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, 1998
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
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(Exact Name of Registrant as Specified in its Charter)
Delaware 86-0445468
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(State of Incorporation) (IRS Employer Identification No.)
6730 South Tucson Boulevard
Tucson, Arizona 85706
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(Address of Principal Executive Offices)
(520) 746-1111
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(Registrant's Telephone Number)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
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(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.
[X]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant based on the closing price as of
March 1, 1999 was approximately $455,518,099.
There were 36,702,364 shares of Burr-Brown Common Stock
outstanding as of March 1, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the
fiscal year ended December 31, 1998--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 23, 1999--
Incorporated by reference into Part III.
<PAGE> 1
PART I
This Annual Report on Form 10-K contains forward-looking
statements which involve risks and uncertainties. These
statements are based on the Company's current assumptions,
expectations and projections about the industry and the
markets in which the Company participates. 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. The Company undertakes no obligation to
update publicly and forward-looking statements, whether as a
result of new information, future events, or otherwise.
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 industrial,
communications, consumer, and computing markets.
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, 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
microprocessors, 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. IC Insights
Inc. estimated that analog and mixed signal circuits accounted
for 17 percent of the $109 billion market for integrated
circuits in 1998.
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
<PAGE> 2
diversity of applications, analog product lines tend to be
broader and have broader customer bases than digital circuits.
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 that 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 in the electronic component industry where
its revenue is derived from the sale of the Company's full
array of products.
The following table shows the approximate product line revenues
as a percentage of total Company revenues:
<TABLE>
<CAPTION>
PRODUCT LINE 1998 1997 1996
------------ ---- ---- ----
<S> <C> <C> <C>
Analog Products 45.2 % 46.2 % 47.3 %
Mixed Signal Products 50.5 % 49.0 % 45.4 %
Other 4.3 % 4.8 % 7.3 %
</TABLE>
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 embedded 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 that 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 a computer can process it. The
Company's ADCs effect this conversion. After the computer
processes the digital signal, it is often necessary to convert
the digital signal back to analog form, and the Company's 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
<PAGE> 3
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.
The Company's products can be grouped into two broad
categories: standard linear integrated circuits (SLICs) and
application specific standard products (ASSPs). SLICs are
products that are used by a wide range of customers in a broad
variety of applications. It takes longer for these products to
reach peak revenue levels, but product life cycles tend to be
long and demand relatively stable. ASSPs target the specific
application needs of a more limited customer base. ASSPs
represent a more complete solution to specific application
needs, using standard products as building blocks to achieve
this higher level of functional integration. This affords the
Company an opportunity to further leverage its Research and
Development investment. ASSPs generally have shorter life
cycles and a shorter time to peak revenues. The Company uses
ASSPs to target high volume applications within all of its
served markets for communications, consumer, computing, and
industrial ICs. In 1998, 1997 and 1996, ASSPs generated
approximately 32 percent, 30 percent, and 23 percent,
respectively, of the Company's revenue. It is the Company's
strategic intent to expand this to half of the total revenue by
targeting large and rapidly growing applications and by
focusing more development activity on ASSPs.
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 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
satellite and cable TV systems, audio and video systems,
robotic 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
<PAGE> 4
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 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 other advanced systems using
digital signal processing (DSP) technology.
DIGITAL AUDIO AND VIDEO PRODUCTS. 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. The Company's high
speed analog-to-digital converters are used in charge coupled
device ("CCD") imaging applications such as camcorders, digital
cameras and scanners to convert the CCD analog signal to
digital for processing in the system DSP. In addition, this
has made complete "front-end" video ASSPs, combining analog-
to-digital with other circuity to handle all the signal
processing between the CCD sensor and the system's digital
processor.
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.
Burr-Brown considers III's business model to differ
strategically from the Company's core business. 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.
<PAGE> 5
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 $39.9 million in 1998, $34.0
million in 1997, and $28.5 million in 1996 for product and
process development. This represents an expenditure of
approximately 15.5 percent, 13.5 percent, and 12.9 percent of
revenue in 1998, 1997, and 1996, 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 87 new products in 1998. Many
of these products target emerging applications for which high
performance signal processing 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 160 United States and
international patents expiring from 1999 to 2017, and has
applications for approximately 60 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 is focused
primarily on large corporate customers, while the Company's
<PAGE> 6
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
half of the 1998 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 3COM, Adtran, Alcatel, Advantest, Beckman, ECI,
Echostar, Elsag Bailey, Ericsson, Fanuc, Fujitsu, Hewlett-
Packard, Hitachi, Honeywell, Lucent, Matra, Mitsubishi,
National Instruments, NEC, Nokia, Northern Telecom, PairGain,
Quadrant, Sagem, Samsung, Siemens, Sony, Teradyne, Toshiba, and
Yamaha. The Company did not have any single customer account
for 10 percent of sales in 1998. 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 50 percent of the revenue
in 1998 for analog and data conversion integrated circuits was
derived from products introduced within the preceding five
years.
Sales outside the United States accounted for approximately 65
percent of total revenues in 1998, 66 percent of total revenues
in 1997, and 66 percent of total revenue in 1996. (See the
note labeled "Business 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 and option
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, 1998, 1997, and 1996, was approximately $46.3
million, $56.5 million, and $41.0 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., ST Microelectronics,
Level One, Rockwell, 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, Mitsubishi Corporation, Wolfson Microelectronics, and
Philips Semiconductors. Many of these competitors have greater
financial, production, and marketing resources than Burr-Brown.
<PAGE> 7
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
that provide circuits for the analog and data conversion
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 PCMs, DACs,
and ADCs, 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
functional modes 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 and competitor comparisons. The Quality Program
also includes Quality System Certification (ISO9001), a
comprehensive product/process reliability monitoring program,
and a stringent Qualification Program for new products and
processes. The Company has a reputation for high quality and
highly reliable products as evidenced year after year by the
high satisfaction ratings 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 facilities in both regions. In Europe, a
product development and administrative site is located in
Livingston, Scotland. This facility designs integrated circuits
for sale in Europe and for export to other markets. At the end
of 1998, Scotland's manufacturing activities were moved to
Tucson, Arizona to consolidate manufacturing facilities. 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
<PAGE> 8
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.
HUMAN RESOURCES
At December 31, 1998, the Company employed 1,324 people
worldwide, including 769 employees in manufacturing and
assembly, 235 employees in research and development, 204 in
sales and marketing, and 116 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.
During the second half of 1998, customer demand for
semiconductor devices declined significantly, and the Company's
operating results for this period were adversely affected as a
result of this decline in demand. 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
anticipates that it may need 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
<PAGE> 9
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. (See "Foreign
Currency Risks" in the 1998 Annual Report to Stockholders on
page 34, which is included as Exhibit 13 to this report.)
A substantial portion of the Company's revenue is attributable
to sales in Japan and Southeast Asia. The recent economic
instability in certain Asian countries has marginally reduced
sales into that region. There can be no assurance that this
instability will not continue to affect the Company's operating
results or 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 organiza-
tions 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,
<PAGE> 10
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. 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. 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. Although
the Company is not currently aware of any material Year 2000
deficiencies associated with its internal systems (that are
not being addressed) or with respect to the adequacy of third-
party systems, there can be no assurances, due to the complexity
of the Year 2000 issue, 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, or
results of operations. For more detailed information on Burr-
Brown's Year 2000 initiative and state of readiness, see the
disclosure under the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
on pages 30 through 32 of the 1998 Annual Report to
Stockholders, which is included as Exhibit 13 to this report.
ITEM 2. PROPERTIES
Burr-Brown has manufacturing and/or 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 six company-owned buildings, aggregating
281,000 square feet, on its 33 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 $576,000 per year. The Company also owns
approximately 120 acres of land in Tucson which is being held
in reserve for future expansion.
In December 1998, the Company's Scottish subsidiary purchased a
12,000 square foot building in Livingston, Scotland which
houses product development and administrative offices. The
Scottish subsidiary also owns approximately 20 acres of land in
Livingston, 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
<PAGE> 11
facility which expires in 2001. Also, the Company has other
various sales offices that lease space under agreements with
varying maturities.
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 $75,000, $200,000, and $149,000 of
remediation expense in 1998, 1997, and 1996, respectively.
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
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
At December 31, 1998, there were four individuals designated as
executive officers by the Board of Directors. The following
sets forth certain information with regard to the three
executive officers of Burr-Brown who are not Directors:
J. Scott Blouin - Chief Financial Officer Age 48
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 58
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.
Bryan Rooney - Vice President, Sales Age 51
Mr. Rooney is responsible for the Company's American and
European sales operations. He joined the Company in 1996.
Prior to joining the Company, from 1988 to 1996, Mr. Rooney
held senior management positions with Brooktree Inc., a
semiconductor manufacturer that is now a division of Rockwell,
first as National Sales Manager, then as Vice President of
Worldwide Sales and finally as the Managing Director for
Europe. Prior to that, Mr. Rooney held management positions
with Silicon Systems, Monolithic Memories, Inc., and Analog
Devices. Mr. Rooney holds an HNC degree in electrical
engineering from Strathelyde University, Scotland.
<PAGE> 12
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 1998 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 1998 Annual Report to Stockholders on page 36, 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 27 through 35 of the 1998 Annual Report to Stockholders,
which is included as Exhibit 13 to this report.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information required by this item is incorporated by
reference to the sections entitled "Interest Rate Risks" and
"Foreign Currency Risks" in the 1998 Annual Report to
Stockholders on pages 33 and 34, which is included as Exhibit
13 to this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by
this item appear in the 1998 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 1999 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 11 of the Registrant's Proxy
Statement for the 1999 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 "Security Ownership
of Principal Stockholders and Management" on pages 2 and 3 of
the Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE> 13
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 1998 Annual Report to Stockholders:
PAGES OF 1998 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, 1998, 1997, and 1996 12
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1998, 1997,
and 1996 13
Consolidated Balance Sheets at December 31, 1998,
1997, and 1996 14
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997, and 1996 15
Notes to Consolidated Financial Statements 16-25
Form 10-K
a(2) Financial Statement Schedules for the years Page
ended December 31, 1998, 1997, and 1996:
Schedule II - Valuation and Qualifying Accounts 17
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.
<PAGE> 14
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 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.
Amendment to Employee Retirement Plan dated December 18,
1998, filed herein.
10.4 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 theRegistrant's 10-K filing for the period
ended December 31, 1991.
10.5 Trust Agreement for Future Investment Plan Trust
dated December 1, 1998, between Burr-Brown Corporation
and Fidelity Management Trust Company, filed herein.
10.6 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.
10.7 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.
10.8 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 December 2, 1998, filed herein.
10.9 Burr-Brown Employee Stock Purchase Plan dated August
1, 1998, incorporated by reference to Exhibit 99.8 to the
Registrant's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on July 7,
1998.
13. Portions of the Annual Report to Stockholders for the
year ended December 31, 1998 are expressly incorporated
by reference into this Annual Report on 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, incorporated by reference from
page 16 hereof.
27. Financial Data Schedules, filed herein.
b. No reports on Form 8-K have been filed during the fourth
quarter of 1998.
<PAGE> 15
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 29, 1999
---------------
Syrus P. Madavi
Chairman of the Board, President
and Chief Executive Officer
J. SCOTT BLOUIN Date: March 29, 1999
---------------
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 Chairman of the Board, March 29, 1999
- --------------- President and Chief
Syrus P. Madavi Executive Officer
J. SCOTT BLOUIN Chief Financial March 29, 1999
- --------------- Officer
J. Scott Blouin
THOMAS R. BROWN, Jr. Director March 29, 1999
- ---------------
Thomas R. Brown, Jr.
FRANCIS J. AGUILAR Director March 29, 1999
- ------------------
Francis J. Aguilar
JOHN S. ANDEREGG, Jr. Director March 29, 1999
- ---------------------
John S. Anderegg, Jr.
MARCELO A. GUMUCIO Director March 29, 1999
- ------------------
Marcelo A. Gumucio
<PAGE> 16
BURR-BROWN CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of dollars)
Years Ended December 31, 1998, 1997, And 1996
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. F
Additions Deductions(1) Balance
Balance At Charges & Currency At End
Beginning To Costs Translation Of
Classification Of Period & Expenses Effect Period
- -------------- --------- ---------- ----------- -------
<S> <C> <C> <C> <C>
1998
- ----
Allowance for
Doubtful Accounts $1,025 $ 91 $( 50) $1,066
1997
- ----
Allowance for
Doubtful Accounts $1,081 $125 $(181) $1,025
1996
- ----
Allowance for
Doubtful Accounts $1,346 $ 45 $(310) $1,081
</TABLE>
[FN]
(1) Uncollectible accounts written off, net of recoveries.
Note: Column E - Other is zero
<PAGE> 17
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
<PAGE> 18
EXHIBIT 23
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 19, 1999, included in the 1998 Annual Report to
Stockholders of Burr-Brown Corporation.
Our audits also included 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. 333-58599) pertaining to
the Burr-Brown Corporation 1993 Stock Incentive Plan and 1998
Employee Stock Purchase Plan and in the Registration Statement
(Form S-8, No. 333-02059) pertaining to the Burr-Brown
Corporation Future Investment Trust of our report dated
January 19, 1999, 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.
Tucson, Arizona
March 24, 1999
/s/Ernst & Young LLP.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
EXHIBIT 27 - 1998 FINANCIAL DATA SCHEDULES
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 72,427 54,284 38,433
<SECURITIES> 47,829 44,767 50,944
<RECEIVABLES> 54,677 55,689 39,546
<ALLOWANCES> 1,066 1,025 1,081
<INVENTORY> 52,296 44,533 49,570
<CURRENT-ASSETS> 199,427 172,548 153,528
<PP&E> 200,955 174,519 151,497
<DEPRECIATION> 108,791 95,053 83,967
<TOTAL-ASSETS> 338,691 299,388 261,588
<CURRENT-LIABILITIES> 58,055 58,531 55,614
<BONDS> 0 0 0
<COMMON> 386 380 166
0 0 0
0 0 0
<OTHER-SE> 273,127 234,536 199,240
<TOTAL-LIABILITY-AND-EQUITY> 338,691 299,388 261,588
<SALES> 258,094 252,102 219,997
<TOTAL-REVENUES> 258,094 252,102 219,997
<CGS> 125,446 125,075 109,228
<TOTAL-COSTS> 125,446 125,075 109,228
<OTHER-EXPENSES> 87,995 83,459 80,654
<LOSS-PROVISION> 105 125 45
<INTEREST-EXPENSE> 544 448 700
<INCOME-PRETAX> 48,455 46,660 39,844
<INCOME-TAX> 12,598 13,998 10,160
<INCOME-CONTINUING> 35,857 32,662 29,684
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 35,857 32,662 29,684
<EPS-PRIMARY> 0.98 0.91 0.82
<EPS-DILUTED> 0.94 0.86 0.79
<PAGE> 19
</TABLE>
Exhibit 13 - Annual Report
CORPORATE PROFILE:
Burr-Brown Corporation is a leading
supplier of high performance analog and
mixed signal integrated circuits for use in
data conversion and signal conditioning
applications throughout the world.
COMPANY FACTS:
- - Founded in 1956
- - 1250 employees
- - 1200+ products
- - Manufacturing and technical facilities:
Tucson, Arizona; Atsugi, Japan;
Livingston, Scotland
- - 7 North American direct sales offices, and
28 sales representatives and distributors
- - International sales and distribution
subsidiaries in France, Germany, Italy,
Japan, the Netherlands, Switzerland, and the
United Kingdom; 52 sales representatives
throughout the rest of the world
BURR-BROWN PRODUCTS:
- - Precision operational, instrumentation,
power, and isolated amplifiers
- - Data converters, D/As and A/Ds
- - High performance digital audio D/As
- - General purpose analog circuit functions
- - Optoelectronics sensor amplifiers
BURR-BROWN MARKETS:
- - Industrial control and automation for
factories and laboratories
- - Precision test and measurement equipment
- - Telecommunications systems
- - Medical and scientific instrumentation
- - Medical imaging
- - Digital audio and video
- - Electronic musical instruments and
professional audio equipment
- - Computers and peripherals
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS: (In thousands, except per share amounts)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Revenue $258,094 $252,102 $219,997 $269,162* $194,196
Income From
Operations $ 44,653 $ 43,568 $ 30,115 $ 40,535 $ 10,527
Net Income $ 35,857 $ 32,662 $ 29,684 $ 29,212* $ 6,465
Diluted Earnings
Per Share $ 0.94 $ 0.86 $ 0.79 $ 0.83 $ 0.20
Stockholders'
Equity $273,513 $234,916 $199,406 $179,145 $ 87,622
</TABLE>
[FN]
*Includes $26 million revenue and $1.14 million of net income
from a subsidiary that was sold in 1st Quarter 1996.
<PAGE> 1
TO OUR SHAREHOLDERS:
Burr-Brown achieved good performance during 1998, despite the
difficult business conditions that prevailed in the
semiconductor industry for most of the year. For the fourth
consecutive year, we set new company records for profitability
and the number of new products brought to market. As evidenced
by design wins, our products introduced during the last several
years have been very well received by our customers. As a
result, we now participate broadly in many of today's most
exciting and rapidly developing markets. Consequently, Burr-
Brown enters 1999 poised to take advantage of rapidly expanding
opportunities for high performance analog and mixed signal
integrated circuits.
FINANCIAL PERFORMANCE:
The Company's 1998 revenue was $258.1 million and net income
was a record $35.9 million. As compared to 1997, this
represented a 9.8% increase in profit on revenue growth of
2.4%. The improvements in gross margin and reduction in sales,
marketing, general and administrative expense demonstrate the
increased operating efficiencies that we were able to achieve.
These improvements not only increased profit but also allowed
us to increase investment in research and development by nearly
18%. The Company's financial position also strengthened during
1998. Cash and equivalents increased by 21.4% to over $120
million, and stockholders' equity increased by 16.4% to $273.5
million.
NEW PRODUCTS:
Our new product program continued to gain momentum in 1998,
with a record 87 new products introduced. Many of these
products are standard linear integrated circuits (SLICs) that
are used for a broad array of applications by diverse customers
in many markets. An increasing number of products are
application specific standard products (ASSPs) which target
large and rapidly emerging applications within communications,
consumer, industrial and computing markets. Examples include
highly integrated ASSPs developed for broadband communications,
CT scanners, digital camcorders, digital still cameras and
scanners. In many instances, these products represent the
enabling technologies in terms of both cost and performance
that make our customers' products economically viable. The more
effectively we can meet our customers' cost and performance
requirements, the more elastic these markets become, leading to
greater growth opportunities. New products introduced in the
past five years are now the source of half of our annual revenue.
We firmly believe that this demonstrates the continued success
of our strategy to bring high performance products to high
volume signal processing applications.
The following table represents a graph which has been omitted
for the electronic filing.
<TABLE>
<CAPTION>
New Products
(number of introductions)
------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of
Products
Introduced 28 38 65 79 87
</TABLE>
<PAGE> 2
MARKETS FOCUS:
1998 marked the first year that more than half of the Company's
revenue was derived from its newer served communications,
consumer and computing markets. Revenue from the communications
market, where we have established significant positions in
wireline and wireless applications, grew by more than 25% in
1998 and now accounts for nearly a quarter of our sales.
Another quarter now comes from the consumer and computing
markets. At the same time, we plan to continue to emphasize the
industrial market, which presents us with a stable, diverse and
profitable business. As a whole, we intend to approach these
markets in a synergistic and diversified manner, taking full
advantage of the expertise that we have developed in our
traditional markets to address the needs of today's rapidly
emerging markets. We believe this to be the best path to
accelerate both growth and profitability.
The following table represents a graph which has been omitted
for the electronic filing.
1998 Revenue by Market
----------------------
Communications 23%
Computing 05%
Digital Audio/Video 25%
Industrial 47%
OUTLOOK:
We expect that industry conditions will improve in 1999 and
that we are ready to take great advantage of that improvement.
Improved market conditions will enable us to set new company
records for financial performance, new product output and
design wins in the coming year. We firmly believe that the
analog IC business is a good place to be and that our strategy
and execution of the recent years has positioned us well within
it.
We thank you, our shareholders, for your continued support. We
remain committed to maximizing the value of your investment in
Burr-Brown.
