UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
- - ------ Securities Exchange Act of 1934
For the quarterly period ended October 3,1998
or
- - ------ Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission File Number 0-11438
BURR-BROWN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 86-0445468
--------------------- ----------------------
(State of Incorporation) (IRS Employer I.D. No.)
6730 South Tucson Boulevard
Tucson, Arizona 85706
(Address of principle executive offices)
(520) 746-1111
(Registrant's telephone number)
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 the number of shares outstanding of each of the issuer's
classes of common stock, not including shares held in treasury,
as of the close of the period covered by this report.
Common Stock, $0.01 par value 36,869,175 Shares
BURR-BROWN CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page #
Item 1 Financial Statements (Unaudited)
Consolidated Statements of Income, Three and Nine
Months Ended October 3,1998,and September 27,1997 3
Consolidated Balance Sheets, October 3,1998,
and December 31, 1997 4
Consolidated Statements of Cash Flows, Nine
Months Ended October 3,1998,and September 27,1997 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURES
Signature Page 14
PART I. FINANCIAL INFORMATION
BURR-BROWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Oct.3, Sep.27, Oct.3, Sep.27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
------- ------- -------- --------
Net Revenue $61,164 $65,928 $196,367 $183,205
% increase (decrease) in
revenue over prior year (7%) 32% 7% 8%
Cost of Goods Sold 29,661 32,669 94,745 91,306
------- ------ ------- -------
Gross Margin 31,503 33,259 101,622 91,899
% of revenue 52% 50% 52% 50%
Expenses:
Research & Development 9,917 9,248 29,697 24,419
% of revenue 16% 14% 15% 13%
Sales, Marketing, General and
Administrative 12,234 12,761 36,708 37,378
% of revenue 20% 19% 19% 20%
------- ------- ------- -------
Total Operating Expenses 22,151 22,009 66,405 61,797
% of revenue 36% 33% 34% 34%
Income from Operations 9,352 11,250 35,217 30,102
% of revenue 15% 17% 18% 16%
Interest Expense 101 108 302 323
Other (Income) Expense (1,267) (1,078) (3,015) (2,897)
------- ------- ------- -------
Income Before Income Taxes 10,518 12,220 37,930 32,676
% of revenue 17% 19% 19% 18%
Provision for Income Taxes 2,998 3,666 10,810 9,803
Effective Tax Rate 29% 30% 29% 30%
------- ------- ------- -------
Net Income $ 7,520 $ 8,554 $ 27,120 $ 22,873
% of revenue 12% 13% 14% 12%
======= ======= ======= ========
Basic Earnings per Common
Share $ 0.20 $ 0.24 $ 0.74 $ 0.64
======= ======= ======= =======
Shares used in basic per share
calculation (1) 36,757 36,167 36,622 35,980
======= ======= ======= =======
Diluted Earnings per Common
Share $ 0.20 $ 0.22 $ 0.71 $ 0.60
======= ======= ======= =======
Shares used in diluted per
share calculation (1) 38,034 38,202 38,327 38,001
======= ======= ======= =======
<FN>
(1) Common share information relects a 3 for 2 stock split
effective March, 1998.
