subjected to claims that the Company's products or processes
infringe the intellectual property rights of third parties. If a
third party successfully asserted such a claim and the Company could
not obtain a license on commercially reasonable terms, the Company's
operating results could be adversely affected. The Company is
subject to several risks associated with its international
operations; including unexpected changes in regulatory requirements,
delays resulting from difficulty in obtaining export licenses for
certain technology, foreign exchange fluctuations, tariffs and other
barriers and restrictions, and the burdens of complying with a
variety of foreign laws. The semiconductor industry is intensely
competitive. Many of the Company's competitors have substantially
greater financial, technical, marketing, distribution, and other
resources than the Company. In the event of a downturn in the market
for analog circuits, companies that have broader product lines may
be in a stronger competitive position than the Company. Other risks
potentially affecting future operating results are set forth in the
Company's filings with the Securities and Exchange Commission.
Five Year Financial Summary
Burr-Brown Corporation and Subsidiaries-In thousands, except per
share amounts
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net revenue $252,102 $219,997 $269,162 $194,196 $168,577
Revenue by
geographic area:
Foreign 66% 66% 64% 62% 64%
Domestic 34% 34% 36% 38% 36%
Inc(dec) in rev
over prior years 15% (18%) 39% 15% 3%
Gross margin % of
revenue 50% 50% 49% 45% 48%
Operating expenses
% of revenue 33% 37% 34% 40% 44%
Operating income
% of revenue 17% 14% 15% 5% 5%
Interest expense
% of revenue 0% 0% 0% 1% 1%
Other income %
of revenue 1% 5% 0% 0% 1%
Net income $32,662 $29,684 $29,212 $6,465 $2,817
Basic per share
amount $.91 $.82 $.87 $.20 $.09
Diluted per share
amount $.86 $.79 $.83 $.20 $.09
Income tax rate 30% 25% 27% 22% 38%
Return on revenue 13% 13% 11% 3% 2%
Return on average
assets 12% 12% 15% 5% 2%
Return on average
capital employed 14% 14% 19% 6% 3%
Return on equity 14% 15% 16% 7% 4%
Total capital
employed $251,375 220,260 $202,349 $110,055 $108,495
% of revenue 100% 100% 75% 57% 64%
Total equity $234,916 $199,406 $179,145 $87,622 $79,551
% of revenue 93% 91% 67% 45% 47%
Basic per share
amount $6.52 $5.54 $5.35 $2.72 $2.47
Diluted per
share amount $6.19 $5.31 $5.07 $2.69 $2.46
Long-term debt,
less current
portion $1,482 $1,830 $1,808 $1,839 $8,802
Total debt $12,145 $17,450 $20,862 $19,900 $26,725
% of revenue 5% 8% 8% 10% 16%
Debt-to-equity
ratio 0.05 0.09 0.12 0.23 0.34
Total assets $299,388 $261,588 $252,249 $143,008 $142,062
% of revenue 119% 119% 94% 73% 84%
Working capital $114,017 $97,914 $129,908 $45,623 $49,456
% of revenue 45% 45% 48% 23% 29%
Current ratio 2.95 2.76 2.96 1.98 2.08
Capital
expenditures $25,637 $31,919 $17,574 $12,055 $7,117
Depreciation and
amortization $13,834 $13,272 $12,712 $10,615 $10,072
Land, building,
equipment, net $79,466 $67,530 $51,424 $45,896 $42,427
% of revenue 32% 31% 19% 24% 25%
Average number
of employees
during the year 1,306 1,540 1,926 1,825 1,547
Revenue per
employee $193.03 $142.86 $139.75 $106.40 $108.97
Shares used to
compute EPS
Basic shares 36,054 36,003 33,500 32,212 32,208
Diluted shares 37,935 37,510 35,315 32,620 32,347
</TABLE>
The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, Earnings Per Share and to reflect a three-for-two stock
split declared February 23, 1998. For further discussion of earnings
per share and the impact of SFAS No. 128, see the Notes to the
Consolidated Financial Statements.
Exhibit 10.11 - Amendment to Loan Agreement
AMENDMENT NO. 2 TO LOAN AGREEMENT
THIS AMENDMENT NO. 2 TO LOAN AGREEMENT (this "Amendment"), is
made this 21st day of December, 1997, by and between BURR-BROWN
CORPORATION, a Delaware corporation ("Borrower"), and WELLS FARGO
BANK, NATIONAL ASSOCIATION, successor-by-merger to First Interstate
Bank of Arizona, N.A. (the "Bank").
1. Recitals.
1.1Borrower and the Bank (as successor-by-merger to First
Interstate Bank of Arizona, N.A.) are parties to that Loan Agreement
dated January 31, 1996 and Amendment No. 1 to Loan Agreement dated
November 15, 1996 (the "Loan Agreement"). Capitalized terms used
without definition herein are used with the meanings attributed to
such terms in the Loan Agreement.
1.2Borrower and the Bank desire to modify and amend the Loan
Agreement to provide, among other things, (a) that the definition of
Termination Date be amended, and (b) that Section 9.6 of the Loan
Agreement relating to an EBITDA Coverage Ratio be amended and
restated to provide for a Current Ratio.
Accordingly, in consideration of the premises and other
good and valuable consideration, the receipt and adequacy of which
are acknowledged by the parties hereto, the parties hereto agree as
follows:
2. Modification and Amendment of Loan Agreement.
2.1The Loan Agreement is hereby modified and amended as follows:
2.1.1 Definition of "Termination Date". The definition
of "Termination Date" set forth in Annex 1 to the Loan Agreement is
hereby amended in its entirety to read as follows:
'"Termination Date" means the earlier of the following:
(a) May 3, 1999 or (b) the date on which the Revolving Commitment is
terminated pursuant to subsection 10.2."'