/s/ S.P. Madavi
- ---------------
Syrus P. Madavi
Chairman, President and CEO
<PAGE> 3
ANALOG IS THE PLACE TO BE:
The world we comprehend is analog. Sound, pressure,
temperature....all physical phenomena and sensations are analog in
nature. As the costs of computing and data storage plummet, it
is becoming more economically viable to use digital signal
processing (DSP) to measure and control the analog world around
us. In order to do so, the real-world signal must first be
converted from the analog to the digital domain. Therefore,
the digital revolution fuels an analog revolution. The need for
linking the two domains---analog and digital---real and
mathematical---expands in lockstep.
What key product areas do analog and mixed-signal integrated
circuits (ICs) fulfill? The input and output devices connecting
electronic systems to the physical world demand a huge variety
of amplifiers, signal isolation barriers, and power output
devices. The control of the power that drives these systems
demands analog solutions in the form of regulators, converters,
and references. And, conversion of digital signals into and out
of the analog domain drives a rapidly growing demand for Analog-
to-Digital (A/D) and Digital-to-Analog (D/A) converters of all
types. Burr-Brown products compete in all these areas and more.
Optimizing the interface between digital and analog signals in
an electronic system can be a critical factor in achieving
breakthrough performance. In many cases, moving that interface
to an analog chip can be of great value to the system designer.
Our mixed-signal design and process capabilities extend our
ability to include digital circuit functions on-board our
products and increases the value provided to the customer.
Although digital and analog companies share the same growth
drivers, the business models are markedly different. Analog
products tend to have longer life cycles and more stable
pricing. Product diversity creates a unique analog design
requirement for specialized engineering talent which serves as
a sustainable barrier to entry by competitors.
As electronic signal processing becomes more pervasive, the
need for fast, accurate, and less expensive ways for getting
signals to, and from, the physical world grows accordingly.
This is the unique opportunity for analog technology...This is
the place to be...This is where you will find Burr-Brown.
<PAGE> 4
No Matter How Pervasive Digital Becomes...The World Will Always
Be Analog.
As electronic signal processing becomes more pervasive, the
need for fast, accurate, and less expensive ways for getting
signals to, and from, the physical world grows accordingly.
The following table represents a graph which has been omitted
for the electronic filing.
Worldwide
Analog Market*
(in billions)
40 ------------------------
-----------------------x
30 -----------------------X
------------------X----X
20 --------x----X----X----X
--X-----X----X----X----X
10 --X-----X----X----X----X
--X-----X----X----X----X
- ---------------------------
1998 1999 2000 2001 2002
<F/N>
*Source: WSTS, IC Insights
<PAGE> 5
TRADITIONAL AND EMERGING MARKETS:
Traditionally, the definition of our products and the majority
of our revenue came from industrial markets---industrial control,
process control, test, and instrumentation. And although this
market has been stable in its growth, our high performance
analog and mixed-signal technology has become a critical
complement to digital signal processing (DSP) in opening up a
new range of high growth applications. Within the last five
years, we have rebalanced our market strategies from a
dependency on industrial applications for the majority of our
revenue, to a majority of revenue derived from emerging growth
markets.
In communications, computing, and consumer audio applications
we have been able to target OEM customers that require
performance analog and mixed-signal ICs in high volume.
Targeted applications in these markets push the performance
limits of linear ICs in all dimensions: high precision, package
size, power dissipation, functionality, speed---and price. By
filling these unique sockets, Burr-Brown is positioned as a
strategic supplier with enabling technologies that help our
customers create and expand their markets.
For example, our recently introduced low cost, high performance
operational amplifiers have been designed into several brands
of next-generation cellular handsets. Similarly, our new line
of single-chip video signal processing products, with the
capability to condition and convert low level signals
transmitted directly from a CCD imaging chip and operate from
three volts, have been well received for a wide range of
consumer applications from camcorders to digital still cameras.
A third example of extending our product development activities
into emerging markets is the introduction of specialized mixed-
signal audio products that meet the standards of the Digital
Versatile Disc (DVD) market.
Our plan is to broaden our presence in all of our
markets---industrial, communications, consumer, and computing. We
will continue our strategy of providing a wide selection of
standard high performance ICs that serve tens of thousands of
customers worldwide, while at the same time we are accelerating
our efforts in growth markets by developing application
specific products which will create large volume opportunities.
<PAGE> 6
Communications, computing, and consumer audio are emerging
markets. For example, the worldwide market for digital cameras
is projected to grow significantly for the next several years.
The following table represents a graph which has been omitted
for the electronic filing.
Worldwide Market for
Digital Still Cameras*
(in Millions)
20 ---------------------------------------
--------------------------------------X
15 -----------------------------X--------X
-------------------X---------X--------X
10 -------------------X---------X--------X
---------X---------X---------X--------X
5 ---------X---------X---------X--------X
--X------X---------X---------X--------X
- --------------------------------------------
1998 1999 2000 2001 2002
<F/N>
* Source: Cahners In-Stat Group
Burr-Brown's video signal processing products are targeted for
this market---providing single chip solutions for amplifying
and converting signals directly from a CCD to a DSP for image
processing.
<PAGE> 7
APPLICATION SPECIFIC STANDARD PRODUCTS:
Consistent with our strategy to increase our focus on high
growth markets, our product development efforts target
Application Specific Standard Products (ASSPs). We work with
key customers to design products that are targeted for a unique
application or industry standard, but unlike custom products,
can be used by all customers in that specific application.
From our point of view, ASSPs have the advantage of rapid ramp
up to production volume as the product is predefined to the
system designer's needs. This significantly streamlines the
customer's design and development process. The customer usually
achieves breakthrough performance and cost for his product by
using an ASSP that may not have been possible using standard
catalog products. Furthermore, the customer usually considers
the development of an ASSP to be a strategic partnership and
will only collaborate with a few select suppliers.
As an example, we have developed application specific products
for digital subscriber line (xDSL) technology---a high data rate
transfer system using the copper wiring in the existing
telephone system infrastructure. One implementation, HDSL,
currently provides the most cost effective way for telephone
companies to provide high speed data transfer to business
customers. Soon HDSL's evolutionary cousin, ADSL, will provide
even higher performance levels of digital service at the
consumer level. Our ASSPs provide the telephone line driving
and receiving capability, as well as the data conversion needed
to transform the signal to and from the digital domain for
processing.
Another recently developed ASSP is a data converter designed as
a touch screen controller for Personal Digital Assistants
(PDAs) and other touch screen applications. This product
provides, in a single chip, the circuitry required for a touch
screen interface, including drivers. The converter controls the
analog screen sensing and provides a digital code to the CPU
defining the "touched" screen location.
In the past four years, the contribution of ASSP products to
sales revenue has increased by more than 50%, and we are on
course for having standard products and ASSPs contribute
equally to our revenue within five years.
<PAGE> 8
The Digital Subscriber Line (DSL) market is emerging. This
technology utilizes existing copper telephone wires to transmit
internet data at rates up to 40 times faster than current
modems.
The following table represents a graph which has been omitted
for the electronic filing.
Worldwide ADSL Customer
Premise Modems*
(total units in millions)
15 ------------------------------------
---------------------------------X--
10 ---------------------------------X--
-----------------------X---------X--
5 -----------------------X---------X--
---------------X-------X---------X--
1 ---------------X-------X---------X--
--------X------X-------X---------X--
--------X------X-------X---------X--
-x----------------------------------
1998 1999 2000 2001 2002
<F/N>
* Source: Cahners In-Stat Group
Burr-Brown's analog front-end (AFE) products provide an
enabling technology for transmitting and receiving signals for
DSL modems.
<PAGE> 9
FOCUS ON STRATEGIC MARKETS:
As part of its development of high performance, high-volume
analog and mixed-signal products, Burr-Brown has focused
efforts on four key markets determined to provide the largest
growth opportunities in coming years.
INDUSTRIAL:
This is a traditional Burr-Brown market with a broad range of
applications requiring the acquisition, amplification, and
conversion of `real-world' signals to the digital domain. This
market includes industrial data acquisition, analytical
instrumentation, and automatic test equipment.
COMMUNICATIONS:
Targeting two of the fastest growing sectors, wireless
basestations and wired broadband applications, Burr-Brown's
communications sales continued to grow in 1998. Explosive
growth is anticipated in Digital Subscriber Line (DSL) and
wireless applications.
CONSUMER:
An acknowledged leader in digital audio and video for consumer
applications, Burr-Brown has been able to extend its
performance products into other consumer applications such as
pagers and set-top-boxes.
COMPUTING:
Key products facilitate the expanding functionality of personal
computers, particularly addressing the requirement for CD-
quality sound in multimedia systems. Computer system power
management and distribution present diverse and increasingly
more complex needs for analog and mixed-signal ICs.
<PAGE> 10
FINANCIAL INFORMATION:
CONSOLIDATED STATEMENTS OF INCOME
Burr-Brown Corporation and Subsidiaries -In thousands, except
per share amounts
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------
Net revenue $ 258,094 $ 252,102 $ 219,997
Cost of goods sold 125,446 125,075 109,228
------- ------- -------
Gross margin 132,648 127,027 110,769
% of revenue 51% 50% 50%
Expenses:
Research and development 39,893 33,951 28,452
% of revenue 15% 13% 13%
Sales, marketing, general,
and administrative 48,102 49,508 52,202
% of revenue 19% 20% 24%
------- ------- -------
Total operating expenses 87,995 83,459 80,654
% of revenue 34% 33% 37%
Income from operations 44,653 43,568 30,115
% of revenue 17% 17% 14%
Interest expense 544 448 700
Gain from sale of
subsidiary ( 7,180)
Other income ( 4,346) ( 3,540) ( 3,249)
-------- -------- --------
Income before income
taxes 48,455 46,660 39,844
% of revenue 19% 19% 18%
Provision for income
taxes 12,598 13,998 10,160
Effective tax rate 26% 30% 25%
------- ------- -------
Net income $ 35,857 $ 32,662 $ 29,684
% of revenue 14% 13% 13%
======= ======= =======
Basic earnings
per common share $ .98 $ .91 $ .82
======= ======= =======
Shares used in basic
per share calculation 36,670 36,054 36,003
======= ======= =======
Diluted earnings
per common share $ .94 $ .86 $ .79
Shares used in diluted ======= ======= =======
per share calculation 38,279 37,935 37,510
======= ======= =======
<FN>
See Notes to Consolidated Financial Statements.
<PAGE> 12>
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Burr-Brown Corporation and Subsidiaries-In thousands
<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-In Retained
Shares Amount Capital Earnings
-------------------------------------------
<S> <C> <C> <C> <C>
Balance at
January 1, 1996 16,536 $ 165 $ 89,698 $ 87,801
Net income 29,684
Foreign currency
translation
adjustment
-------------------------------------------
Comprehensive income
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
Net income 32,662
Foreign currency
translation
adjustment
Unrealized gains on
investments
-------------------------------------------
Comprehensive income
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)
Announced stock split
at three-for-two 12,662 127 (127)
===============================================================
Balance at
December 31, 1997 37,985 380 94,779 149,915
Net income 35,857
Foreign currency
translation adjustment
Unrealized losses on
investments
Unrealized losses on
hedging transactions
-------------------------------------------
Comprehensive income
Stock options
exercised 606 6 5,393
Treasury stock
acquired
Affiliate's stock
activity 40 (477)
==============================================================
Balance at
December 31,1998 38,591 $ 386 $ 100,212 $ 185,295
==========================================
</TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - Continued
<TABLE>
<CAPTION>
Accumulated
Other Treasury Stock
Comprehensive ---------------
Income Shares Amount Total
-------------------------------------------
<S> <C> <C> <C> <C>
Balance at
January 1, 1996 $ 3,162 252 $(1,681) $ 179,145
Net income 29,684
Foreign currency
translation
adjustment (281) (281)
-------------------------------------------
Comprehensive income 29,403
Stock options exercised 629
Treasury stock
acquired 492 (9,753) (9,753)
Affiliate's stock
activity (18)
===============================================================
Balance at
December 31, 1996 2,881 744 (11,434) 199,406
Net income 32,662
Foreign currency
translation
adjustment (1,693) (1,693)
Unrealized gains on
investments 193 193
-------------------------------------------
Comprehensive income 31,162
Stock split at
three-for-two 373
Stock options
exercised 4,667
Treasury stock
acquired 3 (105) (105)
Affiliate's stock
activity (214)
Announced stock split
at three-for-two 560
===============================================================
Balance at
December 31, 1997 1,381 1,680 (11,539) 234,916
Net income 35,857
Foreign currency
translation
adjustment 1,537 1,537
Unrealized losses on
investments (28) (28)
Unrealized losses on
hedging transactions (151) (151)
-------------------------------------------
Comprehensive income 37,215
Stock options exercised 5,399
Treasury stock acquired 171 (3,580) (3,580)
Affiliate's stock activity (437)
===============================================================
Balance at
December 31, 1998 $ 2,739 1,851 $(15,119) $ 273,513
===========================================
<FN>
See Notes to Consolidated Financial Statements.
<PAGE> 13
</TABLE>
CONSOLIDATED BALANCE SHEETS
Burr-Brown Corporation and Subsidiaries- In thousands
<TABLE>
December 31, 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 72,427 $ 54,284 $ 38,433
Short-term investments 3,620 14,407
Trade receivables 54,677 55,689 39,546
Inventories 52,296 44,533 49,570
Deferred income taxes 6,447 7,973 6,705
Prepaid expenses and other 9,960 10,069 4,867
---------------------------------
Total Current Assets 199,427 172,548 153,528
LONG-TERM INVESTMENTS 44,209 44,767 36,537
LAND, BUILDINGS, AND EQUIPMENT
Land 5,145 3,418 3,427
Buildings and improvements 28,214 25,690 25,344
Equipment 167,596 145,411 122,726
---------------------------------
200,955 174,519 151,497
Less accumulated depreciation
and amortization (108,791) (95,053) (83,967)
---------------------------------
92,164 79,466 67,530
OTHER ASSETS 2,891 2,607 3,993
---------------------------------
$338,691 $ 299,388 $261,588
================================
LIABILITIES and STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 17,289 $ 9,991 $ 14,533
Accounts payable 16,179 18,203 17,641
Accrued expenses 3,649 4,678 3,568
Accrued employee compensation
and payroll taxes 6,056 9,299 8,194
Deferred profit from
distributors 8,790 8,318 7,462
Income taxes payable 4,857 7,370 3,129
Current portion of
long-term debt 1,235 672 1,087
---------------------------------
TOTAL CURRENT LIABILITIES 58,055 58,531 55,614
Long-Term Debt 2,921 1,482 1,830
Deferred Gain 1,122
Deferred Income Taxes 3,547 3,774 1,709
Other Long-Term Liabilities 655 685 1,907
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: 1998-38,591
shares, 1997-37,985 shares,
1996-37,381 shares 386 380 166
Additional paid-in capital 100,212 94,779 90,326
Retained earnings 185,295 149,915 117,467
Accumulated other
comprehensive income 2,739 1,381 2,881
Treasury stock, at cost:
1998-1,851 shares, 1997-1,680
shares, 1996-1,674 shares (15,119) (11,539) (11,434)
---------------------------------
273,513 234,916 199,406
---------------------------------
$338,691 $299,388 $261,588
================================
<FN>
See Notes to Consolidated Financial Statements.
<PAGE> 14
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Burr-Brown Corporation and Subsidiaries- In thousands
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 35,857 $ 32,662 $ 29,684
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and
amortization 16,928 13,834 13,272
Amortization of deferred gain (1,122) (1,497)
Provision for (benefit from)
deferred income taxes 1,271 589 (1,908)
Increase in deferred profit
from distributors 472 856 1,264
Gain from sale of subsidiary (7,180)
Other 750 418 (129)
Changes in Operating Assets and Liabilities:
(Increase) decrease in
trade receivables 3,697 (19,368) 10,969
(Increase) decrease in
inventories (7,047) 3,781 (5,482)
(Increase) decrease in
other assets 327 (4,266) (2,400)
Increase (decrease) in
accounts payable (2,871) 1,264 2,341
Increase (decrease) in
accrued expenses and
other liabilities (7,260) 6,376 (7,921)
----------------------------------
Net Cash Provided by
Operating Activities 42,124 35,024 31,013
INVESTING ACTIVITIES
Purchases of investments (39,829) (103,484) (50,944)
Maturities of investments 36,852 109,979 43,738
Purchases of land, buildings,
and equipment (26,474) (25,637) (31,919)
Proceeds from sale of
equipment 176 85 415
Proceeds from sale of
subsidiary 12,804
----------------------------------
Net Cash Used In Investing
Activities (29,275) (19,057) (25,906)
FINANCING ACTIVITIES
Proceeds from short-term and
long-term borrowings 5,092 770
Payments on short-term and
long-term borrowings (737) (4,348) (1,160)
(Payments for) proceeds
from capital stock
activity, net 1,382 4,343 (9,142)
----------------------------------
Net Cash Provided by (Used In)
Financing Activities 5,737 (5) (9,532)
Effect of exchange rate
changes on cash and
cash equivalents (443) (111) 381
----------------------------------
Increase (Decrease) in Cash and
Cash Equivalents 18,143 15,851 (4,044)
Cash and cash equivalents at
beginning of year 54,284 38,433 42,477
----------------------------------
Cash and Cash Equivalents at
End of Year $ 72,427 $ 54,284 $ 38,433
==================================
<FN>
See Notes to Consolidated Financial Statements.
<PAGE> 15
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Burr-Brown Corporation and Subsidiaries- In thousands, except
per share amounts
December 31, 1998
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.
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, with appropriate provision for sales returns.
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
included as a component of accumulated other comprehensive
income. 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, trade receivables, and
foreign currency contracts.
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 at 1996 year-
end, while fair value exceeded cost by $319 and $278 at 1997
and 1998 year-end, respectively (see note entitled 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.
Credit risk with respect to foreign currency contracts is
mitigated by maintaining relationships with major U.S. banks
and arranging foreign currency hedging products with such
banks. The fair value of foreign currency contracts was ($244)
at December 31, 1998 (see note entitled Foreign Currency
Contracts and Hedging Activities).
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 1998 or 1996.
<PAGE> 16
ACCOUNTING POLICIES (continued)
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 Accounting Principles Board 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 effective
March, 1998.
ACCUMULATED OTHER 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 SFAS No. 130 had no impact on the
Company's consolidated results of operations, financial
position, stockholders' equity or cash flows. SFAS No. 130
requires foreign currency translation adjustments and
unrealized gains or losses on investments, which prior to
adoption were reported separately in stockholders' equity, as
well as unrealized gains or losses on cash flow hedges upon
adoption of SFAS No. 133, to be included in other comprehensive
income. Prior year financial statements have been reclassified
to conform to the requirements of SFAS No. 130. Accumulated
other comprehensive income consists of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Foreign Currency
Translation Adjustment $ 2,725 $ 1,188 $ 2,881
Unrealized gains on
investments 165 193
Unrealized losses on
cash flow hedges (151)
--------------------------------------
$ 2,739 $ 1,381 $ 2,881
======================================
</TABLE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In March 1998,
the AICPA issued SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED FOR OR OBTAINED FOR INTERNAL USE. The
Company adopted the SOP on January 1, 1999. The SOP requires
the capitalization of certain costs incurred after the date of
adoption in connection with developing or obtaining software
for internal use. As the Company already has a policy of
capitalizing internal use software, the Company does not
believe that the adoption of this SOP will have a material
effect on the Company's consolidated results of operations or
financial position.
<PAGE> 17
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, 1998, the Company had no investments
maturing after December 1, 2000.
The fair value of cash equivalents and investments at December
31, 1998, 1997, and 1996, classified as available for sale,
consisted of:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
U.S. Treasury and Government
Agency Securities $ 18,900 $ 21,963
Municipal Bonds $ 56,167 31,065 25,979
Mutual Funds investing
in various debt
securities 46,700 16,342 27,869
----------------------------------
$102,867 $ 66,307 $ 75,811
==================================
</TABLE>
Fair value exceeded cost by $278 and $319 at December 31, 1998
and 1997, respectively, while approximating cost at December
31, 1996. The unrealized gain at December 31, 1998 and 1997,
net of tax, is reported as a component of accumulated other
comprehensive income. Fair value for such securities is
determined based on quoted market price.
Income received from cash equivalents and investments
(classified as other income) was $4,432, $3,624, and $3,740, in
1998, 1997, and 1996, respectively.
INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------
Finished goods $ 17,816 $ 12,206 $ 18,383
Work-in-process 25,718 22,719 20,227
Raw materials 8,762 9,608 10,960
---------------------------------------
$ 52,296 $ 44,533 $ 49,570
=======================================
</TABLE>
FOREIGN CURRENCY CONTRACTS AND HEDGING ACTIVITIES
Due to the Company's significant international sales, both to
unafilliated customers and to its foreign subsidiaries, the
Company is exposed to the effect of foreign exchange rate
fluctuations on the future U.S. dollar value of its sales as
well as the U.S. dollar value of its accounts receivable
denominated in foreign currencies. For currencies other than
the Japanese yen, the Company mainly uses the natural hedges
resulting from intercompany payables and expenses incurred in
local currencies to dampen the effect of foreign currency
fluctuations. Due to the significance of Japan to its
consolidated operations, the Company uses foreign currency
contracts to hedge forecasted sales transactions against
foreign currency fluctuations. The Company from time to time
may also use foreign currency forward contracts to hedge
accounts receivable denominated in Japanese yen.
The Company adopted SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, as of October 4, 1998, the
first day of its fourth fiscal quarter in 1998. There was no
impact on consolidated income or on consolidated accumulated
other comprehensive income from adopting SFAS No. 133. At
December 31, 1998, all of the Company's foreign currency
contracts were designated as cash flow hedges against
forecasted sales to the Company's Japanese subsidiary. The
Company assesses the effectiveness of its foreign currency
forward contracts using the spot rate, and views the option
premium as the inherently ineffective portion of their foreign
currency purchased option contracts. The ineffectiveness
resulting from such contracts is reflected in other income
(expense) and was immaterial to 1998 operations. The losses
deferred as other comprehensive income amounted to $151 net of
the deferred tax effect of $93. Such amounts will be reflected
in the income statement between January and June, 1999, as the
forecasted transactions occur.
The following table presents the gross notional amounts of
these foreign currency contracts and their fair value (based on
prices or forward rates quoted by dealers) as of December 31,
1998:
Foreign Currency Contracts-Japanese Yen
<TABLE>
<CAPTION>
Notional Fair Value
- ------------------------------------------------------------
<S> <C> <C>
Forward contracts $ 8,753 $ (244)
Purchased option contracts 6,201
------------------------------
$ 14,954 $ (244)
==============================
</TABLE>
Prior to adopting SFAS No. 133, the Company marked all foreign
currency forward contracts which hedged accounts receivable to
market, with the resulting gain or loss included as other
income (expense). Gains under foreign currency purchased option
contracts which were designated and effective as hedges of
forecasted sales transactions were deferred until realized, at
which time they were reported as revenue in the consolidated
financial statements. Such realized and unrealized gains and
losses are insignificant for all periods presented.
<PAGE> 18
NOTES PAYABLE
The Company has available short-term credit facilities of
approximately $31,276 with $17,289 outstanding as of December
31, 1998. 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 1998, 1997, and 1996
were 1.6%, 1.7%, and 3.3%, respectively. These credit
facilities are renewable annually at various dates.
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Capitalized lease
arrangements-various
terms and interest
rates $ 4,156 $ 2,154 $ 2,812
Other 105
-------------------------------------
4,156 2,154 2,917
Less current portion 1,235 672 1,087
-------------------------------------
$ 2,921 $ 1,482 $ 1,830
=====================================
</TABLE>
The Company has a $10 million revolving line of credit with a
major U.S. bank. The Company can borrow at LIBOR + 1.25% or the
bank's Prime rate or the bank's "bid rate." The Company may
select terms of 30, 60, 90, and 120 days for LIBOR borrowings.
The revolving line of credit carries an annual commitment fee
of 1/4 % on the unused portion of the commitment. The loan
agreement has current ratio and net worth covenants. As of
December 31, 1998, the Company is in compliance with all
covenants and conditions contained in the loan agreement. The
loan agreement does not require compensating balances. The
Company's revolving line of credit terminates at May 5, 2000.
Under the various long-term debt agreements consisting
exclusively of capital lease obligations, the Company is
obligated to pay the following principal amounts for each of
the next five years:
<TABLE>
<CAPTION>
<S> <C>
1999 ..................$ 1,235
2000 ..................$ 1,151
2001 ..................$ 816
2002 ..................$ 668
2003 ..................$ 286
</TABLE>
Interest paid on all debt amounted to $437, $453, and $566 in
1998, 1997, and 1996, respectively.
INCOME TAXES
Income before income taxes is comprised as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 34,478 $ 32,999 $ 36,468
Foreign 13,977 13,661 3,376
--------------------------------------
$ 48,455 $ 46,660 $ 39,844
======================================
</TABLE>
The components of the provision (benefit) for income taxes are
as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
U.S. Federal $ 5,525 $ 4,275 $ 8,183
State 296 931 1,577
Foreign 5,478 7,995 2,282
--------------------------------------
11,299 13,201 12,042
DEFERRED:
U.S. Federal 635 2,107 (1,983)
State 194 (102) 145
Foreign 470 (1,208) (44)
--------------------------------------
1,299 797 (1,882)
--------------------------------------
$ 12,598 $ 13,998 $ 10,160
======================================
<PAGE> 19
</TABLE>
INCOME TAXES (CONTINUED)
Actual current tax liabilities are lower than the amounts
reflected above by the tax benefit from stock option activity
of $3,445, $2,576, and $155 in 1998, 1997, and 1996,
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, 1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED TAX LIABILITIES:
Depreciation $ (3,879) $ (3,623) $ (1,910)
-------------------------------------
Total gross deferred
tax liabilities (3,879) (3,623) (1,910)
DEFERRED TAX ASSETS:
Inventory reserves and
capitalization 2,436 2,396 2,471
Tax credit
carryforwards 6,408 2,569 1,300
Sale leaseback 456
Intercompany transactions 260 833 1,247
Foreign loss carryforwards 330 692 637
Distributor reserves 3,349 3,267 3,030
Employee benefits reserves 620 695 592
Other, net 114 631 781
--------------------------------------
Total gross deferred
tax assets 13,517 11,083 10,514
Valuation allowance (6,738) (3,261) (3,608)
--------------------------------------
Total deferred tax
assets 6,779 7,822 6,906
--------------------------------------
Net deferred tax assets $ 2,900 $ 4,199 $ 4,996
=====================================
</TABLE>
At December 31, 1998, and 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 tax credit carryforwards. At December 31, 1996,
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, 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal
benefit 0.7 1.2 2.8
Foreign taxes in excess of
(less than) U.S. Federal
statutory rate (2.1) 1.3 0.3
Foreign sales corporation (4.4) (2.9) (2.5)
Research and development
credit (2.1) (2.0) (0.8)
Tax exempt investment
income (1.9) (1.3) (0.7)
Domestic temporary differences
not previously benefited (9.4)
Other 0.8 (1.3) 0.8
------------------------------
Effective tax rate 26.0% 30.0% 25.5%
==============================
</TABLE>
Undistributed earnings of foreign subsidiaries were $16,457 at
December 31, 1998. 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.
A foreign subsidiary has a net operating loss carryforward of
$330, which can be carried forward indefinitely. The Company
has federal and state tax credit carryforwards totaling $6,408
which expire at various dates beginning in 2003.
Net income taxes paid amounted to $9,995, $5,773, and $12,987
in 1998, 1997, and 1996, respectively.
<PAGE> 20
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 8,888 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, 1998, the Company had a plan in place to
purchase up to 3,000 shares of the Company's common stock in
the open market. The acquired shares will be used to provide
shares for the employee stock option and stock purchase
programs.
On August 2, 1998, the Company initiated an employee stock
purchase plan (the "Purchase Plan") that allows for the
purchase of common stock every six months at 85% of the fair
market value at the date of grant or the exercise date,
whichever value is less. The Purchase Plan is qualified under
Section 423 of the Internal Revenue Code. All of the 600,000
shares authorized under the Purchase Plan were available for
issuance at December 31, 1998.
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 1998, 1997,
and 1996, respectively: risk-free interest rates ranging from
4.16% to 5.76%, 5.90% to 6.93%, and 5.00% to 5.34%; dividend
yields of 0.0%; volatility factor of the expected market price
of the Company's common stock of 0.608 in 1998, and 0.508 in
1997 and 1996; 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 vesting
period. Pro forma disclosures also include the estimated impact
of the Purchase Plan, which effect was immaterial in 1998.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME
As reported $ 35,857 $ 32,662 $ 29,684
Pro forma $ 32,756 $ 31,444 $ 29,202
EARNINGS PER SHARE
Basic as reported $ .98 $ .91 $ .82
Basic pro forma $ .89 $ .87 $ .81
Diluted as reported $ .94 $ .86 $ .79
Diluted pro forma $ .86 $ .83 $ .78
<PAGE> 21
</TABLE>
STOCKHOLDERS' EQUITY (continued)
A summary of the Company's stock option activity, and related
information follows:
<TABLE>
<CAPTION>
Weighted-
Shares Average
Under Option Price Exercise
Option Per Share Price
- -------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1996 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
Granted 1,382 12.00 - 31.00 20.50
Exercised (606) 2.00 - 18.46 3.10
Canceled (121) 2.59 - 28.00 14.44
-------------------------------
Balance at December 31, 1998 3,535 $ 2.00 - $ 31.00 $13.48
===============================
</TABLE>
The weighted-average fair value of options granted during 1998,
1997, and 1996 was $12.07, $9.26, and $7.35, respectively. The
weighted-average remaining contractual life for options
outstanding as of December 31, 1998, was 7.9 years.
Stock options for 881, 836, and 954 shares were exercisable at
December 31, 1998, 1997, and 1996, respectively. The weighted-
average exercise price for exercisable options was $6.36,
$3.23, and $2.75 at December 31, 1998, 1997, and 1996,
respectively.
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ---------------------------------------------------------------
Number Weighted- Weighted-
Range of Outstanding Average Average
Exercise at December 31, Remaining Exercise
Prices 1998 Contractual Life Price
- ---------------------------------------------------------------
<C> <C> <C> <C>
$ 2.00 - $ 8.89 1,162 6.2 $ 4.77
9.63 - 15.56 1,023 8.4 12.38
15.75 - 20.75 813 9.0 18.52
$ 21.25 - $ 31.00 537 9.2 26.79
-------------------------------------------
3,535 7.9 $13.48
===========================================
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
- --------------------------------------------------------
Number Weighted-Average
Range of Exercisable at Exercise
Exercise Prices December 31, 1998 Price
- --------------------------------------------------------
<C> <C> <C>
$ 2.00 - $ 8.89 684 $ 3.74
9.63 - 15.56 121 11.34
15.75 - 20.75 31 18.48
$ 21.25 - $ 31.00 45 24.44
- --------------------------------------------------------
881 $ 6.36
====================================
</TABLE>
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 outstanding in the applicable period.
The additional 1,609, 1,881, and 1,507 shares used in the
dilutive share calculation in 1998, 1997, and 1996,
respectively, represent the dilutive effect of employee stock
options. The impact of the Purchase Plan on 1998 diluted shares
was not material.
COMMITMENTS
Approximate aggregate future commitments under noncancelable
operating leases, primarily for equipment and office
facilities, are summarized as follows:
<TABLE>
<CAPTION>
AGGREGATED FUTURE COMMITMENTS
- ----------------------------------------
<C> <C>
1999 ........................... $ 2,256
2000 ........................... $ 1,718
2001 ........................... $ 937
2002 ........................... $ 276
2003 ........................... $ 246
Thereafter ..................... $ 615
</TABLE>
Rental expense was $4,289, $4,586, and $4,932 in 1998, 1997,
and 1996, respectively.
<PAGE> 22
BUSINESS SEGMENT DATA
The Company's business is organized on a geographic basis, and
the Company's Chief Operating Decision Maker (the Company's
President and Chief Executive Officer) assesses performance and
allocates resources on this basis. The information provided in
the following section is representative of the information used
by the Chief Operating Decision Maker in deciding how to
allocate resources and in assessing performance.
The Company has three reportable segments: North America
(principally the United States), Far Eastern (principally
Japan, but including Singapore beginning in 1998) and European
(principally the United Kingdom, France, Germany, and Italy).
Each of these segments derives revenue from the sale of the
full array of the Company's product lines, although the Far
Eastern segment has a higher concentration of sales from
certain mixed signal products.
The Company's Chief Operating Decision Maker evaluates
performance and allocates resources based on pretax income. The
accounting policies of the reportable segments are the same as
those described in the summary of significant accounting
policies. Sales between business segments are based on
negotiated prices. The North American business segment includes
corporate activity that benefits the Company as a whole. Net
sales are attributed to segments based on location of the
customer.
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUE:
NORTH AMERICAN OPERATIONS:
Unaffiliated customers $ 90,709 $ 86,959 $ 75,757
Foreign unaffiliated customers 39,005 27,325 5,376
Consolidated subsidiaries 69,172 76,486 83,044
----------------------------
198,886 190,770 164,177
EUROPEAN OPERATIONS:
Unaffiliated customers 36,829 42,455 55,679
Consolidated subsidiaries 5,821 7,143 12,165
-----------------------------
42,650 49,598 67,844
FAR EASTERN OPERATIONS:
Unaffiliated customers 91,551 95,363 83,185
Consolidated subsidiaries 16,435 5,545 3,632
----------------------------
107,986 100,908 86,817
Eliminations (91,428) (89,174) (98,841)
----------------------------
$258,094 $252,102 $219,997
============================
INCOME (LOSS) BEFORE INCOME TAXES:
North American Operations $ 46,587 $ 39,282 $ 45,920
European Operations 1,899 796 1,074
Far Eastern Operations 12,076 12,865 2,271
Eliminations - primarily
United States (12,107) (6,283) (9,421)
----------------------------
$ 48,455 $ 46,660 $ 39,844
============================
IDENTIFIABLE ASSETS:
North American Operations $293,887 $258,263 $226,444
European Operations 23,034 25,592 25,075
Far Eastern Operations 52,329 42,007 32,541
Eliminations (30,559) (26,474) (22,472)
----------------------------
$338,691 $299,388 $261,588
============================
EXPENDITURES FOR LONG-LIVED ASSETS:
North American Operations $ 24,561 $ 24,644 $ 30,999
European Operations 1,141 751 755
Far Eastern Operations 2,075 242 165
Eliminations (1,303)
-----------------------------
$ 26,474 $ 25,637 $ 31,919
=============================
DEPRECIATION AND AMORTIZATION EXPENSE:
North American Operations $ 15,019 $ 12,158 $ 11,184
European Operations 736 471 611
Far Eastern Operations 1,173 1,225 1,512
Eliminations (20) (35)
----------------------------
$ 16,928 $ 13,834 $ 13,272
============================
<PAGE> 23
</TABLE>
BUSINESS SEGMENT DATA (continued)
The Company has two primary classes of products: analog
integrated circuits and mixed signal integrated circuits. The
following table shows the approximate product line revenues as
a percentage of total Company revenues:
PRODUCT CLASS:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------
<S> <C> <C> <C>
Analog Products 45.2% 46.2% 47.3%
Mixed Signal Products 50.5% 49.0% 45.4%
Other 4.3% 4.8% 7.3%
</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. On January 1, 1998 the Company
adopted a cash balance feature within the defined benefit plan.
Employees hired after January 1, 1998 will receive a benefit
from the cash balance account, while employees hired prior to
January 1, 1998 will receive a benefit from the cash balance
account or pension formula, whichever is greater. 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>
1998 1997
----------------- -----------------
Years Ended December 31, U.S. Foreign U.S. Foreign
Plans Plans Plans Plans
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Defined benefit pension plans:
Service cost $ 573 $ 288 $ 487 $ 340
Interest cost 789 158 736 140
Expected return on
plan assets (1,145) (42) (1,035) (49)
Net amortization 216 (4) 216 (11)
Recognized net actuarial
loss (gain) (11) 21 (24) 39
Other
-------------------------------------
Net periodic pension
expense of defined
benefit plans 422 421 380 459
Defined contribution plan -
Matching FIT 963 776
-------------------------------------
Total employee $ 1,385 $ 421 $1,156 $ 459
benefit expense =====================================
</TABLE>
Summary of the Components of Net Periodic Pension Expense (continued):
<TABLE>
<CAPTION>
1996
-----------------
U.S. Foreign
Year Ended December 31, Plans Plans
- --------------------------------------------------------------
<S> <C> <C>
Defined benefit pension plans:
Service cost $ 478 $ 351
Interest cost 665 155
Expected return on plan assets (1,505) (41)
Net amortization 770 (11)
Recognized net actuarial loss (gain) 35
Other (5)
-----------------
Net periodic pension expense
of defined benefit plans 408 484
Defined contribution plan - Matching FIT 747
-----------------
Total employee benefit expense $ 1,155 $ 484
=================
</TABLE>
Assumptions used in computing pension expense for the defined
benefit plans were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
Years Ended U.S. Foreign U.S. Foreign
December 31, Plans Plans Plans Plans
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted-average
discount rate 7.25% 1.2%-7.0% 7.25% 3.1%-7.0%
Rates of increase
in compensation
levels 4.0% 2.4%-3.0% 4.0% 3.0%
Expected long-term
rate of return on
assets 9.5% 2.1%-7.0% 9.5% 3.0%-7.0%
</TABLE>
Assumptions used in computing pension expense for the defined
benefit plans (continued):
<TABLE>
<CAPTION>
1996
------------------
U.S. Foreign
Years Ended December 31, Plans Plans
- --------------------------------------------------------------
<S> <C> <C>
Weighted-average discount rate 7.75% 2.5%-7.0%
Rates of increase in compensation
levels 4.5% 3.0%
Expected long-term rate of return
on assets 9.5% 3.7%-7.0%
<PAGE> 24
</TABLE>
EMPLOYEE BENEFIT PLANS (continued)
The following are progression of the projected benefit
obligations and fair values of plan assets:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
U.S. Foreign U.S. Foreign
Year Ended December 31, Plans Plans Plans Plans
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefits obligation:
Benefit obligation,
beginning of year $ 11,054 $ 3,200 $ 9,439 $ 3,376
Service cost 573 288 487 340
Interest cost 789 158 736 140
Actuarial gains and
losses 461 687 717 (154)
Benefits paid (412) (131) (325) (76)
Foreign exchange rate
changes 503 (426)
-------------------------------------
Benefit obligation,
end of year $ 12,465 $ 4,705 $11,054 $ 3,200
=====================================
Change in plan assets:
Fair value of plan assets,
beginning of year $ 13,772 $ 1,526 $12,049 $ 1,474
Actual return on plan
assets 1,484 3 2,048 44
Contributions from
the Company 265 296
Benefits paid (412) (131) (325) (76)
Other (19) (35)
Foreign exchange rate
changes 265 (177)
-------------------------------------
Fair value of plan
assets, end of year $ 14,844 $ 1,909 $ 13,772 $ 1,526
=====================================
</TABLE>
Progression of the Projected Benefit Obligations and Fair Values of
Plan Assets (continued):
<TABLE>
<CAPTION>
1996
-----------------
U.S. Foreign
Year Ended December 31, Plans Plans
- --------------------------------------------------------------
<S> <C> <C>
Change in benefits obligation:
Benefit obligation, beginning of year $ 9,208 $ 3,004
Service cost 478 351
Interest cost 665 155
Actuarial gains and losses (580) (26)
Benefits paid (332) (60)
Foreign exchange rate changes (48)
-----------------
Benefit obligation, end of year $ 9,439 $ 3,376
=================
Change in plan assets:
Fair value of plan assets, beginning
of year $ 9,826 $ 1,486
Actual return on plan assets 1,505 14
Contributions from the Company 1,050 54
Benefits paid (332) (60)
Other (6)
Foreign exchange rate changes (14)
-----------------
Fair value of plan assets, end of year $12,049 $ 1,474
=================
</TABLE>
The following table sets forth the funded status and amounts
recognized in the consolidated balance sheets for the Company's
defined benefit pension plans:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
U.S. Foreign U.S. Foreign
December 31, Plans Plans Plans Plans
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Funded status $ 2,379 $ (2,796) $ 2,718 $(1,674)
Unrecognized net loss
(gain) (2,773) 1,009 (2,906) 148
Unrecognized prior
service cost 685 878
Unrecognized net
transition obligation (53) (22)
--------------------------------------
Net pension asset
(liability) $ 291 $ (1,840) $ 690 $(1,548)
======================================
</TABLE>
Funded Status and Amounts Recognized in the Consolidated Balance
Sheets for the Company's Defined Benefit Pension Plans (continued):
<TABLE>
<CAPTION>
1996
-----------------
U.S. Foreign
December 31, Plans Plans
- ----------------------------------------------------------
<S> <C> <C>
Funded status $ 2,610 $ (1,902)
Unrecognized net loss (gain) (2,634) 330
Unrecognized prior service cost 1,094
Unrecognized net transition obligation 171
------------------
Net pension asset (liability) $ 1,070 $ (1,401)
==================
</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 31,1998,
1997, and 1996, 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, 1998.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Burr-Brown Corporation and Subsidiaries
at December 31, 1998, 1997, and 1996, and the consolidated
results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Tucson, Arizona
January 19, 1999
/s/ Ernst & Young LLP
<PAGE> 25
SUMMARIZED QUARTERLY DATA (Unaudited)
In thousands, except per share amounts
The following is a summary of quarterly financial data for
1998, 1997, and 1996:
<TABLE>
<CAPTION>
Quarter Ended 1998
-------------------------------------
April 4 July 4 Oct. 3 Dec. 31
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $68,685 $66,518 $61,164 $61,727
Gross margin 35,598 34,521 31,503 31,026
Net income 10,166 9,434 7,520 8,737
Basic earnings per share .28 .26 .20 .24
Diluted earnings per share .27 .25 .20 .23
</TABLE>
<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>
QUARTERLY MARKET AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
1998 Close 1997 Close
Quotation Quotation
High Low High Low
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $28 1/2 $17 $15 1/4 $10 7/8
Second Quarter 31 5/8 19 1/4 22 1/16 13
Third Quarter 24 3/8 12 25 9/16 21 1/4
Fourth Quarter 24 15/16 13 3/8 25 3/16 16 3/4
</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, 1998, there were 836 shareholders of record and
approximately 6,100 benifical owners of Company stock, 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.