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
BURR-BROWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Oct. 3, Dec. 31,
1998 1997
<S> -------- --------
ASSETS <C> <C>
Current Assets
Cash and Cash Equivalents $ 94,267 $ 54,284
Short-Term Investments 3,609 -
Trade Receivables 56,588 55,689
Inventories 47,418 44,533
Deferred Income Taxes 8,137 7,973
Other 13,283 10,069
-------- --------
Total Current Assets 223,302 172,548
Long-Term Investments 18,455 44,767
Land,Buildings & Equipment
Land 5,149 3,418
Buildings and Improvements 26,404 25,690
Equipment 160,873 145,411
-------- --------
192,426 174,519
Less Accumulated Depreciation (105,665) (95,053)
-------- --------
86,761 79,466
Other Assets 2,543 2,607
-------- --------
$331,061 $299,388
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 14,504 $ 9,991
Accounts Payable 16,627 18,203
Accrued Expenses 7,607 4,678
Accrued Employee Compensation and
Payroll Taxes 6,979 9,299
Deferred Profit from Distributors 8,349 8,318
Income Taxes Payable 4,676 7,370
Current Portion of Long-Term Debt 735 672
-------- --------
Total Current Liabilities 59,477 58,531
Long-Term Debt 882 1,482
Deferred Income Taxes 3,966 3,774
Other Long-Term Liabilities 719 685
Stockholders' Equity
Preferred Stock - -
Common Stock 386 380
Additional Paid-In Capital 99,250 94,779
Retained Earnings 176,597 149,915
Accumulated Other Comprehensive Income 1,393 1,381
Treasury Stock (11,609) (11,539)
-------- --------
266,017 234,916
-------- --------
$331,061 $299,388
======== ========
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
BURR-BROWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
Oct. 3, Sep.27,
<S> 1998 1997
-------- --------
OPERATING ACTIVITIES: <C> <C>
Net Income $ 27,120 $ 22,873
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 12,322 10,121
Amortization of Deferred Gain - (1,122)
Benefit from Deferred Income Taxes (69) (698)
Increase (Decrease) in Deferred Profit
from Distributors 31 (219)
Other 452 70
Changes in Operating Assets and Liabilities:
Increase in Trade Receivables (1,294) (20,261)
(Increase) Decrease in Inventories (3,155) 2,822
Increase in Other Assets (3,071) (6,770)
Increase (Decrease) in Accounts Payable (1,574) 5,797
Increase (Decrease) in Accrued Expenses
and Other Liabilities (2,141) 3,600
-------- --------
Net Cash Provided By Operating Activities 28,621 16,213
INVESTING ACTIVITIES:
Purchases of Investments (14,064) (31,867)
Maturities of Investments 36,754 41,267
Purchases of Land, Buildings and Equipment (19,907) (21,559)
Proceeds from Sale of Equipment 157 40
-------- --------
Net Cash Provided by (Used in) Investing
Activities 2,940 (12,119)
FINANCING ACTIVITIES:
Proceeds from Short-Term and Long-Term
Borrowings 4,865 -
Payments on Short-Term and Long-Term
Borrowings (462) (1,677)
Proceeds from Capital Stock Activity, Net 3,969 2,631
-------- --------
Net Cash Provided By Financing Activities 8,372 954
Effect of Exchange Rate Changes 50 173
-------- --------
Increase in Cash and Cash Equivalents 39,983 5,221
Cash and Cash Equivalents at Beginning of
Year 54,284 38,433
-------- --------
Cash and Cash Equivalents at End of Nine
Months $ 94,267 $ 43,654
======== ========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
BURR-BROWN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share amounts)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three months and nine months
ended October 3, 1998, are not necessarily indicative of the
results to be expected for the year ending December 31, 1998.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, filed
with the Securities and Exchange Commission.
2. 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 and distributed on
March 20, 1998 to stockholders of record on March 6, 1998.
Fractional shares were paid in cash to those stockholders whose
shares on the record date were not evenly divisible by two.
Shares used in the per common share calculation for the three
months ended October 3, 1998 and September 27, 1997 are as
follows:
Oct.3, Sep.27,
1998 1997
------- -------
Weighted average common
shares outstanding 36,757 36,167
Dilutive effect of stock
options outstanding using
the Treasury Stock Method 1,277 2,035
------- -------
Shares used in computed
Diluted Earnings Per Share 38,034 38,202
======= =======
Shares used in the per common share calculation for the nine
months ended October 3, 1998 and September 27, 1997 are as
follows:
Oct.3, Sep.27,
1998 1997
------- -------
Weighted average common
shares outstanding 36,622 35,980
Dilutive effect of stock
options outstanding using
the Treasury Stock Method 1,705 2,021
------- -------
Shares used in computed
Diluted Earnings Per Share 38,327 38,001
======= =======
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no
impact on the Company's net income or stockholders' equity. SFAS
No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in Other Comprehensive
Income. Prior year financial statements have been reclassified
to conform to the requirements of SFAS No. 130.