2.1.2 Definition of "EBITDA Coverage". The defined term
"EBITDA Coverage" is deleted in its entirety from Annex 1 to the
Loan Agreement, and each reference, if any, to the term EBITDA
Coverage Ratio contained elsewhere in Loan Agreement shall be deemed
to be a reference to the term Current Ratio (hereinafter defined).
2.1.3 Definition of Current Ratio". The following
definition is added to Annex 1 to the Loan Agreement in the proper
alphabetical sequence: "Current Ratio" means total consolidated
current assets divided by total consolidated current liabilities,
which current liabilities shall include all outstanding Advances
under the Revolving Credit Loan.
2.1.4 Amendment of Section 8.1(c) and 8.1(e). Sections
8.1(c) and 8.1(e) are hereby deleted in their entirety and Sections
8.1(d), 8.1(f) and 8.1(g) are hereby renumbered 8.1(c), 8.1(d) and
8.1(e), respectively.
2.1.5 Amendment of Section 9.3. Section 9.3 is hereby
amended in its entirety to read as follows:
"Limitation on Net Worth. Borrower will not permit
its Consolidated Tangible Net Worth to be less than
$200,000,000.00."
2.1.6 Amendment of Section 9.6. The caption and the
text of Section 9.6 of the Loan Agreement is deleted in its entirety
and are replaced by the following:
"Current Ratio. The Borrower shall not permit its
Current Ratio to be less than 2.0 to 1.0 as of the last
day of any fiscal quarter of Borrower."
3. Borrower's Representations; Effectiveness of this
Amendment.
Borrower represents and warrants to the Bank that:
3.1Immediately before and after giving effect to this Amendment,
the representations and warranties of the Borrower in Section 7 of
the Loan Agreement are true and correct as though made on the date
hereof, except for changes that are permitted by the terms of the
Loan Agreement; and
3.2Immediately before and after giving effect to this Amendment,
no Default and no Event of Default shall have occurred and be
continuing.
This Amendment shall become effective when the Bank and Borrower
shall each have executed and delivered to the other a counterpart of
this Amendment.
4. Acknowledgments. Borrower and the Bank acknowledge that, as
amended hereby, the Loan Agreement remains in full force and effect
and that each reference to the Loan Agreement shall refer to the
Loan Agreement as amended hereby. The Borrower confirms that it
will continue to comply with the covenants set out in the Loan
Agreement and the other Loan Documents, as amended hereby, and that
its representations and warranties set out in the Loan Agreement and
the other Loan Documents, as amended hereby, are true and correct as
of the date of this Amendment in all material respects. The
Borrower further represents and warrants that (i) the execution,
delivery and performance of this Amendment by the Borrower is within
its corporate powers and has been duly authorized by all necessary
corporate action; (ii) this Amendment has been duly executed and
delivered by Borrower and constitutes the legal, valid and binding
obligation of Borrower enforceable against Borrower in accordance
with its terms; and (iii) the conditions set forth in subsections
3.1 and 3.2 of this Amendment have all been satisfied.
5. General.
5.1Borrower agrees to reimburse the Bank upon demand for all
reasonable expenses (including reasonable attorneys fees and legal
expenses) incurred by the Bank in the preparation, negotiation and
execution of this Amendment and any other document required to be
furnished herewith.
5.2This Amendment may be executed in as many counterparts as may
be deemed necessary or convenient, and by the different parties
hereto on separate counterparts, each of which, when so executed,
shall be deemed an original but all such counterparts shall
constitute but one and the same instrument.
5.3Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining portions hereof or affecting the
validity or enforceability of such provisions in any other
jurisdiction.
5.4This Amendment shall be governed by, and construed in
accordance with, the internal law, and not the law of conflicts, of
the State of Arizona, but giving effect to federal laws applicable
to national banks.
5.5This Amendment shall be binding upon and inure to the benefit
of Borrower and the Bank and their respective successors and
assigns.
5.6This instrument supersedes and replaces any and all prior
versions of this Amendment No. 2 to Loan Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 2 to Loan Agreement to be executed as of the day and year first
above written.
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: _______________________
Paul C. Hornung
Title: Vice President
BURR-BROWN CORPORATION
By: _______________________
G. Roger Myers
Title: Treasurer
Exhibit 23 - Consent of Ernst & Young LLP, Independent Auditors
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Burr-Brown Corporation of our report dated January
22, 1998, (except for the note entitled Accounting Policies -
Earnings per Share, as to which the date is February 23, 1998),
included in the 1997 Annual Report to Stockholders of Burr-Brown
Corporation.
Our audits also include the financial statement schedule of Burr-
Brown Corporation listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the
Registration Statement (Form S-8, No. 33-65866) pertaining to the
Burr-Brown Corporation Stock Incentive Plan and in the
Registration Statement (Form S-8, No. 33-12185) pertaining to the
Burr-Brown Corporation Future Investment Trust of our report dated
January 22, 1998, (except for the note entitled Accounting Policies
- - Earnings per Share, as to which the date is February 23, 1998),
with respect to the consolidated financial statements incorporated
herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedule included
in this Annual Report (Form 10-K) of Burr-Brown Corporation.
Ernst & Young LLP
Tucson, Arizona
March 24, 1997