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion, including but not limited to the
section entitled "Business Outlook," 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 "Factors Affecting Future
Results" and elsewhere in this Annual Report.
1998 COMPARED TO 1997
The Company reported 1998 revenue of $258.1 million, which was
2.4% above 1997 revenue. Due to the difficult industry
conditions which prevailed for most of 1998, quarterly revenues
declined sequentially through the third quarter and remained
relatively flat in the fourth quarter. Revenue in the U.S. and
Europe increased from the prior year, while revenue from Asia
declined. Sales into the Southeast Asian (SEA) region,
excluding Japan, decreased marginally reflecting the current
economic climate in the region. A weakening Yen caused revenue
from Japan to decline. In 1998, revenue from the newer
communication, high performance consumer, and computing markets
accounted for 53% of the Company's total revenue; for the first
time exceeding revenue from the industrial market. Revenue from
both the communications and digital audio and video markets
increased from last year both in absolute dollars and as a
proportion of total Company revenue. As compared to 1997,
communications market revenue grew by more than 25%. The
industrial market, in which the Company maintains a strong
position, accounted for 47% of total revenue. 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, consumer, and
computer markets.
Gross Margin improved to 51.4% compared to 50.4% in 1997. This
improvement reflected a higher level of internal factory
utilization and increased operating leverage resulting from
higher production levels. Mix continues to shift toward
higher volume products with lower average selling prices
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 integrated circuits for
high volume, fast growing, emerging applications. Consistent
with past experience, like-product, like-volume pricing
remained stable. Favorable foundry wafer pricing allowed the
Company to participate in higher volume applications without a
negative impact on gross margin. 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 1999 to the extent required by volume increases.
Operating expenses for the year increased to $88.0 million from
$83.5 million in 1997. Overall operating expenses increased as
a percentage of revenue to 34.1% from 33.1%. Spending in the
Sales, Marketing, General and Administrative expenses (SMG&A)
decreased to 18.6% of revenue from 19.6%. This reflects the
Company's continuing efforts to drive toward a lower model
level for SMG&A expenses. Spending for Research & Development
(R&D) increased as a percentage of revenue to 15.5% from 13.5%.
The Company believes that its continued commitment to R&D
should result in significantly increased product revenue over
the long run.
Investment in R&D expense increased by $5.9 million or 17.5% to
$39.9 million. A record 87 new products were introduced during
the year; the fourth consecutive year in which a new record was
established. Nearly half of the Company's 1998 revenue was
derived from new products introduced in the last 5 years. This
is consistent with 1997, but 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 broad-band and wireless communications, digital
audio and video, medical imaging and motor control. Much
progress was made on the development of advanced manufacturing
processes including the next generation analog wafer
fabrication processes. R&D spending was 15.5% of revenue in
1998. The Company intends to maintain a similar level during
1999.
<PAGE> 27
SMG&A expenses declined to $48.1 million or 18.6% of revenue
from $49.5 million or 19.6% in 1997. This improvement was the
result of consolidation of selling, logistics, and
administration activity in Europe and Japan, 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 further reduce
administrative costs. Worldwide implementation of this system
was completed in 1998 when our Asian operations went on-line.
The Company's plan anticipates an increase in the proportion of
large order opportunities inherent in the strategy to bring
high performance to high volume applications which, if
successful should also reduce overall cost of selling. The
increased use of third-party distribution channels has not only
increased revenue, but has also reduced selling costs.
Approximately half of the Company's 1998 revenues were derived
from this channel, up from 46% in 1997 and 40% in 1996. The
Company intends to continue cost restraints and, as a result,
to maintain SMG&A expenses at approximately 17.0% for 1999.
During 1998, the Company was able to increase its investment in
R&D by approximately $6 million while reducing SMG&A spending
by $1.4 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 1998 operating income of $44.7 million or
17.3% of revenue, an increase from $43.6 million in 1997. As
compared to 1997, the Company was able to improve operating
income by 2.5% while devoting 17.5% more resources to R&D.
Other income and expense consists primarily of net interest
income on invested cash and gains and losses on foreign
currency transactions.
The 1998 tax rate was 26%, down from 30% in 1997. The decrease
was due to an increased foreign sales corporation benefit,
increased tax credits, a further shift to tax advantaged
investments and favorable Arizona legislation. The 1998 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, 1998, based on previous taxable income
and projections for future taxable income, management believes
that with the exception of foreign loss and 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.
Net income for the year of $35.9 million was the highest in the
Company's history. Net income was up $3.2 million or 9.8% over
1997. Net income represented 13.9% of revenue as compared to
13.0% in 1997. Diluted earnings per share (EPS)was $.94 for
1998, 9.3% higher than the $.86 of 1997.
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. 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.
<PAGE> 28
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. Consistent with past experience, like product
pricing remained stable. Reliance upon externally sourced
wafers inhibited further gross margin expansion.
Operating expenses for the year increased to $83.5 million from
$80.7 million in 1996 but declined as a percentage of revenue
to 33.1% from 36.7%. The reduction in this ratio was realized
exclusively in SMG&A.
Investment in 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.
SMG&A expenses declined to $49.5 million or 19.6% of revenue
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.
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.
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.
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 due to a
reduction in tax benefit carryforwards and increased
profitability.
Net income for the year of $32.7 million 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%.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its financial position as of December
31, 1998 remains very sound. Despite over $26 million in
capital spending, cash, equivalents, and investments were
$120.3 million at year end, an increase of $21.2 million or
21.4% during the year.
Inventories increased by $7.8 million or 17.4% during the year
to $52.3 million at December 31, 1998. The increase in
inventory levels from 1997 reflected the Company's desire to
run its factories at a higher level than revenue in order to
replenish inventories, especially die bank inventory, depleted
during the capacity constraint difficulties earlier in the
year.
<PAGE> 29
The Company's expectation for 1999 is for inventory to remain
relatively flat in absolute terms and, if it is successful in
achieving sales growth, to further decline as a percent of
revenue. Currently, annual inventory turns are nearing 2.6 down
from 2.7 at this time last year. The Company's 1999 objective
is to improve this to over 3, although its ability to achieve
this objective is subject to several factors not entirely
within the Company's control.
During the year, net accounts receivable decreased by 1.8%.
Days sales outstanding (DSO) increased to 79 days at December
31, 1998 from 77 days at the end of the prior year. The
increase in DSO reflected a higher level of sales in the fourth
quarter in Japan and non-linearity in monthly shipments. This
is planned to improve in 1999 due to increased use of
distribution, improved shipment linearity, and more aggressive
collection activity.
Capital expenditures totaled $26.5 million for 1998, $0.8
million or 3.3% higher than 1997. Modernization and
standardization of manufacturing equipment, backend 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 1999 capital expenditures within the range of $20 million
to $25 million, consisting in large part of capacity expansion
measures and improvements in product design automation.
At 1998 year end, total debt was $21.4 million of which $4.2
million was term debt. This represented a $9.3 million
increase in total debt over 1997. Most of this debt was held
internationally and represented an interest rate arbitrage
situation in Japan. In addition to term debt, credit facilities
of approximately $41.3 million, including overdraft credit
facilities with both domestic and international banks, were
available to the Company, of which approximately $17.3 million
or 41.9% was utilized. The current ratio improved to 3.44 in
1998 from 2.95 in 1997. The debt to equity ratio declined year
over year from .05 to .08. 170,000 shares of the Company's
common stock were repurchased in the fourth quarter at a cost
of approximately $3.5 million. In October of 1998, the
Company's board of directors approved the repurchase of up to 3
million shares of Burr-Brown's common stock, from time to time,
pursuant to repurchase guidelines established by the Board.
Stockholders' equity increased by $38.6 million or 16.4% during
1998.
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. Exchange
rate fluctuations can also affect the Company's reported
revenue as the international subsidiaries' sales are primarily
denominated in foreign currencies but reported in the
consolidated financial statements in U.S. dollars using
weighted-average exchange rates. (See also "Business
Outlook-Market Risk")
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, 1998.
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:
<PAGE> 30
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 application 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 adversely
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 has completed its inventory of Non-IT
infrastructure and is currently in 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 inventory and assessment 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. However,
the Company believes most of this infrastructure would continue
to function, but may report inaccurate data that could result
in production inefficiencies. Remediation plans are being
implemented 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 350 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. Continuing 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 adversely affected.
<PAGE> 31
Burr-Brown anticipates completing its remediation and
contingency plans by the end of 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.
The committee currently anticipates spending between $1.0 -
$2.0 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 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the AICPA issued SOP 98-1, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPED FOR OR OBTAINED FOR
INTERNAL USE. The Company adoped the SOP on January 1, 1999.
The SOP requires capitalization of certain costs incurred after
the date of adoption in connection with developing or obtaining
software for internal use. As the Company already has a policy
of capitalizing internal use software, the Company does not
believe that the adoption of this SOP will have a material
effect on the Company's consolidated results of operations or
financial position.
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.
<PAGE> 32
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 and
computing 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.
Increasingly, it has been expanding its product offerings to
selected aspects of the communications market, including
wireless and broadband 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 should require lower levels
of operating costs compared to products serving more
traditional markets.
OPERATING EXPENSES: In order to support acceleration of new
product development, the Company will continue to increase
its R&D expenditures. 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.
MARKET RISKS: The Company is exposed to certain financial
market risks, principally changes in interest rates and foreign
currency exchange rates.
INTEREST RATE RISKS: As the Company is virtually debt-free, the
Company's interest rate risk at December 31, 1998 relates
primarily to its cash equivalents, short-term and long-term
investments.
The following summarizes the future maturities of the Company's
cash equivalents, short-term and long-term investments
at December 31, 1998:
<TABLE>
<CAPTION>
Fair Value Weighted Yield
- -----------------------------------------------------------
<S> <C> <C>
Maturities in 1999 $ 58,658 4.09%
Maturities in 2000 44,209 4.35%
-----------------------------
Total $102,867 4.17%
=============================
<PAGE> 33
</TABLE>
FOREIGN CURRENCY RISKS: International markets account for 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 have historically been in three
currencies, Japanese Yen, British Pounds and German Marks,
although such contracts have been exclusively in Japanese Yen
in 1997 and 1998. The following summarizes the foreign currency
forward contracts, which settle in 1999, in effect at December
31, 1998:
<TABLE>
<CAPTION>
Notional Average
Amount Rate Fair Value
- ------------------------------------------------------------
<S> <C> <C> <C>
Japanese Yen Forward
Contracts $8,753,000 114.39 ($244,000)
</TABLE>
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
<PAGE> 34
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.
<PAGE> 35
FIVE YEAR FINANCIAL SUMMARY
Burr-Brown Corporation and Subsidiaries- In thousands, except
per share and employee amounts
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue $258,094 $252,102 $219,997 $269,162 $194,196
Revenue by
geographic area:
Foreign 65% 66% 66% 64% 62%
Domestic 35% 34% 34% 36% 38%
Inc. (dec.) in
revenue over
prior years 2% 15% (18%) 39% 15%
Gross margin %
of revenue 51% 50% 50% 49% 45%
Operating expenses
% of revenue 34% 33% 37% 34% 40%
Operating income
% of revenue 17% 17% 14% 15% 5%
Interest expense
% of revenue 0% 0% 0% 0% 1%
Other income
% of revenue 2% 1% 5% 0% 0%
Net income $ 35,857 $ 32,662 $ 29,684 $ 29,212 $ 6,465
Basic per
share amount $ .98 $ .91 $ .82 $ .87 $ .20
Diluted per
share amount $ .94 $ .86 $ .79 $ .83 $ .20
-----------------------------------------------
Income tax rate 26% 30% 25% 27% 22%
-----------------------------------------------
Return on revenue 14% 13% 13% 11% 3%
Return on average
assets 11% 12% 12% 15% 5%
Return on average
capital employed 13% 14% 14% 19% 6%
Return on equity 13% 14% 15% 16% 7%
-----------------------------------------------
Total capital
employed $299,132 $251,375 $220,260 $202,349 $110,055
% of revenue 116% 100% 100% 75% 57%
-----------------------------------------------
Total equity $273,513 $234,916 $199,406 $179,145 $ 87,622
% of revenue 106% 93% 91% 67% 45%
Basic per
share amount $ 7.46 $ 6.52 $ 5.54 $ 5.35 $ 2.72
Diluted per
share amount $ 7.15 $ 6.19 $ 5.31 $ 5.07 $ 2.69
-----------------------------------------------
Long-term debt,
less current
portion $ 2,921 $ 1,482 $ 1,830 $ 1,808 $ 1,839
Total debt $ 21,445 $ 12,145 $ 17,450 $ 20,862 $ 19,900
% of revenue 8% 5% 8% 8% 10%
Debt-to-equity
ratio 0.08 0.05 0.09 0.12 0.23
-----------------------------------------------
Total assets $338,691 $299,388 $261,588 $252,249 $143,008
% of revenue 131% 119% 119% 94% 73%
-----------------------------------------------
Working capital $141,372 $114,017 $ 97,914 $129,908 $ 45,623
% of revenue 55% 45% 45% 48% 23%
-----------------------------------------------
Current ratio 3.44 2.95 2.76 2.96 1.98
Capital
expenditures $ 26,474 $ 25,637 $ 31,919 $ 17,574 $ 12,055
Depreciation and
amortization $ 16,928 $ 13,834 $ 13,272 $ 12,712 $ 10,615
-----------------------------------------------
Land, building,
equipment, net $ 92,164 $ 79,466 $ 67,530 $ 51,424 $ 45,896
% of revenue 36% 32% 31% 19% 24%
-----------------------------------------------
Average number
of employees
during the year 1,334 1,306 1,540 1,926 1,825
Revenue per
employee $ 193.47 $ 193.03 $ 142.86 $ 139.75 $ 106.40
-----------------------------------------------
Shares used to
compute EPS:
Basic shares 36,670 36,054 36,003 33,500 32,212
Diluted shares 38,279 37,935 37,510 35,315 32,620
<PAGE> 36
</TABLE>
Exhibit 10.3 - Burr-Brown Corporation Employee Retirement Plan
Second Amendment to the
Burr-Brown Corporation Employee Retirement Plan
THIS AMENDMENT is made and entered into by BURR-BROWN
CORPORATION, a Delaware Corporation ("Burr-Brown").
RECITALS:
WHEREAS, Burr-Brown desires to amend the Burr-Brown
Corporation Employee Retirement Plan (the "Plan"), to make
changes that include changing the Plan to a cash balance plan,
and
WHEREAS, pursuant to Plan Section 11.1, the Board of
Directors of Burr-Brown has the right to amend the Plan.
WITNESSETH:
NOW, THEREFORE, it is hereby agreed that the Plan shall be
amended by this Amendment, each provision of which, unless
otherwise indicated, shall be effective as of January 1, 1998.
Unless otherwise defined in this Amendment, all terms used in
this Amendment shall have the same meaning as in the Plan. All
provisions of the Plan shall be deemed to be unchanged except
as specifically hereby amended. The Amendment is as follows:
I. Section 2.1(a), Definition of Accrued Benefit, Page 1, is
replaced in its entirety with the following new Section 2.1(a)
to read as follows:
(a) "Accrued Benefit"
(1) The monthly benefit payable in the basic form provided in
Section 6.2 commencing on a Participant's Normal Retirement
Date that the Participant has earned as of any given date,
determined in accordance with Section 5.8. In no event shall
the monthly Accrued Benefit of any Participant with at least
twenty (20) years of Credited Service as of December 31, 1988
(the last day of the 1988 Plan Year) be less than the amount of
his monthly retirement accrued under the Plan as of such date.
(2) For purposes of determining benefits payable on or after
January 1, 1998, - the monthly benefit payable in the basic
form provided in Section 6.2 commencing on a Participant's
Normal Retirement Date that the Participant has earned as of
any given date, determined in accordance with Section 5.8. In
no event shall the monthly Accrued Benefit of any Participant
be less than the amount of his monthly retirement Accrued
Benefit under the Plan as of December 31, 1997 determined
pursuant to the terms of the Plan as of December 31, 1997.
II. Section 2.1(c), Definition of Actuarially Equivalent, Page
2, is replaced in its entirety with the following new Section
2.1(c) to read as follows:
(c) "Actuarially Equivalent" - Of equal current value
when computed on the basis of actuarial procedures,
assumptions, factors and tables. Actuarially Equivalent factors
are the appropriate numerical ratios (determined on the basis
of actuarial assumptions which may differ from those used in
establishing Plan costs and liabilities) which enable a benefit
that is Actuarially Equivalent to another benefit to be
calculated. Except to the extent otherwise required for lump
sum distributions under Sections 5.4, 5.5, 5.10, 5.11, in
computing Actuarially Equivalent benefits, the Actuary shall
use the following assumptions:
(1) Pre-retirement interest assumption-six percent (6%);
(2) Post-retirement interest assumption-six percent (6%);
(3) Mortality table-UP-1984, a unisex mortality table
developed by the Wyatt Company
For purposes of computing the Actuarial Equivalent for
distributions beginning on or after January 1, 1998:
Except to the extent otherwise required for lump sum
distributions under Sections 5.4, 5.5, 5.10, 5.11, or 6.4(c)
and in calculating Minimum Benefits under Sections 5.2(b) and
5.8(b), in computing Actuarially Equivalent benefits, the
Actuary shall use the following assumptions:
(1) Pre-retirement interest assumption-six percent (6%);
(2) Post-retirement interest assumption-six percent (6%);
(3) Mortality table-UP-1984, a unisex mortality table
developed by the Wyatt Company
For purposes of computing Actuarially Equivalent benefits
for lump sum distributions under Sections 5.4, 5.5, 5.10, 5.11,
or 6.4(c) and in calculating Minimum Benefits under Sections
5.2(b) and 5.8(b), the Actuary shall use the following
assumptions:
(1) Interest Rate: the annual yield for Thirty (30)-Year
Treasury Constant Maturities, as reported in Federal Reserve
Statistical Release G.13 and H.15, for the calendar month
preceding the first day of the Plan Year in which the Present
Value is to be determined or in which the lump sum distribution
is to be made.
(2) Mortality Table: the table prescribed by the Secretary of
the Treasury that is based on the prevailing commissioner's
standard table used to determine reserves for group annuity
contracts issued on the date as of which the Present Value is
being determined.