The components of comprehensive income, net of related tax, for
the three months ended October 3, 1998 and September 27, 1997 are
as follows:
Oct.3, Sep.27,
1998 1997
------- -------
Net Income $ 7,520 $ 8,554
Unrealized gain/(loss) on
investments 46 146
Foreign currency translation
adjustments 919 (770)
------- -------
Comprehensive income $ 8,485 $ 7,930
======= =======
The components of comprehensive income, net of related tax, for
the nine months ended October 3, 1998 and September 27, 1997 are
as follows:
Oct.3, Sep.27,
1998 1997
------- -------
Net Income $27,120 $22,873
Unrealized gain/(loss) on
investments (86) (288)
Foreign currency translation
adjustments 98 (1,285)
------- -------
Comprehensive income $27,132 $21,300
======= =======
The components of accumulated other comprehensive income, net of
related tax, at October 3, 1998 and December 31, 1997 are as
follows:
Oct.3, Dec.31,
1998 1997
------- -------
Unrealized gain on investments $ 107 $ 193
Foreign currency translation
adjustments 1,286 1,188
------- -------
Accumulated other
comprehensive income $ 1,393 $ 1,381
======= =======
4. INVENTORIES
Inventories consist of the following:
Oct.3, Dec.31,
1998 1997
------- -------
Raw Material $ 9,846 $ 9,608
Work-in-Process 21,764 22,719
Finished Goods 15,808 12,206
------- -------
$47,418 $44,533
======= =======
5. TAX RATE
The effective tax rate for 1998 is estimated to be 28.5%. The
Company's effective tax rate is lower than the U.S. statutory
rate due to expected benefits from tax exempt investment income,
a foreign sales corporation and tax credits.
6. SEGMENT INFORMATION
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.
7. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. The Statement permits early
adoption as of the beginning of any fiscal quarter after its
issuance. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If
the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings.
The Company adopted the new Statement effective October 4, 1998.
There was no cumulative effect of an accounting change on either
income or other comprehensive income at October 4, 1998 as a
result of the adoption of this statement.
The Company may periodically enter into foreign currency option
contracts to offset certain probable, anticipated, but not firmly
committed foreign currency transactions related to the sales of
products. These foreign currency option contracts are designated
and effective as hedges of anticipated foreign currency sales
transactions, and accordingly, the premium costs are amortized
over the life of the option contract and any realized gains
associated with these contracts are deferred until such time as
the underlying transactions are recognized, at which time the
realized gains are recorded. At October 3, 1998, the Company had
one outstanding foreign currency option contract denominated in
Yen with an expiration date of December 4, 1998.
BURR-BROWN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Factors that
might cause actual results to differ from those currently
anticipated include, but are not limited to, those discussed
under "Factors Affecting Future Results."
RESULTS OF OPERATIONS
The Company is in the midst of an industry-wide cyclical downturn
that began in the second quarter of this year. Net income for
the third quarter of 1998 was $7.5 million or $.20 per diluted
share. This compares to net income of $9.4 million or $.25 per
diluted share for the preceding quarter and to net income of $8.6
million or $.22 per diluted share for the same quarter of 1997.
Net income for the first nine months of 1998 was $27.1 million or
$.71 per diluted share. This compares to $22.9 million or $.60
per diluted share for the same period in 1997. Net income for
the first nine months of 1998 remains at a record level for the
Company.
Third quarter revenue of $61.2 million was 7.2% lower than the
third quarter of 1997 and 8.0% lower than the second quarter of
1998. As compared to last quarter, sales into Japan and into the
Southeast Asian region declined most significantly. This is
consistent with observed industry conditions. All product lines
were affected. For the first nine months of 1998, revenue at
$196.4 million increased by 7.2% over the same period last
year. With the exception of Japan, revenue from all regions
increased during this period.
Gross margin for the quarter was 51.5% of revenue, reflecting
some loss in operating leverage due to lower sales. This
compares to gross margin of 50.4% of revenue in the third quarter
of 1997. Like product, like volume pricing, as has been
typical, remained stable during the quarter. For the first nine
months of 1998, gross margin was 51.8% of revenue compared to
50.2% for the same period in 1997. Mix continues to shift toward
higher volume products with lower average selling prices, to date,
without having an adverse effect on aggregate gross margin.
This is consistent with the Company's strategy to offer high
performance analog and mixed signal ICs for high volume, fast
growing, emerging applications. The Company's plan is to improve
gross margin if there is an acceleration of revenue growth.
Operating expense growth was actively constrained during the
third quarter given the uncertainty in demand. During the third
quarter, hiring was deferred and expenses not essential to
increasing revenue, improving customer service or new product
development were postponed. Total operating expenses at $22.2
million were essentially flat with both the prior quarter
and the third quarter of 1997. Sales, Marketing and G&A (SMG&A)
remained at the same $12 million level sequentially and $527,000
lower than a year ago. R&D expenses were flat to last quarter
and 7% higher than the same period last year. Operating expenses
for the first nine months of 1998 increased by 7.5% on a revenue
increase of 7.2% over the same period last year. During the
first nine months of 1998, R&D spending increased by 21.6%
while SMG&A spending declined. It is the Company's intention
to target investment in R&D at approximately 14% to 15% of
revenue and to maintain SMG&A at 18% or less of revenue. This
reflects our continuing strategy to maintain a substantial level
of R&D investment as the primary driver of revenue growth while
constraining growth in SMG&A expenses.
Third quarter operating income of $9.4 million or 15.3% of
revenue declined by 16.9% over the third quarter of 1997. This
decline was almost exclusively due to lower revenue. As compared
to the prior quarter, operating income also declined due to lower
revenue. For the first nine months of 1998, operating income
increased by 17% on a revenue increase of 7.2% over the same
period in 1997.
Other income was higher than last quarter and last year due to
higher levels of invested cash and favorable exchange rate
movements. The effective tax rate for 1998 is estimated to be 28.5%.
The Company's effective tax rate is lower than the U.S. statutory
rate due to expected benefits from tax exempt investment income,
a foreign sales corporation and tax credits.
As compared to last year, third quarter 1998 net income was down
12.1% on a 7.2% decline in revenue. For the first nine months
of 1998,net income increased by 18.6% on a revenue increase of 7.2%.
The current cyclical downturn notwithstanding,it is the Company's
goal to improve profit performance through gross margin expansion,
by continued constraint on SMG&A expenses and by revenue growth.
The Company's strategy is to achieve revenue growth through R&D
investments, increased penetration of traditional markets such as
industrial process control and test and instrumentation, and
expanded participation in new, emerging markets such as
communications, digital audio and video, and computing and
multimedia. Given the current market environment, the Company
cannot predict when, or the extent to which, it will be able to
achieve this goal.
FOREIGN OPERATIONS
International markets constitute a majority source of the
Company's revenues. The resulting transactions have exchange
rate fluctuation risk associated with them. Exchange rate risk
is reduced through the natural hedges afforded by the Company's
foreign operations, dollar-based or dollar-indexed sales
transactions whenever possible and by the purchase of forward
foreign exchange and option contracts to hedge its foreign
currency sales transactions with international subsidiaries. In
addition, the Company historically enters into forward contracts
and option contracts against anticipated foreign exchange cash
flows for the Japanese yen. Exchange rate fluctuations can also
affect the Company's reported revenue to the extent that the
international subsidiaries' sales are in non-indexed foreign
currencies but reported in the consolidated financial
statements in U.S. dollars using a weighted average exchange rate.
When compared to the first nine months of 1997, the effect of
foreign exchange rate changes had an immaterial impact on 1998
year to date revenue.