III. Section 2.1(s), Definition of Earnings, Page 6, is
replaced in its entirety with the following new Section 2.1(s)
to read as follows:
(s) "Earnings" -The total amount received by the
Participant from the Employer as regular salary or wages which
is subject to tax under Code Section 3402(a) during the Plan
Year, including Employer-paid short term disability pay, plus
any elective contributions made on the Employee's behalf
pursuant to salary deferral or reduction arrangements in effect
under Code Section 125, 401(k), 408(k) and 403(b) with the
Employer or any Affiliate. However, the following items shall
be excluded from Earnings: overtime pay; discretionary or
formula bonuses; contributions to or benefits from any employee
welfare or pension benefit plan (as those terms are defined in
the Act) except for the elective contributions specified above;
workman's compensation benefits; imputed compensation such as
PS58 or Table I costs of life insurance; any deferred
compensation payments; and any other form of irregular
payments. Notwithstanding the foregoing, the "Earnings" of a
Participant receiving commission income from the Employer shall
not exceed the maximum base salary payable to such Participant
for the applicable Plan Year. Notwithstanding the foregoing,
the "overtime pay" of a Participant whose regularly scheduled
work week alternates between 48 hours one week and 36 hours the
next week, shall be all Compensation received for hours worked
in excess of the regularly scheduled 48 hours, plus
Compensation received in excess of the base rate of pay for
hours worked in excess of 40 hours but not more than 48 hours
for the week where 48 hours is the regularly scheduled hours,
and all Compensation received for hours worked in excess of the
regularly scheduled 36 hours for the week where 36 hours is the
regularly scheduled hours. Notwithstanding the foregoing, in
the event that the Plan is a Top Heavy Plan during a Plan Year,
"Earnings" in excess of Two Hundred Thousand Dollars
($200,000.00) during such Plan year shall be disregarded for
all relevant purposes. Such Two Hundred Thousand Dollar
($200,000.00) limitation shall be adjusted for each Plan Year
commencing on or after January 1, 1988 to take into account any
cost-of-living increase adjustment for that Plan Year allowable
pursuant to the applicable Treasury regulations or rulings
under Code Section 416(d)(2) and Code Section 415(d).
Notwithstanding the foregoing, the Accrued Benefit earned by
any Employee (including the family unit of a Highly Compensated
Employee, as described below) for any Plan Year within the
period commencing January 1, 1989 and ending December 31, 1993
shall not be based on Earnings in excess of Two Hundred
Thousand Dollars ($200,000.00). This latter Two Hundred
Thousand Dollar ($200,000.00) limitation shall be adjusted for
each Plan Year commencing after December 31, 1988 to take into
account any cost-of-living increase adjustment for that Plan
Year allowable pursuant to the applicable Treasury regulations
or rulings under Code Section 401(a)(17)(B).
Notwithstanding the foregoing, the Accrued Benefit earned
by any Employee (including the family unit of a Highly
Compensated employee, as described below) for each Plan Year
commencing on or after January 1, 1994 shall not be based on
Earnings in excess of One Hundred Fifty Thousand Dollars
($150,000.00). If, for any calendar year after 1994, the
excess (if any) of:
(i) the One Hundred Fifty Thousand Dollars ($150,000.00)
limitation increased by the cost-of-living adjustment for that
calendar year, over
(ii) the dollar limitation in effect for the Plan Year
beginning in the calendar year is equal to or greater than
$10,000,
then the One Hundred Fifty Thousand Dollar ($150,000.00)
limit (as previously adjusted under this sentence) for any Plan
Year beginning in any subsequent calendar year shall be
increased by the amount of such excess, rounded to the next
lowest multiple of $10,000. The One Hundred Fifty Thousand
Dollar ($150,000.00) limitation shall be adjusted for increases
in the cost-of-living in accordance with Code Section
401(a)(17)(B) and the Treasury regulations thereunder;
provided, however, the base period for purposes of Code Section
401(a)(17)(B) shall be the calendar quarter beginning October
1, 1993.
For purposes of applying the $200,000 or the $150,000
limit to Earnings of the family unit of each Highly Compensated
Employee, the family unit will be treated as a single employee
with one Earnings and the $200,000 limit or the $150,000 limit,
as applicable, will be allocated among the members of the
family unit in proportion to each member's Earnings (except for
the purposes of determining Earnings below the Plan's
integration level). For this purpose, a family unit is the
Highly Compensated Employee such employee's spouse, and such
employee's lineal descendants who have not attained age 19
before the close of the Plan Year.
IV. Section 4.3, Disability, Page 21, is replaced in its
entirety with the following new Section 4.3 to read as follows:
4.3 DISABILITY. Should a Participant become Disabled
prior to retirement or any other separation from employment
with the Employer (prior to January 1, 1998, Participants were
required to have at least five (5) years of Continuous Service
as of the last day of his period of active employment with the
Employer), then that Participant shall be entitled to a
Disability benefit as provided in Section 5.3 of the Plan. A
Participant's Disability retirement benefit payments shall
commence as of the first day of the calendar month following
the Participant's separation from employment due to Disability.
Disability retirement benefit payments shall not be payable for
any earlier month. In no event shall a Participant be entitled
to receive simultaneously both a Disability retirement benefit
and a normal, early or termination retirement benefit.
V. Section 4.4, Death Benefits, Page 21-22, is replaced in
its entirety with the following new Section 4.4 to read as
follows:
4.4 DEATH. Should a Participant die prior to
retirement, Disability or any other separation from employment
(prior to January 1, 1998, benefits under this Section 4.4
required at least five (5) years of Continuous Service), then
the beneficiary of that Participant shall be entitled to the
benefits (if any) provided under Section 5.4 and Section 5.5 of
the Plan. Any death benefits payable to an unmarried
Participant in accordance with Section 5.4 shall commence as
soon as possible following that Participant's death and shall
be paid in the form set forth in Section 5.4 of the Plan. Death
benefits payable with respect to a married Participant shall be
payable in accordance with the surviving spouse annuity
provisions set forth in Section 5.5 of the Plan. A special
death benefit shall be payable in accordance with Section 5.6
upon the death of a retired participant.
Each Participant shall have the right to designate, on a
form supplied by and delivered to the Plan Administrator, a
beneficiary or beneficiaries to receive benefits pursuant to
this Section 4.4 in the event of his death. Each Participant
may change his beneficiary designation from time to time. Upon
receipt of such designation by the Plan Administrator, such
designation or change of designation shall become effective as
of the date of the designation. However, a beneficiary
designation filed by a married Participant designating a
beneficiary other than his Spouse shall not be effective,
unless the Spouse consents to such designation in accordance
with the spousal consent requirements of Section 6.6. There
shall be no liability on the part of the Employer, the Plan
Administrator or the Trustee with respect to any payment
authorized by the Plan Administrator in accordance with the
most recent valid beneficiary designation of the Participant in
its possession before receipt of a more recent valid
beneficiary designation. If no designated beneficiary is
living when benefits become payable, or if there is no validly
designated beneficiary, then the beneficiary shall be the
Participant's Spouse. If there is no such validly designated
beneficiary or surviving Spouse, then the beneficiary shall be
the estate of the Participant.
VI. Section 5.1, Normal Retirement Benefit, Pages 22-23, is
replaced in its entirety with the following new Section 5.1 to
read as follows:
5.1 NORMAL RETIREMENT BENEFIT. The normal retirement
benefit to which a Participant is entitled pursuant to Section
4.1 shall be determined as of his retirement date.
For those Participants who were employed on December 31,
1997, the Participant's normal retirement benefit shall be a
monthly benefit for the life of the Participant equal to the
greater of the Section 5.1(a) Grandfathered Normal Retirement
Benefit and the Section 5.1(b) Minimum Normal Retirement
Benefit.
For those Participants who are first employed on or after
January 1, 1998, the Participant's normal retirement benefit
shall be a monthly benefit for the life of the Participant
equal to the Section 5.1(b) Minimum Normal Retirement Benefit.
For those Participants who were not employed on December
31, 1997, who were first employed prior to January 1, 1998 and
who are rehired on or after January 1, 1998, the Participant's
normal retirement benefit shall be a monthly benefit for the
life of the Participant equal to the sum of the Section 5.8
Accrued Benefit as of December 31, 1997 pursuant to the terms
of the Plan before its amendment by this document plus the
Section 5.1(b) Minimum Normal Retirement Benefit.
(a) GRANDFATHERED NORMAL RETIREMENT BENEFIT. The
Grandfathered Normal Retirement Benefit shall be a monthly
benefit for the life of the Participant equal to the sum of the
following:
(1) One-half percent (.5%) of the Participant's
Average Monthly Earnings multiplied by the years
of Credited Service then credited to the
Participant; plus
(2) One-half percent (.5%) of his Average Monthly
Earnings in excess of Covered Compensation
multiplied by the years of Credited Service then
credited to the Participant.
The maximum number of years of Credited Service that may
be credited for purposes of calculating a Participant's
Grandfathered Normal Retirement Benefit is twenty (20). A
Participant who remains employed after attaining Normal
Retirement Age shall continue to accrue Grandfathered Normal
Retirement Benefits pursuant to this Section 5.1(a), up to the
twenty (20)-year maximum, and his normal retirement benefit,
payable in the basic form under Section 6.2, shall not be less
than the largest normal retirement benefit that would have been
provided him under this Section 5.1(a) had he retired on any
earlier date.
(b) MINIMUM NORMAL RETIREMENT BENEFIT. The Minimum
Normal Retirement Benefit is the monthly amount of retirement
income for a Participant equal to the Section 5.8(b) Minimum
Accrued Benefit as of the Normal Retirement Date.
(c) OTHER NORMAL RETIREMENT PROVISIONS. If this Plan is
a Top Heavy Plan for any Plan Year, a Participant's normal
retirement benefit shall be the greater of the amount
determined pursuant to the foregoing provisions of this Section
5.1 or the amount determined pursuant to Section 5.9 for such
Plan Year.
VII. Section 5.2, Early Retirement Benefit, Page 23, is
replaced in its entirety with the following new Section 5.2 to
read as follows:
5.2 EARLY RETIREMENT BENEFIT. The early retirement
benefit to which a Participant is entitled pursuant to Section
4.2 shall be determined as of his retirement date.
For those Participants who were employed on December 31,
1997, the Participant's early retirement benefit shall be a
monthly benefit for the life of the Participant equal to the
greater of the Section 5.2(a) Grandfathered Early Retirement
Benefit and the Section 5.2(b) Minimum Early Retirement
Benefit.
For those Participants who are first employed on or after
January 1, 1998, the Participant's early retirement benefit
shall be a monthly benefit for the life of the Participant
equal to the Section 5.2(b) Minimum Early Retirement Benefit.
For those Participants who were not employed on December
31, 1997, who were first employed prior to January 1, 1998 and
who are rehired on or after January 1, 1998, the Participant's
early retirement benefit shall be a monthly benefit for the
life of the Participant equal to the sum of the Section 5.8
Accrued Benefit as of December 31, 1997 pursuant to the terms
of the Plan before its amendment by this document reduced, if
the payments begin prior to the Participant's Normal Retirement
Date, by .00555 for each month by which the early retirement
benefit commencement date precedes the Participant's Normal
Retirement Benefit plus the Section 5.2(b) Minimum Early
Retirement Benefit.
(a) GRANDFATHERED EARLY RETIREMENT BENEFIT. The
Grandfathered Early Retirement Benefit to which a Participant
is entitled pursuant to Section 4.2 shall be a monthly benefit
for life in an amount equal to the Participant's benefit
determined under Section 5.1(a), reduced, if the payments begin
prior to the Participant's Normal Retirement Date, by .00555
for each month by which the Grandfathered Early Retirement
Benefit commencement date precedes the Participant's Normal
Retirement Date.
(b) MINIMUM EARLY RETIREMENT BENEFIT. The Minimum Early
Retirement Benefit to which a Participant is entitled pursuant
to Section 4.2 shall be a monthly benefit for the life of the
Participant beginning on the first day of the calendar month on
or following the Participant's Early Retirement Age which is
Actuarially Equivalent to such Participant's Account Balance.
VIII. Section 5.3, Disability Benefit, Page 23, is replaced in
its entirety with the following new Section 5.3 to read as
follows:
5.3 DISABILITY BENEFIT. The Disability Benefit to which a
Participant is entitled pursuant to Section 4.3 shall be
determined as of his date of disability.
For those Participants who were employed on December 31,
1997, the Participant's Disability Retirement Benefit shall be
the greater of the Section 5.3(a) Grandfathered Disability
Benefit and the Section 5.3(b) Minimum Disability Benefit.
For those Participants who were first employed on or after
January 1, 1998, the Participant's Disability retirement
benefit shall be the Section 5.3(b) Minimum Disability Benefit.
For those Participants who were not employed on December
31, 1997, who were first employed prior to January 1, 1998 and
who are rehired on or after January 1, 1998, the Participant's
Disability retirement benefit shall be the Section 5.3(b)
Minimum Disability Benefit.
(a) GRANDFATHERED DISABILITY BENEFIT. The Grandfathered
Disability benefit to which a Participant shall be entitled
pursuant to Section 4.3 shall be a monthly payment for life in
an amount equal to the Participant's benefit determined under
Section 5.1(a) on the basis of his Credited Service prior to
Disability. The Grandfathered Disability retirement benefit
payments shall commence in accordance with the provisions of
Section 4.3, and there shall be no reduction for the
commencement of benefits prior to the Participant's Normal
Retirement Date. A Participant who has not completed at least
five (5) years of Continuous Service as of the last day of his
period of active employment with the Employer shall not be
entitled to any benefit under this Section 5.3(a) if his
employment is subsequently terminated due to Disability.
(b) MINIMUM DISABILITY BENEFIT. The Minimum Disability
Benefit to which a Participant is entitled pursuant to Section
4.2 shall be a monthly benefit for the life of the Participant
beginning on the first day of the calendar month following the
Participant's separation from employment due to Disability
which is Actuarially Equivalent to such Participant's Account
Balance.
IX. Section 5.4, Death Benefit, Page 23, is replaced in its
entirety with the following new Section 5.4 to read as follows:
5.4 DEATH BENEFIT. Should a married Participant die prior
to his Annuity Starting Date, then his Spouse (as determined as
of the date of such Participant's death) shall receive the
greater of the Surviving Spouse Annuity pursuant to Section 5.5
or the Minimum Preretirement Death Benefit. If the married
Participant had not attained age sixty (60) at the time of his
death, then his Spouse may elect within twelve (12) months of
the Participant's death to receive a lump sum distribution
which is Actuarially Equivalent to this Section 5.4 Death
Benefit.
The "Minimum Preretirement Death Benefit" shall be the
monthly amount of death benefit income determined for a
Participant's Spouse as of a specified date which shall be
Actuarially Equivalent to such Participant's Account Balance
(and normally payable to the Participant's Spouse as a monthly
benefit for the life of the Spouse beginning on the benefit
commencement date elected by the Spouse but not earlier than
the first day of the month in which the Participant would have
attained age sixty (60) had he survived).
Should an unmarried Participant die prior to his Annuity
Starting Date but while still employed by Employer, a lump sum
death benefit shall be payable to his designated beneficiary or
beneficiaries equal in the aggregate to the lump sum which is
Actuarially Equivalent to the Section 5.4 Death Benefit which
would have been payable had such Participant had a Spouse of
the same age.
The above provisions notwithstanding, a surviving Spouse
shall be allowed to elect to receive this Section 5.4 Death
Benefit under the optional method of distribution specified in
Section 6.4(c).
X. Section 5.8, Accrued Benefit, Pages 25-26, is replaced in
its entirety with the following new Section 5.8 to read as
follows:
5.8 ACCRUED BENEFIT. For those Participants who were
employed on December 31, 1997, the Participant's Accrued
Benefit determined on or after December 31, 1997 shall be the
greater of the Grandfathered Accrued Benefit under Section
5.8(a) or the Participant's Minimum Accrued Benefit under
Section 5.8(b). For those Participants who are first employed
on or after January 1, 1998, the Accrued Benefit determined on
a specified date shall be the Minimum Accrued Benefit under
Section 5.8(b)
For those Participants who were not employed on December
31, 1997, who were first employed prior to January 1, 1998 and
who are rehired on or after January 1, 1998, the Accrued
Benefit determined on a specified date shall be the sum of the
Section 5.8 Accrued Benefit as of December 31, 1997 pursuant to
the terms of the Plan before its amendment by this document
plus the Minimum Accrued Benefit under Section 5.8(b).
(a) GRANDFATHERED ACCRUED BENEFIT. A Participant's
Grandfathered Accrued Benefit shall be determined in accordance
with this Section 5.8(a).
(1) GENERAL RULE. A Participant's Grandfathered
Accrued Benefit as of any given date shall equal
the Participant's estimated benefit at Normal
Retirement Age under Section 5.1(a) multiplied by
a fraction, not exceeding one (1), the numerator
of which is the actual completed full years and
months (expressed as fractions of a year) of the
Participant's Credited Service as of the
determination date and the denominator of which is
the total number of completed full years and
months (expressed as fractions of a year) of
Credited Service that would have been credited to
such Participant had he separated from employment
on his Normal Retirement Date.
(2) ESTIMATING NORMAL RETIREMENT BENEFITS. The
Plan Administrator will estimate the normal
retirement benefits (determined in accordance with
Section 5.1(a) to which each Participant will be
entitled on his Normal Retirement Date. In making
its estimate, the Plan Administrator shall assume
that the Participant will continue his service
with Employer to his Normal Retirement Date and
that his Average Monthly Earnings on his Normal
Retirement Date will be equal to his Average
Monthly Earnings calculated as of the day on which
the Participant's Accrued Benefit is being
determined.
(b) MINIMUM ACCRUED BENEFIT. The Minimum Accrued Benefit
is the monthly amount of retirement income for a Participant as
of a specified date which shall be Actuarially Equivalent to
such Participant's Account Balance (and normally payable
monthly to the Participant in the form of an annuity for the
life of the Participant beginning on the first day of the
calendar month following the Participant's Normal Retirement
Age).
(c) TOP HEAVY MINIMUMS. If this Plan is at any time a
Top Heavy Plan, a Participant's Accrued Benefit shall be the
greater of the amount determined pursuant to the foregoing
provisions of this Section 5.8 or the amount determined
pursuant to Section 5.9.
(d) RECALCULATION OF ACCRUED BENEFIT OF PARTICIPANTS IN
PAY STATUS. The Accrued Benefit of a Participant who earns
additional years of Credited Service after receiving any
distribution from the Plan shall be equal to the excess of (1)
over (2):
(1) The Participant's Accrued Benefit determined
under the applicable section of ARTICLE V on his
Calculation Date (as defined herein) based on all
years of Credited Service earned during the period
of the Participant's employment; and
(2) The monthly amount which is Actuarially
Equivalent to the aggregate benefits distributed
to the Participants from the Plan prior to the
Calculation Date which were paid as monthly
amounts (a) for any month prior to the
Participant's Normal Retirement Date and (b) for
any month in which the Participant was an active
Employee after his Normal Retirement Date.
Notwithstanding the foregoing, such recomputed monthly
benefit shall not be less than the monthly benefit received by
the Participant prior to his Calculation Date converted to a
monthly annuity for the life of the Participant payable as of
the Calculation Date. The first recomputed payment shall
include any retroactive payments due for any month within the
suspension period under Section 6.8 in which the Participant
was not an active Employee. Also the first recomputed payment
shall be reduced to the extent permitted under Department of
Labor Regulations Section 2530.203 by any payment made to the
Participant under which he was not entitled to receive pursuant
to the suspension of provisions in effect under Section 6.8.
The recomputation under this Section 5.8 shall be made as of
each Calculation Date, and such purpose the "Calculation Date"
for a Participant who earns Credited Service after receiving
one or more benefit payments under ARTICLE V of the Plan will
be each January 1 and the date he subsequently terminates
employment with the Employer.
(e) "Account Balance" - single lump sum dollar amount
determined and predetermined for each Employee (without regard
to any actual contributions to the Trust Fund or the income,
expenses, gains and losses of the Trust Fund or any forfeitures
under the Plan) from time to time as follows:
(1) "Initial Account Balance" - As of January 1, 1998, the
initial Account Balance for each Employee equals zero.