FINANCIAL CONDITION
The Company's balance sheet remains sound. At October 3, 1998,
cash, cash equivalents and investments increased by $6.0
million during the third quarter despite capital expenditures of
$7.5 million and a $2.5 million reduction in accounts payable.
Accounts receivable declined by $4 million during the quarter
due to lower sales. Accounts receivable Days Sales Outstanding
remained at 84 days due to shipment non-linearity.
Net inventories increased by $4 million or 9.1% during the
quarter. This is consistent with our plan to run our factories
at a higher level than sales in order to replenish inventories,
especially die bank inventory, depleted during the capacity
constraint difficulties earlier in the year.
Third quarter capital expenditures totaled $7.5 million. A major
portion of capital expenditures target ATE, test handlers and
other backend assembly and test equipment. This is driven in
large measure by the mix shift to higher volume products and by
the strategy to improve assembly and test efficiency. During the
quarter, the implementation of the SAP and Consilium information
systems was completed at all Asian locations. The Company now
uses common systems to perform all major finance, sales,
logistics and manufacturing functions on a worldwide basis. This
will allow us to further reduce manufacturing and administrative
overhead costs as we go forward. Capital expenditures for
the full 1998 year are expected to be between $30-$34 million.
At October 3, 1998, total debt was $16.1 million of which $1.6
million was term debt. This represented a $4 million increase over
total debt at December 31, 1997. Most of this debt was held in
Japan and represented an interest rate arbitrage 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. At October 3,
1998, $14.5 million was borrowed against such credit facilities, or
such credit facilities were 39.6% utilized. The current ratio improved
from 2.95:1 at December 31, 1997, to 3.75:1 at October 3, 1998. The
debt-to-equity ratio increased slightly from .05 at 1997's fiscal year-
end to .06 at 1998's third quarter-end. Stockholders' equity increased
by $31.1 million or 13.2% from December 31, 1997 to October 3, 1998, and
increased by $8.9 million or 3.5% from July 4, 1998 to October 3, 1998.
Given both the current cash position and available credit
facilities, Management believes the Company has sufficient
capital resources available to meet its requirements for the
foreseeable future.
YEAR 2000 ISSUE
YEAR 2000 INITIATIVE. The Year 2000 issue concerns potential
malfunctions resulting from computer programs using two-digit
year codes in dates instead of four-digit codes. This may result
in hardware and software not functioning properly before or
following January 1, 2000, which may lead to minor or significant
problems associated with manufacturing, distribution and other
business operations. Burr-Brown's Year 2000 initiative is being
addressed by a multi-disciplinary committee led by senior
information system technology managers. The committee is
evaluating Year 2000 issues in the following five key categories:
a. Company products;
b. Business application systems;
c. Information technology ("IT") infrastructure;
d. Non-IT infrastructure (factory and facilities equipment and
infrastructure); and
e. Third party suppliers and customers.
The committee is addressing each of these categories in three
phases:
1. Inventory (identify items with possible Year 2000 risk);
2. Assessment (prioritize the inventory, assess Year 2000
compliance, plan corrective action and identify initial
contingency plans); and
3. Remediation (implement corrective action, test and verify
compliance, execute contingency plans if not compliant).
STATE OF READINESS. The Company has determined that its
semiconductor products should not produce errors processing data
as a result of Year 2000 failures, provided that all other
products (e.g., other software, hardware and electronic
components) used with the Burr-Brown semiconductor products
properly exchange accurate data. The Company's products are used
in a wide variety of applications in conjunction with other
electronic components and software from many different vendors;
to verify proper Year 2000 operation of a complete system,
customers will need to verify proper operation of each individual
component as well as the system as a whole in the specific
application environment.
The committee has completed an inventory of all domestic business
applications systems and IT infrastructure (including software,
hardware and communications infrastructure, systems developed in-
house, purchased software and hardware and services provided by
third parties). The Company began a worldwide replacement of its
primary business systems in 1994 to provide additional
significant information system functionality as well as Year 2000
readiness. This replacement is nearly complete and is intended
to be completed enterprise-wide by mid-1999. However, if this
replacement is not completed on a timely basis, Year 2000 related
failures could materially impact the Company. These primary
business application systems and IT infrastructure have been
licensed or purchased from major software and IT vendors who
represent that such systems and equipment are Year 2000
compliant. In addition to those representations, the Company is
internally assessing these systems to ensure Year 2000 compliance
in the Company's application environment. The committee has
identified certain non-critical, legacy systems and applications
that are not or may not be compliant. Specific compliance plans
are being developed for these and all other items on the
inventory. These plans include retirement, replacement,
renovation, integration and testing.
The committee is nearly complete with its inventory of Non-IT
infrastructure and has commenced the assessment phase for several
critical systems. Non-IT infrastructure includes physical
fabrication and test facilities and equipment for production.
Burr-Brown's manufacturing processes are very automated. The
preliminary inventory has identified assembly and test equipment
that contains embedded proprietary software or is integrated into
PC software databases that will need renovation or replacement.
If not remedied, it is possible that some of this infrastructure
could cease to function. The Company's investigation to date
indicates that most of this infrastructure would continue to
function, but may report inaccurate data that could result in
production inefficiencies. Remediation plans are being assessed
with the assistance of the vendors of such equipment and software.
The Company is formally communicating with significant past and
present suppliers, customers and subcontractors to determine the
extent to which they are vulnerable to Year 2000 issues. To
date, the Company has communicated with approximately 200 such
parties, and will continue to communicate with key suppliers that
are not yet compliant in an effort to eliminate or minimize any
impact their non-compliance may have on the Company's operations.
Initial feedback indicates that most of the Company's suppliers
do not expect their business operations to be interrupted or
adversely impacted by Year 2000 problems. In the event that any
significant customers and suppliers do not successfully and
timely achieve Year 2000 compliance, it is possible that the
Company's operations could be materially adversely affected.
Burr-Brown anticipates completing its remediations and
contingency plans by the third quarter of 1999, and intends to
complete Year 2000 compliance solutions for any critical systems
that might be earlier impacted by Year 2000 issues (e.g., order
entry systems) prior to any anticipated significant impact from
Year 2000 date issues. Of course, completion of the project is
contingent upon the timeliness and accuracy of software upgrades
and equipment from vendors, the adequacy and accuracy of our
internal and external resources used in assessing, remediating
and testing our internal systems for compliance, the timely
cooperation of our suppliers, subcontractors and customers, and
other potential factors. Furthermore, there can be no assurances
that implementation of the Company's Year 2000 initiatives will
fully mitigate potential failures or problems.
COST OF COMPLIANCE. Since 1994, the Company has expended
approximately $15 million on information system replacement.
For the most part, these expenditures were based on the need
to upgrade the Company's information systems rather than
achievement of Year 2000 compliance. The committee currently
anticipates spending an additional $1.5 - $2.5 million to achieve
Year 2000 compliance for presently identified IT and Non-IT
infrastructure that will require remediation. The committee has
and will continue to use, as required, external consultants to
assess and mitigate Year 2000 problems. To the extent the
Company is required to use outside consultants more than presently
anticipated, the Company's costs to address Year 2000 issues will
increase. These cost estimates may change as more information
becomes known. All Year 2000 costs have been and will continue
to be funded from operations.
CRITICAL RISKS. Although the Company intends that its Year 2000
initiative will avoid any material adverse effect on its
operations, cash flows or financial condition, it recognizes that
the occurrence of worst case Year 2000 scenarios could significantly
impede its ability to manufacture, distribute and sell its
products for an indefinite period of time. The Company is
dependent on basic public and private infrastructure for its
normal operations. In the event utilities, distribution
channels, banking systems or other fundamental services are
unavailable as a result of Year 2000 failures, this would have a
severe impact on continuing business operations. Any long-term
interruption would have a material adverse impact on the Company.