(2) "Additional Accruals" - Quarterly, at the end of each
calendar quarter, that is on March 31, June 30, September 30,
and December 31 of each Plan Year and such other date or dates
as designated by the Employer, beginning March 31, 1998, there
shall be credited to each Employee's Account Balance an amount
equal to two percent (2%) multiplied by such Employee's actual
Earnings for such calendar quarter. If an Employee shall have
a Termination Date prior to the end of such calendar quarter,
then such Employee shall not receive an Additional Accrual for
the calendar quarter in which his or her Termination occurs.
(3) "Interest Credit" -- Quarterly, at the end of each
calendar quarter, that is on March 31, June 30, September 30,
and December 31 of each Plan Year and such other date or dates
as designated by the Employer, beginning March 31, 1998, there
shall be credited to the Account Balance on behalf of each
Employee an amount equal to one-fourth (1/4) of the Investment
Percentage Rate appropriate for the Plan Year multiplied by the
Account Balance determined as of the first day of such calendar
quarter.
Interest credits will continue to be credited for
each calendar quarter up until the first day of
the quarter in which payments are first made to
the Employee or forfeitures are taken under the
Plan.
In addition, a final "Interest Credit" will be
determined for the calendar quarter in which
payments are first made to the Employee. Such
Credit shall be an amount equal to one-twelfth
(1/12) of the Investment Percentage Rate
appropriate for the Plan Year multiplied by the
number of completed months (if any) from the first
day of such calendar quarter to the date payments
are first made to the Employee, multiplied by the
Account Balance determined as of the first day of
such calendar quarter.
Although each Employee shall have an Account Balance,
there shall be no "individual accounts" as defined in ERISA
section 3(34).
(4) "Investment Percentage Rate"-an amount determined annually
which is equal:
(i) for the 1998 Plan Year, the greater of
6.4617% or the annual yield for Thirty (30)-Year
Treasury constant Maturities, as reported in
Federal Reserve Statistical Release G.13 and H.15,
for the calendar month preceding the first day of
the Plan Year.
(ii) for Plan Years beginning on or after January
1, 1999, the annual yield for Thirty (30)-Year
Treasury constant Maturities, as reported in
Federal Reserve Statistical Release G.13 and H.15,
for the calendar month preceding the first day of
the Plan Year.
XI. Section 5.10, Cash Outs and Repayment of Distributions,
Page 27, is replaced in its entirety with the following new
Section 5.10 to read as follows:
5.10 CASH OUTS AND REPAYMENT OF DISTRIBUTIONS. If the
termination benefit payable to a Participant pursuant to
Section 5.7 is Actuarially Equivalent to a lump sum
distribution of Five Thousand Dollars ($5,000) or less, the
Plan Administrator shall direct the Trustee to pay the
termination benefit in the form of a lump sum distribution not
later than sixty (60) days after the close of the Plan Year
following the Plan Year in which the Participant's employment
terminates, subject, however, to any earlier payment date
required pursuant to the provisions of Section 6.1. No
distribution may be made pursuant to the preceding sentence
after the Annuity Starting Date unless the Participant and the
Participant's spouse, if any, (or where the Participant has
died, his spouse alone) consent in writing to such
distribution. A Participant who receives a lump sum
distribution of his Accrued Benefit shall be given the
opportunity to repay the full amount of that distribution, plus
interest at a rate determined under Code Section 411(c)(2)(C),
should he return to employment with the Employer or any
Affiliate. The repayment may be made at any time prior to the
earlier of (a) the end of the five (5)-year period measured
from the first date on which the Participant is subsequently
reemployed by Employer or (b) the incurrence of a Break in
Continuous Service of sixty (60) months measured from the date
of the prior distribution. If a Participant does not exercise
his right to repay the prior distribution (with interest as
provided above) in such a timely manner, the years and months
of Credited Service performed by the Participant prior to the
distribution shall be disregarded in calculating his normal
retirement benefit and his Accrued Benefit.
XII. Section 5.11, Other Small Benefits, Page 28, is replaced
in its entirety with the following new Section 5.11 to read as
follows:
5.11 OTHER SMALL BENEFITS. In the event that the
Actuarially Equivalent present value of the Qualified Joint and
50% Survivor Annuity, Life Only Annuity, or Qualified Pre-
retirement Survivor Annuity payable with respect to a
Participant is less than Five Thousand Dollars ($5,000), the
Plan Administrator shall direct that such Actuarially
Equivalent present value be distributed to the Participant (or
to the Participant's Beneficiary if the Participant has died)
in a lump sum as soon as administratively feasible following
the Participant's retirement, death, Disability, or Termination
Date. Notwithstanding the preceding, a lump sum payment shall
not be made under this Section 5.11 after the Annuity Starting
Date without the written consent of the Participant and his or
her Spouse (or, if the Participant has died, his or her
Surviving Spouse's written consent) to such distribution.
XIII. Section 6.4, Optional Methods of Distribution, Pages 36-
37, the following new paragraph (c) is added to the end of
Section 6.4 to read as follows:
(c) A Participant may elect to receive a lump sum distribution
(payable as soon as administratively feasible) following the
Participant's retirement, Disability, or Termination Date of
the portion of the Actuarially Equivalent present value of the
Participant's Normal Retirement Benefit, Early Retirement
Benefit, Disability Benefit, or Accrued Benefit that equals his
or her Account Balance.
If a Participant elects to receive a lump sum distribution
under this Section 6.4(c), and the excess of the Actuarially
Equivalent present value of the Participant's Normal Retirement
Benefit, Early Retirement Benefit, Disability Benefit, or
Accrued Benefit over his or her Account Balance does not exceed
Five Thousand Dollars ($5,000), such excess shall, at the
election of the Participant, be distributed to the Participant
at the same time as his or her Account Balance is distributed
pursuant to this Section 6.4(c).
If a Participant elects to receive a lump sum distribution
and the excess of the Actuarially Equivalent present value of
the Participant's Normal Retirement Benefit, Early Retirement
Benefit, Disability Benefit, or Accrued Benefit over his or her
Account Balance equals or exceeds Five Thousand Dollars
($5,000), such excess shall be distributed (at the time allowed
by Section 6.1 in the form of a Qualified Joint and 50%
Survivor Annuity or Life Only Annuity whichever is applicable
pursuant to ARTICLE VI.
IN WITNESS WHEREOF, Burr-Brown has executed this Amendment
on this 18th day of December, 1998.
BURR-BROWN CORPORATION
By \s\ S.P. Madavi
---------------
President
Exhibit 10.5 Burr-Brown Corporation Future Investment Plan
BURR-BROWN CORPORATION FUTURE INVESTMENT PLAN
TRUST
Dated as of December 1, 1998
TRUST AGREEMENT, dated as of the first day of December,
1998, between BURR-BROWN CORPORATION an Arizona corporation,
having an office at 6730 S. Tucson Boulevard, Tucson, Arizona
85706 (the "Sponsor"), and FIDELITY MANAGEMENT TRUST COMPANY, a
Massachusetts trust company, having an office at 82 Devonshire
Street, Boston, Massachusetts 02109 (the "Trustee").
WITNESSETH:
WHEREAS, the Sponsor is the sponsor of the Burr-Brown
Corporation Future Investment Plan (the "Plan"); and
WHEREAS, the Sponsor wishes to establish a trust to hold
and invest Plan assets under the Plan for the exclusive benefit
of participants in the Plan and their beneficiaries; and
WHEREAS, the Burr-Brown Corporation (the "Named
Fiduciary") is the named fiduciary of the Plan (within the
meaning of section 402(a) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")); and
WHEREAS, the Trustee is willing to hold and invest the
aforesaid Plan assets in trust among several investment options
selected by the Named Fiduciary; and
WHEREAS, the Sponsor wishes to have the Trustee perform
certain ministerial recordkeeping and administrative functions
under the Plan; and
WHEREAS, the Burr-Brown Corporation (the "Administrator")
is the administrator of the Plan (within the meaning of section
3(16)(A) of ERISA); and
WHEREAS, the Trustee is willing to perform recordkeeping
and administrative services for the Plan if the services are
purely ministerial in nature and are provided within a
framework of plan provisions, guidelines and interpretations
conveyed in writing to the Trustee by the Administrator.
NOW, THEREFORE, in consideration of the foregoing premises
and the mutual covenants and agreements set forth below, the
Sponsor and the Trustee agree as follows:
Section 1. TRUST. The Sponsor hereby establishes the Burr-
Brown Corporation Future Investment Plan Trust (the "Trust"),
with the Trustee. The Trust shall consist of an initial
contribution of money or other property acceptable to the
Trustee in its sole discretion, made by the Sponsor or
transferred from a previous trustee under the Plan, such
additional sums of money and Sponsor Stock (hereinafter
defined) as shall from time to time be delivered to the Trustee
under the Plan, all investments made therewith and proceeds
thereof, and all earnings and profits thereon, less the
payments that are made by the Trustee as provided herein. The
Trustee hereby accepts the Trust on the terms and conditions
set forth in this Agreement. In accepting this Trust, the
Trustee shall be accountable for the assets received by it,
subject to the terms and conditions of this Agreement.
Section 2. EXCLUSIVE BENEFIT AND REVERSION OF SPONSOR
CONTRIBUTIONS. Except as provided under applicable law, no
part of the Trust may be used for, or diverted to, purposes
other than the exclusive benefit of the participants in the
Plan or their beneficiaries or the reasonable expenses of Plan
administration.
Section 3. DISBURSEMENTS.
(a) ADMINISTRATOR-DIRECTED DISBURSEMENTS. The Trustee
shall make disbursements in the amounts and in the manner that
the Administrator directs from time to time in writing. The
Trustee shall have no responsibility to ascertain such
direction's compliance with the terms of the Plan or of any
applicable law or the direction's effect for tax purposes or
otherwise; nor shall the Trustee have any responsibility to see
to the application of any disbursement.
(b) PARTICIPANT WITHDRAWAL REQUESTS. The Sponsor hereby
directs that, pursuant to the Plan, a participant withdrawal
request (in-service or full withdrawal) may be made by the
participant by telephone, or in such other manner as may be
agreed to from time to time by the Sponsor and Trustee, and
the Trustee shall process such request only after the identity
of the participant is verified by use of a personal
identification number ("PIN") and social security number. The
Trustee shall process such withdrawal in accordance with
written guidelines provided by the Sponsor and documented in
the Plan Administrative Manual.
(c) LIMITATIONS. The Trustee shall not be required to
make any disbursement in excess of the net realizable value of
the assets of the Trust at the time of the disbursement. The
Trustee shall make cash disbursements in accordance with the
applicable source and fund withdrawal hierarchy as documented
in the Plan Administrative Manual, unless the Administrator has
provided a written direction to the contrary.
Section 4. INVESTMENT OF TRUST.
(a) SELECTION OF INVESTMENT OPTIONS. The Trustee shall
have no responsibility for the selection of investment options
under the Trust and shall not render investment advice to any
person in connection with the selection of such options.
(b) AVAILABLE INVESTMENT OPTIONS. The Named Fiduciary
shall direct the Trustee as to the investment options in which
the Trust shall be invested during the period beginning on the
date of the initial transfer of assets to the Trust and ending
on the date of the completion of the reconciliation of
participant records ("Recordkeeping Reconciliation Period"),
and the investment options which Plan participants may invest
following the Recordkeeping Reconciliation Period, subject to
the following limitations. The Named Fiduciary may determine
to offer as investment options only: (i) securities issued by
the investment companies advised by Fidelity Management &
Research Company ("Fidelity Mutual Funds") and certain
securities issued by investment companies not advised by
Fidelity Management & Research Company ("Non-Fidelity Mutual
Funds") (collectively, "Mutual Funds"), (ii) equity securities
issued by the Sponsor or an affiliate which are publicly-traded
and which are "qualifying employer securities" within the
meaning of section 407(d)(5) of ERISA ("Sponsor Stock"), (iii)
notes evidencing loans to Plan participants in accordance with
the terms of the Plan, (iv) collective investment funds
maintained by the Trustee for qualified plans.
The Trustee shall be considered a fiduciary with
investment discretion only with respect to Plan assets
(including the proceeds from any Existing Investment Contracts)
that are invested in Investment Contracts chosen by the Trustee
or in collective investment funds maintained by the Trustee for
qualified plans.
The investment options initially selected by the Named
Fiduciary are identified on Schedules "A" and "C" attached
hereto. The Named Fiduciary may add additional investment
options with the consent of the Trustee and upon mutual
amendment of this Trust Agreement and the Schedules thereto to
reflect such additions.
(c) PARTICIPANT DIRECTION. As authorized under the Plan,
each Plan participant shall direct the Trustee in which
investment option(s) to invest the assets in the participant's
individual accounts. Such directions may be made by Plan
participants by use of the telephone exchange system maintained
for such purposes by the Trustee or its agent, in accordance
with written Exchange Guidelines attached hereto as Schedule
"G". In the event that the Trustee fails to receive a proper
direction, the assets shall be invested in the investment
option set forth for such purpose on Schedule "C", until the
Trustee receives a proper direction.
(d) MUTUAL FUNDS. The Named Fiduciary hereby
acknowledges that it has received from the Trustee a copy of
the prospectus for each Fidelity Mutual Fund selected by the
Named Fiduciary as a Plan investment option or short-term
investment fund. All transactions involving Non-Fidelity
Mutual Funds shall be done in accordance with the Operational
Guidelines attached hereto as Schedule "G". Trust investments
in Mutual Funds shall be subject to the following limitations:
(i) EXECUTION OF PURCHASES AND SALES. Purchases and
sales of Mutual Funds (other than for exchanges) shall be made
on the date on which the Trustee receives from the
Administrator in good order all information, documentation and
wire transfer of funds (if applicable) necessary to accurately
effect such transactions. Exchanges of Mutual Funds shall be
made in accordance with the Exchange Guidelines attached
hereto as Schedule "G".
(ii) VOTING. At the time of mailing of notice of each
annual or special stockholders' meeting of any Mutual Fund, the
Trustee shall send a copy of the notice and all proxy
solicitation materials to each Plan participant who has shares
of the Mutual Fund credited to the participant's accounts,
together with a voting direction form for return to the Trustee
or its designee. The participant shall have the right to
direct the Trustee as to the manner in which the Trustee is to
vote the shares credited to the participant's accounts (both
vested and unvested). The Trustee shall vote the shares as
directed by the participant. The Trustee shall not vote shares
for which it has received no directions from the participant.
During the Recordkeeping Reconciliation Period, the Named
Fiduciary shall have the right to direct the Trustee as to the
manner in which the Trustee is to vote the shares of the Mutual
Funds in the Trust. Following the Recordkeeping
Reconciliation Period the Named Fiduciary shall continue to
have the right to direct the Trustee as to the manner in which
the Trustee is to vote the Mutual Fund shares held in a short-
term liquidity reserve for a unitized investment option.
With respect to all rights other than the right to vote,
the Trustee shall follow the directions of the participant and
if no such directions are received, the directions of the Named
Fiduciary. The Trustee shall have no further duty to solicit
directions from participants or the Named Fiduciary.
(e) SPONSOR STOCK. Trust investments in Sponsor Stock
shall be subject to the following limitations:
(i) ACQUISITION LIMIT. Pursuant to the Plan, the
Trust may be invested in Sponsor Stock to the extent necessary
to comply with investment directions under this Agreement.
(ii) FIDUCIARY DUTY OF NAMED FIDUCIARY. The Named
Fiduciary shall continually monitor the suitability under the
fiduciary duty rules of section 404(a)(1) of ERISA (as modified
by section 404(a)(2) of ERISA) of acquiring and holding Sponsor
Stock. The Trustee shall not be liable for any loss, or by
reason of any breach, which arises from the directions of the
Named Fiduciary with respect to the acquisition and holding of
Sponsor Stock, unless it is clear on their face that the
actions to be taken under those directions would be prohibited
by the foregoing fiduciary duty rules or would be contrary to
the terms of this Agreement.
(iii) EXECUTION OF PURCHASES AND SALES.
(A) Purchases and sales of Sponsor Stock (other
than for exchanges) shall be made on the open market on the
date on which the Trustee receives from the Administrator in
good order all information, documentation, and wire transfer
of funds (if applicable), necessary to accurately effect such
transactions. Exchanges of Sponsor Stock shall be made in
accordance with the Exchange Guidelines attached hereto as
Schedule "G". Such general rules shall not apply in the
following circumstances:
(1) If the Trustee is unable to purchase
or sell the total number of shares required to be purchased or
sold on such day as a result of market conditions; or
(2) If the Trustee is prohibited by the
Securities and Exchange Commission, the New York Stock
Exchange, or any other regulatory body from purchasing or
selling any or all of the shares required to be purchased or
sold on such day.
In the event of the occurrence of the circumstances described
in (1) or (2) above, the Trustee shall purchase or sell such
shares as soon as possible thereafter and shall determine the
price of such purchases or sales to be the average purchase or
sales price of all such shares purchased or sold, respectively.
The Trustee may follow directions from the Named Fiduciary to
deviate from the above purchase and sale procedures provided
that such direction is made in writing by the Named Fiduciary.
(B) PURCHASES AND SALES FROM OR TO SPONSOR. If
directed by the Sponsor in writing prior to the trading date,
the Trustee may purchase or sell Sponsor Stock from or to the
Sponsor if the purchase or sale is for adequate consideration
(within the meaning of section 3(18) of ERISA) and no
commission is charged. If Sponsor contributions (employer) or
contributions made by the Sponsor on behalf of the participants
(employee) under the Plan are to be invested in Sponsor Stock,
the Sponsor may transfer Sponsor Stock in lieu of cash to the
Trust. In either case, the number of shares to be transferred
will be determined by dividing the total amount of Sponsor
Stock to be purchased or sold by dividing the total amount of
Sponsor Stock to be purchased or sold by the 4:00 p.m. NYSE
closing price of the Sponsor Stock on the trading date.
(C) USE OF AN AFFILIATED BROKER. The Named
Fiduciary hereby directs the Trustee to use Fidelity Capital
Markets and its affiliates ("Capital Markets") to provide
brokerage services in connection with any purchase or sale of
Sponsor Stock in accordance with directions from Plan
participants. Capital Markets shall execute such directions
directly or through its affiliate, National Financial Services
Company ("NFSC"). The provision of brokerage services shall be
subject to the following:
(1) As consideration for such brokerage
services, the Named Fiduciary agrees that Capital Markets shall
be entitled to remuneration under this direction provision in
the amount of five cents ($.05) commission on each share of
Sponsor Stock up to 10,000 shares in a singular transaction,
four cents ($.04) commission on each share of Sponsor Stock
from 10,001 to 20,000 shares in a singular transaction, and
three and one-half cents ($.035) commission on each share of
Sponsor Stock in excess of 20,000 shares in a singular
transaction. Any change in such remuneration may be made only
by a signed agreement between Sponsor and Trustee.
(2) The Trustee will provide the Sponsor
with a description of Capital Markets' brokerage placement
practices and a form by which the Sponsor may terminate this
direction to use a broker affiliated with the Trustee. The
Trustee will provide the Sponsor with this termination form
annually, as well as quarterly and annual reports which
summarize all securities transaction-related charges incurred
by the Plan.
(3) Any successor organization of Capital
Markets, through reorganization, consolidation, merger or
similar transactions, shall, upon consummation of such
transaction, become the successor broker in accordance with the
terms of this direction provision.
(4) The Trustee and Capital Markets shall
continue to rely on this direction provision until notified to
the contrary. The Sponsor reserves the right to terminate this
direction upon written notice to Capital Markets (or its
successor) and the Trustee, in accordance with Section 11 of
this Agreement.
(iv) SECURITIES LAW REPORTS. The Administrator
shall be responsible for filing all reports required under
Federal or state securities laws with respect to the Trust's
ownership of Sponsor Stock, including, without limitation, any
reports required under section 13 or 16 of the Securities
Exchange Act of 1934, and shall immediately notify the Trustee
in writing of any requirement to stop purchases or sales of
Sponsor Stock pending the filing of any report. The Trustee
shall provide to the Administrator such information on the
Trust's ownership of Sponsor Stock as the Administrator may
reasonably request in order to comply with Federal or state
securities laws.
(v) VOTING AND TENDER OFFERS. Notwithstanding any
other provision of this Agreement the provisions of this
Section shall govern the voting and tendering of Sponsor Stock.
The Sponsor, after consultation with the Trustee, shall pay for
all printing, mailing, tabulation and other costs associated
with the voting and tendering of Sponsor Stock.
(A) VOTING.
(1) When the issuer of Sponsor Stock
prepares for any annual or special meeting, the Sponsor shall
notify the Trustee at least thirty (30) days in advance of the
intended record date and shall cause a copy of all proxy
solicitation materials to be sent to the Trustee. If requested
by the Trustee the Sponsor shall certify to the Trustee that
the aforementioned materials represents the same information
distributed to shareholders of Sponsor Stock. Based on these
materials the Trustee shall prepare a voting instruction form
and shall provide a copy of all proxy solicitation materials
to be sent to each Plan participant, together with the
foregoing voting instruction form to be returned to the Trustee
or its designee. The form shall show the number of full and
fractional shares of Sponsor Stock credited to the
participant's accounts.
(2) Each participant shall have the right
to direct the Trustee as to the manner in which the Trustee is
to vote that number of shares of Sponsor Stock credited to the
participant's accounts (both vested and unvested). Directions
from a participant to the Trustee concerning the voting of
Sponsor Stock shall be communicated in writing, or by mailgram
or similar means as agreed upon by the Trustee and the Sponsor.
These directions shall be held in confidence by the Trustee and
shall not be divulged to the Sponsor, or any officer or
employee thereof, or any other person except to the extent that
the consequences of such directions are reflected in reports
regularly communicated to any such person in the ordinary
course of the performance of the Trustee's services hereunder.
Upon its receipt of the directions, the Trustee shall vote the
shares of Sponsor Stock as directed by the participant. Except
as otherwise required by law, the Trustee shall not vote shares
of Sponsor Stock credited to a participant's account for which
it has received no directions from the participant.
(3) Except as otherwise required by law,
the Trustee shall vote that number of shares of Sponsor Stock
not credited to participants' accounts in the same proportion
on each issue as it votes those shares credited to
participants' accounts for which it received voting directions
from participants.
(B) TENDER OFFERS.
(1) Upon commencement of a tender offer
for any securities held in the Trust that are Sponsor Stock,
the Sponsor shall timely notify the Trustee in advance of the
intended tender date and shall cause a copy of all materials to
be sent to the Trustee. The Sponsor shall certify to the
Trustee that the aforementioned materials represent the same
information distributed to shareholders of Sponsor Stock.
Based on these materials and after consultation with the
Sponsor, the Trustee shall prepare a tender instruction form
and shall provide a copy of all tender materials to be sent to
each plan participant, together with the foregoing tender
instruction form, to be returned to the Trustee or its
designee. The tender instruction form shall show the number of
full and fractional shares of Sponsor Stock credited to the
participants account (both vested and unvested).
(2) Each participant shall have the right
to direct the Trustee to tender or not to tender some or all of
the shares of Sponsor Stock credited to the participant's
accounts (both vested and unvested). Directions from a
participant to the Trustee concerning the tender of Sponsor
Stock shall be communicated in writing, or by mailgram or such
similar means as is agreed upon by the Trustee and the Sponsor.
These directions shall be held in confidence by the Trustee and
shall not be divulged to the Sponsor, or any officer or
employee thereof, or any other person except to the extent that
the consequences of such directions are reflected in reports
regularly communicated to any such persons in the ordinary
course of the performance of the Trustee's services hereunder.
The Trustee shall tender or not tender shares of Sponsor Stock
as directed by the participant. Except as otherwise required
by law, the Trustee shall not tender shares of Sponsor Stock
credited to a participant's accounts for which it has received
no directions from the participant.
(3) Except as otherwise required by law,
the Trustee shall tender that number of shares of Sponsor Stock
not credited to participants' accounts in the same proportion
as the total number of shares of Sponsor Stock credited to
participants' accounts for which it received instructions from
Participants.
(4) A participant who has directed the
Trustee to tender some or all of the shares of Sponsor Stock
credited to the participant's accounts may, at any time prior
to the tender offer withdrawal date, direct the Trustee to
withdraw some or all of the tendered shares, and the Trustee
shall withdraw the directed number of shares from the tender
offer prior to the tender offer withdrawal deadline. Prior to
the withdrawal deadline, if any shares of Sponsor Stock not
credited to participants' accounts have been tendered, the
Trustee shall redetermine the number of shares of Sponsor Stock
that would be tendered under Section 4(e)(v)(B)(3) if the date
of the foregoing withdrawal were the date of determination, and
withdraw from the tender offer the number of shares of Sponsor
Stock not credited to participants' accounts necessary to
reduce the amount of tendered Sponsor Stock not credited to
participants' accounts to the amount so redetermined. A
participant shall not be limited as to the number of directions
to tender or withdraw that the participant may give to the
Trustee.
(5) A direction by a participant to the
Trustee to tender shares of Sponsor Stock credited to the
participant's accounts shall not be considered a written
election under the Plan by the participant to withdraw, or have
distributed, any or all of his withdrawable shares. The
Trustee shall credit to each account of the participant from
which the tendered shares were taken the proceeds received by
the Trustee in exchange for the shares of Sponsor Stock
tendered from that account. Pending receipt of directions
(through the Administrator) from the participant or the Named
Fiduciary, as provided in the Plan, as to which of the
remaining investment options the proceeds should be invested
in, the Trustee shall invest the proceeds in the investment
option described in Schedule "C".
(vi) GENERAL. With respect to all rights other
than the right to vote, the right to tender, and the right to
withdraw shares previously tendered, in the case of Sponsor
Stock credited to a participant's accounts, the Trustee shall
follow the directions of the participant and if no such
directions are received, the directions of the Named Fiduciary.
The Trustee shall have no duty to solicit directions from
participants. With respect to all rights other than the right
to vote and the right to tender, in the case of Sponsor Stock
not credited to participants' accounts, the Trustee shall
follow the directions of the Named Fiduciary.
(vii) CONVERSION. All provisions in this
Section 4(e) shall also apply to any securities received as a
result of a conversion of Sponsor Stock.
(f) PARTICIPANT LOANS. (i) GENERAL PURPOSE LOANS The
Administrator shall act as the Trustee's agent for participant
general purpose loan notes and as such shall (i) separately
account for repayments of such general purpose loans and
clearly identify such assets as Plan assets and (ii) collect
and remit all principal and interest payments to the Trustee.
To originate a participant general purpose loan, the Plan
participant shall direct the Trustee as to the term and amount
of the loan to be made from the participant's individual
account. Such directions shall be made by Plan participants by
use of the telephone exchange system maintained for such
purpose by the Trustee or its agent. The Trustee shall
determine, based on the current value of the participant's
account on the date of the request and any guidelines provided
by the Sponsor, the amount available for the loan. Based on
the interest rate supplied by the Sponsor in accordance with
the terms of the Plan, the Trustee shall advise the participant
of such interest rate, as well as the installment payment
amounts. The Trustee shall distribute the Participant loan
agreement and truth-in-lending disclosure with the proceeds
check to the participant. To facilitate recordkeeping, the
Trustee may destroy the original of any promissory note made in
connection with a loan to a participant under the Plan,
provided that the Trustee first creates a duplicate by a
photographic or optical scanning or other process yielding a
reasonable facsimile of the promissory note and the Plan
participant's signature thereon, which duplicate may be reduced
or enlarged in size from the actual size of the original
promissory note.
(ii) LOANS FOR PURCHASE OF A PRIMARY RESIDENCE. The
Administrator shall act as the Trustee's agent for the purpose
of holding all trust investments in participant loan notes for
the purchase of a primary residence and related documentation
and as such shall (i) hold physical custody of and keep safe
the notes and other loan documents, (ii) separately account for
repayments of such loans and clearly identify such assets as
Plan assets, (iii) collect and remit all principal and interest
payments to the Trustee, and (iv) cancel and surrender the
notes and other loan documentation when a loan has been paid in
full. To originate a participant loan for the purchase of a
primary residence, the Plan participant shall direct the
Trustee as to the type of loan to be made from the
participant's individual account. Such directions shall be
made by Plan participants by use of the telephone exchange
system maintained for such purpose by the Trustee or its agent.
The Trustee shall determine, based on the current value of the
participant's account, the amount available for the loan.
Based on the interest rate supplied by the Sponsor in
accordance with the terms of the Plan, the Trustee shall advise
the participant of such interest rate, as well as the
installment payment amounts. The Trustee shall forward the
loan document to the participant for execution and submission
for approval to the Administrator. The Administrator shall
have the responsibility for approving the loan and instructing
the Trustee to send the loan proceeds to the Administrator or
to the participant if so directed by the Administrator. In all
cases, approval or disapproval by the Administrator shall be
made within thirty (30) days of the participant's initial
request (the origination date).
(g) INVESTMENT CONTRACTS. Trust investments in
Investment Contracts shall be subject to the following
limitations:
(i) COLLECTIVE INVESTMENT FUNDS. To the extent that
the Named Fiduciary selects as an investment option the Managed
Income Portfolio of the Fidelity Group Trust for Employee
Benefit Plans (the "Group Trust"), the Sponsor hereby (A)
agrees to the terms of the Group Trust and adopts said terms as
a part of this Agreement and (B) acknowledges that it has
received from the Trustee a copy of the Group Trust, the
Declaration of Separate Fund for the Managed Income Portfolio
of the Group Trust, and the Circular for the Managed Income
Portfolio.
(ii) PARTICIPATION IN COLLECTIVE INVESTMENT FUNDS.
The Named Fiduciary hereby (i) agrees to the Plan's
participation in the Fidelity Group Trust for Employee Benefit
Plans (the "Group Trust"), a group trust maintained by the
Trustee for qualified plans and adopts said terms as a part of
this Agreement and (ii) acknowledges that it has received from
the Trustee a copy of the terms of the Group Trust and the
terms of the Declaration of Separate Fund for each separate
fund of the Group Trust selected by the Named Fiduciary.
(h) RELIANCE OF TRUSTEE ON DIRECTIONS.
(i) The Trustee shall not be liable for any loss, or
by reason of any breach, which arises from any participant's
exercise or non-exercise of rights under this Section 4 over
the assets in the participant's accounts.
(ii) The Trustee shall not be liable for any loss, or
by reason of any breach, which arises from the Named
Fiduciary's exercise or non-exercise of rights under this
Section 4, unless it was clear on their face that the actions
to be taken under the Named Fiduciary's directions were
prohibited by the fiduciary duty rules of section 404(a) of
ERISA or were contrary to the terms of the Plan or this
Agreement.
(i) TRUSTEE POWERS. The Trustee shall have the following
powers and authority:
(i) Subject to paragraphs (b) and (c) of this
Section 4, to sell, exchange, convey, transfer, or otherwise
dispose of any property held in the Trust, by private contract
or at public auction. No person dealing with the Trustee shall
be bound to see to the application of the purchase money or
other property delivered to the Trustee or to inquire into the
validity, expediency, or propriety of any such sale or other
disposition.
(ii) Subject to paragraphs (b) and (c) of this
Section 4, to invest in Investment Contracts and short term
investments (including interest bearing accounts with the
Trustee or money market mutual funds advised by affiliates of
the Trustee) and in collective investment funds maintained by
the Trustee for qualified plans, in which case the provisions
of each collective investment fund in which the Trust is
invested shall be deemed adopted by the Sponsor and the
provisions thereof incorporated as a part of this Trust as long
as the fund remains exempt from taxation under Sections 401(a)
and 501(a) of the Internal Revenue Code of 1986 (the "Code"),
as amended.
(iii) To cause any securities or other property
held as part of the Trust to be registered in the Trustee's own
name, in the name of one or more of its nominees, or in the
Trustee's account with the Depository Trust Company of New York
and to hold any investments in bearer form, but the books and
records of the Trustee shall at all times show that all such
investments are part of the Trust.
(iv) To keep that portion of the Trust in cash or
cash balances as the Named Fiduciary or Administrator may, from
time to time, deem to be in the best interest of the Trust.
(v) To make, execute, acknowledge, and deliver any
and all documents of transfer or conveyance and to carry out
the powers herein granted.
(vi) To borrow funds from a bank not affiliated with
the Trustee in order to provide sufficient liquidity to process
Plan transactions in a timely fashion; provided that the cost
of such borrowing shall be allocated in a reasonable fashion to
the investment fund(s) in need of liquidity.
(vii) To settle, compromise, or submit to
arbitration any claims, debts, or damages due to or arising
from the Trust; to commence or defend suits or legal or
administrative proceedings; to represent the Trust in all suits
and legal and administrative hearings; and to pay all
reasonable expenses arising from any such action, from the
Trust if not paid by the Sponsor.
(viii) To employ legal, accounting, clerical, and
other assistance as may be required in carrying out the
provisions of this Agreement and to pay their reasonable
expenses and compensation from the Trust if not paid by the
Sponsor.
(ix) To invest all of any part of the assets of the
Trust in any collective investment trust or group trust which
then provides for the pooling of the assets of plans described
in Section 401(a) and exempt from tax under Section 501(a) of
the Code, or any comparable provisions of any future
legislation that amends, supplements, or supersedes those
sections, provided that such collective investment trust or
group trust is exempt from tax under the Code or regulations or
rulings issued by the Internal Revenue Service; the provisions
of the document governing such collective investment trusts or
group trusts, as it may be amended from time to time, shall
govern any investment therein and are hereby made a part of
this Trust Agreement.
(x) To do all other acts although not specifically
mentioned herein, as the Trustee may deem necessary to carry
out any of the foregoing powers and the purposes of the Trust.
Section 5. RECORDKEEPING AND ADMINISTRATIVE SERVICES TO BE
PERFORMED.
(a) GENERAL. The Trustee shall perform those
recordkeeping and administrative functions described in
Schedule "A" attached hereto. These recordkeeping and
administrative functions shall be performed within the
framework of the Administrator's written directions regarding
the Plan's provisions, guidelines and interpretations.
(b) ACCOUNTS. The Trustee shall keep accurate accounts
of all investments, receipts, disbursements, and other
transactions hereunder, and shall report the value of the
assets held in the Trust as of the last day of each fiscal
quarter of the Plan and, if not on the last day of a fiscal
quarter, the date on which the Trustee resigns or is removed as
provided in Section 8 of this Agreement or is terminated as
provided in Section 10 (the "Reporting Date"). Within thirty
(30) days following each Reporting Date or within sixty (60)
days in the case of a Reporting Date caused by the resignation
or removal of the Trustee, or the termination of this
Agreement, the Trustee shall file with the Administrator a
written account setting forth all investments, receipts,
disbursements, and other transactions effected by the Trustee
between the Reporting Date and the prior Reporting Date, and
setting forth the value of the Trust as of the Reporting Date.
Except as otherwise required under ERISA, upon the expiration
of six (6) months from the date of filing such account with the
Administrator, the Trustee shall have no liability or further
accountability to anyone with respect to the propriety of its
acts or transactions shown in such account, except with respect
to such acts or transactions as to which the Sponsor shall
within such six (6) month period file with the Trustee written
objections.
(c) INSPECTION AND AUDIT. All records generated by the
Trustee in accordance with paragraphs (a) and (b) shall be open
to inspection and audit, during the Trustee's regular business
hours prior to the termination of this Agreement, by the
Administrator or any person designated by the Administrator.
Upon the resignation or removal of the Trustee or the
termination of this Agreement, the Trustee shall provide to the
Administrator, at no expense to the Sponsor, in the format
regularly provided to the Administrator, a statement of each
participant's accounts as of the resignation, removal, or
termination, and the Trustee shall provide to the Administrator
or the Plan's new recordkeeper such further records as are
reasonable, at the Sponsor's expense.
(d) EFFECT OF PLAN AMENDMENT. A confirmation of the
current qualified status of the Plan is attached hereto as
Schedule "F". The Trustee's provision of the recordkeeping and
administrative services set forth in this Section 5 shall be
conditioned on the Sponsor delivering to the Trustee a copy of
any amendment to the Plan as soon as administratively feasible
following the amendment's adoption, with, if requested, an IRS
determination letter or an opinion of counsel substantially in
the form of Schedule "F" covering such amendment, and on the
Administrator providing the Trustee on a timely basis with all
the information the Administrator deems necessary for the
Trustee to perform the recordkeeping and administrative
services and such other information as the Trustee may
reasonably request.
(e) RETURNS, REPORTS AND INFORMATION. The Administrator
shall be responsible for the preparation and filing of all
returns, reports, and information required of the Trust or Plan
by law. The Trustee shall provide the Administrator with such
information as the Administrator may reasonably request to make
these filings. The Administrator shall also be responsible for
making any disclosures to Participants required by law, except
such disclosure as may be required under federal or state truth-
in-lending laws with regard to Participant loans, which shall
be provided by the Trustee.
Section 6. COMPENSATION AND EXPENSES. Within thirty (30) days
of receipt of the Trustee's bill, which shall be computed and
billed in accordance with Schedule "B" attached hereto and made
a part hereof, as amended from time to time, the Sponsor shall
send to the Trustee a payment in such amount or the Sponsor may
direct the Trustee to deduct such amount from participants'
accounts. All expenses of the Trustee relating directly to the
acquisition and disposition of investments constituting part of
the Trust, and all taxes of any kind whatsoever that may be
levied or assessed under existing or future laws upon or in
respect of the Trust or the income thereof, shall be a charge
against and paid from the appropriate Plan participants'
accounts.
Section 7. DIRECTIONS AND INDEMNIFICATION.
(a) IDENTITY OF ADMINISTRATOR AND NAMED FIDUCIARY. The
Trustee shall be fully protected in relying on the fact that
the Named Fiduciary and the Administrator under the Plan are
the individuals or persons named as such above or such other
individuals or persons as the Sponsor may notify the Trustee in
writing.
(b) DIRECTIONS FROM ADMINISTRATOR. Whenever the
Administrator provides a direction to the Trustee, the Trustee
shall not be liable for any loss, or by reason of any breach,
arising from the direction (i) if the direction is contained in
a writing (or is oral and immediately confirmed in a writing)
signed by any individual whose name and signature have been
submitted (and not withdrawn) in writing to the Trustee by the
Administrator in the form attached hereto as Schedule "D", and
(ii) if the Trustee reasonably believes the signature of the
individual to be genuine, unless it is clear on the direction's
face that the actions to be taken under the direction would be
prohibited by the fiduciary duty rules of Section 404(a) of
ERISA or would be contrary to the terms of this Agreement. For
purposes of this Section, such direction may also be made via
electronic data transfer ("EDT") in accordance with procedures
agreed to by the Administrator and the Trustee; provided,
however, that the Trustee shall be fully protected in relying
on such direction as if it were a direction made in writing by
the Administrator.
(c) DIRECTIONS FROM NAMED FIDUCIARY. Whenever the Named
Fiduciary or Sponsor provides a direction to the Trustee, the
Trustee shall not be liable for any loss, or by reason of any
breach, arising from the direction (i) if the direction is
contained in a writing (or is oral and immediately confirmed in
a writing) signed by any individual whose name and signature
have been submitted (and not withdrawn) in writing to the
Trustee by the Named Fiduciary in the form attached hereto as
Schedule "E" and (ii) if the Trustee reasonably believes the
signature of the individual to be genuine, unless it is clear
on the direction's face that the actions to be taken under the
direction would be prohibited by the fiduciary duty rules of
Section 404(a) of ERISA or would be contrary to the terms of
this Agreement. Such direction may also be made via EDT in
accordance with procedures agreed to by the Named Fiduciary and
the Trustee; provided, however, that the Trustee shall be fully
protected in relying on such direction as if it were a
direction made in writing by the Named Fiduciary.
(d) CO-FIDUCIARY LIABILITY. In any other case, the
Trustee shall not be liable for any loss, or by reason of any
breach, arising from any act or omission of another fiduciary
under the Plan except as provided in section 405(a) of ERISA.
(e) INDEMNIFICATION. The Sponsor shall indemnify the
Trustee against, and hold the Trustee harmless from, any and
all loss, damage, penalty, liability, cost, and expense,
including without limitation, reasonable attorneys' fees and
disbursements, that may be incurred by, imposed upon, or
asserted against the Trustee by reason of any claim, regulatory
proceeding, or litigation arising from any act done or omitted
to be done by any individual or person with respect to the Plan
or Trust, excepting only any and all loss, etc., arising solely
from the Trustee's negligence or bad faith.
(f) SURVIVAL. The provisions of this Section 7 shall
survive the termination of this Agreement.
Section 8. RESIGNATION OR REMOVAL OF TRUSTEE.
(a) RESIGNATION. The Trustee may resign at any time upon
sixty (60) days' notice in writing to the Sponsor, unless a
shorter period of notice is agreed upon by the Sponsor.