In addition, the Company does not have readily available
alternative sources of supply for certain materials and services
(e.g., specific wafer production processes). The Company would
not be able to replace these critical suppliers without
significant delay and cost.
For many reasons, it is difficult to predict or quantify the
impact that the Year 2000 problem will have on the Company, both
before and for some period after January 1, 2000. Among these
reasons are the lack of control over third party providers, the
complexity of testing interconnected systems, and the uncertainty
surrounding how other parties will deal with liability issues
raised by Year 2000 failures that may occur despite the Company's
implementation of its initiatives. The Company is not currently
aware of any material Year 2000 deficiencies associated
with its internal systems that are not being addressed or with
the adequacy of third-party systems. Nonetheless, due to the
complexity of the Year 2000 issue, there can be no assurances that
the Company will not experience unanticipated adverse
consequences or material costs caused by undetected defects,
including costs of potential litigation. The impact of such
consequences could have a material adverse effect on the
Company's business, financial condition, cash flows or results of
operations.
FACTORS AFFECTING FUTURE 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, fluctuations in manufacturing yields and the continued
service of key management, employees and providers. The Company
has experienced significant fluctuations in operating results 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.
As noted above, the industry is currently experiencing a downturn
and the Company is unable to predict the likely extent or duration
of this downturn. 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.
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.
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. 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. The recent economic instability in Japan and Southeast Asia
has had a negative impact on the Company's sales during 1998 and
there can be no assurance that this condition will not continue.
This situation could have a material adverse effect on the
Company's business, financial condition, cash flows or operating
results, particularly to the extent that this instability materially
impacts the sales of products manufactured by the Company's customers.
The Company has in the past been, and 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. From time to time, third
parties assert that the Company is infringing intellectual
property rights of such parties. There can be no assurance that
infringement claims by third parties will not be asserted against
the Company 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,
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.
The Company's success depends upon its ability to develop new
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. 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27. Financial Data Schedule.
b. Reports on Form 8-K: The Company did not file any reports
on Form 8-K during the quarter ended October 3, 1998.
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: J. SCOTT BLOUIN
---------------
J. Scott Blouin
Chief Financial Officer
Principal Accounting Officer
Date: November 16, 1998
-----------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
YEAR-TO-DATE CONSOLIDATED STATEMENT OF INCOME, CONSOLIDATED
BALANCE SHEETS, AND CONSOLIDATED STATEMENTS OF CASH FLOWS
FOUND ON PAGES 3,4,5 RESPECTIVELY, ON THE COMPANY'S FORM 10-Q
FOR THE CURRENT PERIOD ENDED AND THE PREVIOUS PERIOD ENDED,
ARE LISTED BELOW IN TABULAR FORMAT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S>
<C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> JUL-4-1998 OCT-3-1998
<CASH> 84,219 94,267
<SECURITIES> 26,103 22,064
<RECEIVABLES> 61,119 57,586
<ALLOWANCES> 958 998
<INVENTORY> 50,320 52,956
<CURRENT-ASSETS> 210,146 223,302
<PP&E> 184,442 192,426
<DEPRECIATION> 100,860 105,665
<TOTAL-ASSETS> 322,286 331,061
<CURRENT-LIABILITIES> 59,476 59,477
<BONDS> 0 0
0 0
0 0
<COMMON> 384 386
<OTHER-SE> 256,713 265,631
<TOTAL-LIABILITY-AND-EQUITY> 322,286 331,061
<SALES> 135,203 196,367
<TOTAL-REVENUES> 135,203 196,367
<CGS> 65,084 94,745
<TOTAL-COSTS> 65,084 94,745
<OTHER-EXPENSES> 20,691 30,668
<LOSS-PROVISION> 58 58
<INTEREST-EXPENSE> 201 302
<INCOME-PRETAX> 27,412 37,930
<INCOME-TAX> 7,812 10,810
<INCOME-CONTINUING> 19,600 27,120
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,600 27,120
<EPS-PRIMARY> 0.54 0.74
<EPS-DILUTED> 0.51 0.71
</TABLE>