(b) REMOVAL. The Sponsor may remove the Trustee at any
time upon sixty (60) days' notice in writing to the Trustee,
unless a shorter period of notice is agreed upon by the
Trustee.
Section 9. SUCCESSOR TRUSTEE.
(a) APPOINTMENT. If the office of Trustee becomes vacant
for any reason, the Sponsor may in writing appoint a successor
trustee under this Agreement. The successor trustee shall have
all of the rights, powers, privileges, obligations, duties,
liabilities, and immunities granted to the Trustee under this
Agreement. The successor trustee and predecessor trustee shall
not be liable for the acts or omissions of the other with
respect to the Trust.
(b) ACCEPTANCE. When the successor trustee accepts its
appointment under this Agreement, title to and possession of
the Trust assets shall immediately vest in the successor
trustee without any further action on the part of the
predecessor trustee. The predecessor trustee shall execute all
instruments and do all acts that reasonably may be necessary or
reasonably may be requested in writing by the Sponsor or the
successor trustee to vest title to all Trust assets in the
successor trustee or to deliver all Trust assets to the
successor trustee.
(c) CORPORATE ACTION. Any successor of the Trustee or
successor trustee, through sale or transfer of the business or
trust department of the Trustee or successor trustee, or
through reorganization, consolidation, or merger, or any
similar transaction, shall, upon consummation of the
transaction, become the successor trustee under this Agreement.
Section 10. TERMINATION.
This Agreement may be terminated at any time by the Sponsor
upon sixty (60) days' notice in writing to the Trustee. On the
date of the termination of this Agreement, the Trustee shall
forthwith transfer and deliver to such individual or entity as
the Sponsor shall designate, all cash and assets then
constituting the Trust. If, by the termination date, the
Sponsor has not notified the Trustee in writing as to whom the
assets and cash are to be transferred and delivered, the
Trustee may bring an appropriate action or proceeding for leave
to deposit the assets and cash in a court of competent
jurisdiction. The Trustee shall be reimbursed by the Sponsor
for all costs and expenses of the action or proceeding
including, without limitation, reasonable attorneys' fees and
disbursements.
Section 11. RESIGNATION, REMOVAL, AND TERMINATION NOTICES.
All notices of resignation, removal, or termination under this
Agreement must be in writing and mailed to the party to which
the notice is being given by certified or registered mail,
return receipt requested, to the Sponsor c/o Chief Fiduciary
Officer, 6730 S. Tucson Boulevard, Tucson, Arizona 85706, and
to the Trustee c/o John M. Kimpel, Fidelity Investments, 82
Devonshire Street, Boston, Massachusetts 02109, or to such
other addresses as the parties have notified each other of in
the foregoing manner.
Section 12. DURATION.
This Trust shall continue in effect without limit as to time,
subject, however, to the provisions of this Agreement relating
to amendment, modification, and termination thereof.
Section 13. AMENDMENT OR MODIFICATION.
This Agreement may be amended or modified at any time and from
time to time only by an instrument executed by both the Sponsor
and the Trustee. Notwithstanding the foregoing, to reflect
increased operating costs the Trustee may once each calendar
year amend Schedule "B" without the Sponsor's consent upon
seventy-five (75) days written notice to the Sponsor.
Section 14. GENERAL.
(a) PERFORMANCE BY TRUSTEE, ITS AGENTS OR AFFILIATES.
The Sponsor acknowledges and authorizes that the services to be
provided under this Agreement shall be provided by the Trustee,
its agents or affiliates, including Fidelity Investments
Institutional Operations Company, Inc. or its successor, and
that certain of such services may be provided pursuant to one
or more other contractual agreements or relationships.
(b) ENTIRE AGREEMENT. This Agreement together with the
schedules attached hereto, which are hereby incorporated
herein, contains all of the terms agreed upon between the
parties with respect to the subject matter hereof.
(c) WAIVER. No waiver by either party of any failure or
refusal to comply with an obligation hereunder shall be deemed
a waiver of any other or subsequent failure or refusal to so
comply.
(d) SUCCESSORS AND ASSIGNS. The stipulations in this
Agreement shall inure to the benefit of, and shall bind, the
successors and assigns of the respective parties.
(e) PARTIAL INVALIDITY. If any term or provision of this
Agreement or the application thereof to any person or
circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or
circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
(f) SECTION HEADINGS. The headings of the various
sections and subsections of this Agreement have been inserted
only for the purposes of convenience and are not part of this
Agreement and shall not be deemed in any manner to modify,
explain, expand or restrict any of the provisions of this
Agreement.
Section 15. GOVERNING LAW.
(a) MASSACHUSETTS LAW CONTROLS. This Agreement is being
made in the Commonwealth of Massachusetts, and the Trust shall
be administered as a Massachusetts trust. The validity,
construction, effect, and administration of this Agreement
shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Massachusetts, except to the extent
those laws are superseded under Section 514 of ERISA.
(b) TRUST AGREEMENT CONTROLS. The Trustee is not a party to
the Plan, and in the event of any conflict between the
provisions of the Plan and the provisions of this Agreement,
the provisions of this Agreement shall control.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized
officers as of the day and year first above written.
BURR-BROWN CORPORATION
Attest: \s\ Jill Rice By: \s\ S. P. Madavi
------------- ----------------
Secretary Name: Syrus P. Madavi
-----------------
Title: President, CEO
& Chairman of
the Board
---------------
Date: November 20, 1998
-----------------
FIDELITY MANAGEMENT TRUST
COMPANY
Attest: \s\ Douglas O. Kent By: \s\ Carolyn Redden
------------------- ------------------
Assistant Clerk Name: Carolyn Redden
----------------
Title: Vice President
---------------
Date: December 3, 1998
----------------
SCHEDULE "A"
ADMINISTRATIVE SERVICES
ADMINISTRATION
* Establishment and maintenance of participant account and
election percentages.
* Maintenance of the following Plan investment options:
CORE INVESTMENT OPTIONS:
- Managed Income Portfolio
- Fidelity Blue Chip Growth Fund
- Fidelity Dividend Growth Fund
- Puritan Fund
- Fidelity Equity-Income Fund
- Spartan U.S. Equity Index Fund
- Fidelity Freedom Income Fund
- Fidelity Freedom 2000 Fund
- Fidelity Freedom 2010 Fund
- Fidelity Freedom 2020 Fund
- Fidelity Freedom 2030 Fund
- Fidelity Intermediate Bond Fund
- Burr-Brown Corporation Stock
WINDOW INVESTMENT OPTIONS:
- Founders Growth Fund
- PIMCO Mid-Cap Growth Fund - Administrative Class
- Fidelity Fund
- Baron Asset Fund
- INVESCO Total Return Fund
- MAS Mid Cap Value Portfolio - Institutional Class
- UAM/FMA Small Company Portfolio
- Janus Worldwide
- Fidelity Diversified International
- PIMCO Total Return - Administrative Class
- PIMCO High Yield - Administrative Class
- Fidelity Short-Intermediate Government Fund
* Maintenance of the following money classifications:
- - Pre-Tax 401(k)
- - Employer Match
- - Profit Sharing
- - 1986 Profit Sharing
- - Rollover
- - Stock Bonus Rollover
- - Stock Bonus Undiversified
The Trustee will provide the recordkeeping and
administrative services set forth on this Schedule "A" and
as detailed in the Plan Administrative Manual and no others.
A) PROVIDE PARTICIPANT TELEPHONE SERVICES
1. Fidelity registered representatives are available
from 8:30 a.m. - 8:00 p.m. ET each business day to
provide toll free telephone service for participant
inquiries and transactions. Additionally, participants
have 24 hour account balance and transaction inquiry
access utilizing our automated voice response system and
the internet.
2. For security purposes, all calls are recorded. In
addition, several levels of security are available
including the verification of a Personal Identification
Number (PIN) and/or any other indicative data resident on
the system.
3. Through our telephone services, Fidelity provides the
following services:
- Provide Plan investment option information.
- Maintain Plan specific provisions.
- Process exchanges (transfers) between investment options
on a daily basis.
- Maintain and process changes to participants' contribution
allocations for all money sources.
- Allow participants to change their deferral and after-tax
percentages and provide updates via EDT for customer to apply
to its payrolls accordingly.
- Consult with participants in various loan scenarios and
generate all documentation.
- Process all participant loan and withdrawal requests via
Fidelity's toll-free telephone service according to Plan
provisions on a daily basis.
- Process in-service withdrawals via telephone due to
certain circumstances previously approved by the Sponsor.
- Process hardship withdrawals via telephone as directed and
approved by the Sponsor.
- Enroll new participants via telephone; provide
confirmation of enrollment within five (5) days of the request.
B) PLAN ACCOUNTING
1. Process payroll contributions according to payroll
frequency via electronic data transfer (EDT), consolidated
magnetic tape or diskette. The data format will be
provided by Fidelity.
2. Provide Plan and participant level accounting for the
money classifications for the Plan.
3. Audit and reconcile the Plan and participant accounts
daily.
4. Provide daily Plan and participant level accounting
for the Plan investment options.
5. Reconcile and process participant withdrawal requests
as approved and directed by the Sponsor. All requests are
paid based on the current market values of participants'
accounts, not advanced or estimated values. A
distribution report will accompany each check.
6. Track individual participant loans; process loan
withdrawals; re-invest loan repayments; and prepare and
deliver comprehensive reports to the Sponsor to assist in
the administration of participant loans.
7. Fidelity's Guaranteed Investments Daily Equity System
(GUIDE) is an automatic Investment Contract daily
portfolio accounting system. GUIDE provides the Sponsor
with daily valuation of its Plan assets whether
individually managed or in our Managed Income Portfolio I.
8. Maintain and process changes to participants'
prospective and existing investment mix elections via
Fidelity's toll-free telephone service.
C) PARTICIPANT REPORTING
1. Mail confirmation to participants of all transactions
initiated via Fidelity Telephone Services within three (3)
calendar days of the transaction.
2. Prepare and mail via first class to each Plan
participant a quarterly detailed participant statement
reflecting all activity for the period. Statements will
be mailed no later than twenty (20) calendar days after
each quarter end.
3. Mail required 402(f) notification for distribution
from the Plan. This notice advises participants of the
tax consequences of their Plan distributions.
D) PLAN REPORTING
1. Prepare, reconcile and deliver a monthly Trial
Balance Report presenting all money classes and
investments. This report is based on the market value as
of the last business day of the month. The report will be
delivered not later than twenty (20) days after the end of
each month in the absence of unusual circumstances.
2. Prepare, reconcile and deliver a Quarterly
Administrative Report presenting both on a participant and
a total Plan basis all money classes, investment positions
and a summary of all activity of the participant and Plan
as of the last business day of the quarter. The report
will be delivered not later than twenty (20) days after
the end of each quarter in the absence of unusual
circumstances.
E) GOVERNMENT REPORTING
1. Process year-end tax reports for participants -
1099R, as well as financial reporting to assist in the
preparation of Form 5500.
F) COMMUNICATION SERVICES
1. Employee communications describing available
investment options, including multimedia informational
materials and group presentations.
G) OTHER
1. Performance of non-discrimination limitation testing
upon request. In order to obtain this service, the client
shall be required to provide the information identified in
the Fidelity Discrimination Testing Package Guidelines.
2. Monitor and process required minimum distribution
amounts (MRD) as follows: the Trustee will notify the MRD
participant and, upon notification from the MRD
participant, will use the MRD participant's information to
process their distributions. If the MRD participant does
not respond to the Trustee's notification, the Sponsor
directs the Trustee to automatically begin the required
distributions for the participant.
BURR-BROWN CORPORATION FIDELITY MANAGEMENT TRUST COMPANY
By: \s\ S. P. Madavi By: \s\ Carolyn Redden December 31,1998
---------------- ---------------------------------
Vice President Date
SCHEDULE "B"
FEE SCHEDULE
Enrollments by Phone: $5.00 per year per non-
active employee residing on
Fidelity's participant
recordkeeping system.
Loan Fee: Establishment fee of $50.00
per loan account.
Minimum Required Distribution: $25.00 per participant per
MRD withdrawal.
In-Service Withdrawals by Phone: $20.00 per withdrawal.
Plan Sponsor Webstation (PSW): Two (2) user IDs provided
free of charge, each
additional user ID, $500 per
year.
Return of Excess Contribution Fee: $25.00 per participant, one-
time charge per calculation
and check generation.
Non-Fidelity Mutual Funds: .35% annual administration
fee on the following Non-
Fidelity Mutual Fund assets
which are equity/balanced
funds: Founders Growth
Fund; PIMCO Mid-Cap Growth
Fund; Baron Asset Fund; and
UAM/FMA Small Company
Portfolio (to be paid by the
Non-Fidelity Mutual Fund
vendor.).
.25% annual administration
fee on the following Non-
Fidelity Mutual Fund assets:
Invesco Total Return Fund;
Janus Worldwide Fund; PIMCO
Total Return Fund -
Administrative Shares; PIMCO
High Yield Fund -
Administrative Shares (to be
paid by the Non-Fidelity
Mutual Fund vendor.).
Other Fees: separate charges for optional non-discrimination
testing, extraordinary expenses resulting from large numbers
of simultaneous manual transactions or from errors not
caused by Fidelity, or for reports not contemplated in this
Agreement. The Administrator may withdraw reasonable
administrative fees from the Trust by written direction to
the Trustee.
TRUSTEE FEE
To the extent that assets are invested in Sponsor Stock, .10
% of such assets in the Trust payable pro rata quarterly on
the basis of such assets as of the calendar quarter's last
valuation date, but no less than $10,000 nor more than
$35,000 per year.
NOTE: These fees have been negotiated and accepted based on
the following Plan characteristics: 1 plan in the
relationship, current plan assets of $ 57.5 million, current
participation of 800 participants, current GIC assets of $ 7.6
million, current stock assets of $17.8 million, total Fidelity
actively managed Mutual Fund assets of $ 30.5 million, total
Fidelity non-actively managed Mutual Fund assets of $0.0
million, total FundsNet/Outside Fund assets of $0.0 million and
projected net cash flows of $.7 million per year. Fees will be
subject to revision if these Plan characteristics change
significantly by either falling below or exceeding current or
projected levels.
BURR-BROWN CORPORATION FIDELITY MANAGEMENT TRUST COMPANY
By: \s\ S. P. Madavi By:\s\ Carolyn Redden December 31,1998
---------------- ----------------------------------
Vice President Date
SCHEDULE "C"
INVESTMENT OPTIONS
In accordance with Section 4(b), the Named Fiduciary
hereby directs the Trustee that participants' individual
accounts may be invested in the following investment options:
CORE INVESTMENT OPTIONS:
- Managed Income Portfolio
- Fidelity Blue Chip Growth Fund
- Fidelity Dividend Growth Fund
- Puritan Fund
- Fidelity Equity-Income Fund
- Spartan U.S. Equity Index Fund
- Fidelity Freedom Income Fund
- Fidelity Freedom 2000 Fund
- Fidelity Freedom 2010 Fund
- Fidelity Freedom 2020 Fund
- Fidelity Freedom 2030 Fund
- Fidelity Intermediate Bond Fund
- Burr-Brown Corporation Stock
WINDOW INVESTMENT OPTIONS:
- Founders Growth Fund
- PIMCO Mid-Cap Growth Fund - Administrative Class
- Fidelity Fund
- Baron Asset Fund
- INVESCO Total Return Fund
- MAS Mid Cap Value Portfolio - Institutional Class
- UAM/FMA Small Company Portfolio
- Janus Worldwide
- Fidelity Diversified International
- PIMCO Total Return - Administrative Class
- PIMCO High Yield - Administrative Class
- Fidelity Short-Intermediate Government Fund
The investment option referred to in Section 4(c) and
Section 4(e)(v)(B)(5)shall be the Managed Income Portfolio.
BURR-BROWN CORPORATION
By: \s\ S. P. Madavi
----------------
SCHEDULE "D"
November 20, 1998
Ms. Kimberly McCausland
Fidelity Investments Institutional Operations Company, Inc.
82 Devonshire Street- MM3H
Boston, Massachusetts 02109
BURR-BROWN CORPORATION FUTURE INVESTMENT TRUST PLAN
Dear Ms. McCausland:
This letter is sent to you in accordance with Section 7(b)
of the Trust Agreement, dated as of November 20, 1998, between
Burr-Brown Corporation and Fidelity Management Trust Company.
We hereby designate Brenda H. Ousley, Sharon A. Flint, and
Barbara Ritchie as the individuals who may provide directions,
on behalf of the Administrator, upon which Fidelity Management
Trust Company shall be fully protected in relying. Only one
such individual need provide any direction. The signature of
each designated individual is set forth below and certified to
be such.
You may rely upon each designation and certification set
forth in this letter until we deliver to you written notice of
the termination of authority of a designated individual.
Very truly yours,
BURR-BROWN CORPOATON
By: \s\ S. P. Madavi
-------------------------------
Syrus P. Madavi, President, CEO
and Chairman of the Board
\s\ Brenda H. Ousley
-------------------
Brenda H. Ousley
\s\ Sharon A. Flint
------------------
Sharon A. Flint
\s\ Barbara Ritchie
------------------
Barbara Ritchie
SCHEDULE "E"
November 20, 1998
Ms. Kimberly McCausland
Fidelity Investments Institutional Operations Company, Inc.
82 Devonshire Street - MM3H
Boston, Massachusetts 02109
BURR-BROWN CORPORATION FUTURE INVESTMENT TRUST PLAN
Dear Ms. McCausland:
This letter is sent to you in accordance with Section 7(c)
of the Trust Agreement, dated as of November 20, 1998, between
Burr-Brown Corporation and Fidelity Management Trust Company.
We hereby designate Syrus P. Madavi, J. Scott Blouin, and G.
Roger Myers as the individuals who may provide directions, on
behalf of the Named Fiduciary, upon which Fidelity Management
Trust Company shall be fully protected in relying. Only one
such individual need provide any direction. The signature of
each designated individual is set forth below and certified to
be such.
You may rely upon each designation and certification set
forth in this letter until we deliver to you written notice of
the termination of authority of a designated individual.
Very truly yours,
BURR-BROWN CORPOATON
By: \s\ S. P. Madavi
-------------------------------
Syrus P. Madavi, President, CEO
and Chairman of the Board
\s\ S. P. Madavi
---------------
Syrus P. Madavi
\s\ J. Scott Blouin
------------------
Scott Blouin
SCHEDULE "F"
IRS DETERMINATION LETTER
SCHEDULE "G"
EXCHANGE GUIDELINES
The following exchange guidelines are currently employed by
Fidelity Institutional Retirement Services Company (FIRSCO).
Telephone exchange hours via a Fidelity Representative are 8:30
a.m. (ET) to 8:00 p.m. (ET) on each business day. A "business
day" is any day on which the New York Stock Exchange ("NYSE")
is open. Exchanges via the Internet and Fidelity's voice
response system are intended to be available virtually 24 hours
a day.
FIRSCO reserves the right to change these exchange guidelines
at its discretion.
Note: The NYSE's normal closing time is 4:00 p.m. (ET); in the
event the NYSE alters its closing time, all references below to
4:00 p.m. shall mean the NYSE closing time as altered.
MUTUAL FUNDS
EXCHANGES BETWEEN MUTUAL FUNDS
Participants may call on any business day to exchange
between the Mutual Funds. If the request is received
before 4:00 p.m. (ET), it will receive that day's trade
date. Calls received after 4:00 p.m. (ET) will be
processed on a next business day basis.
SPONSOR STOCK
I. EXCHANGES FROM MUTUAL FUNDS INTO SPONSOR STOCK
Company Stock exchanges are processed on a daily cycle.
Participants who wish to exchange out of a Mutual Fund
into Company Stock may call on any business day. Calls
received after 4:00 p.m. (ET) will be processed as if
received on the following business day.
Mutual Fund shares are sold and Company Stock is purchased
on the following business day.
II. EXCHANGES FROM SPONSOR STOCK INTO MUTUAL FUNDS
Participants who wish to exchange out of Sponsor Stock
into Mutual Funds may call on any business day. Calls
received after 4:00 p.m. (ET) will be processed as if
received on the following business day. The Company Stock
is sold on the business day following the call and the
subsequent purchase into mutual funds will take place
three (3) business days later. This allows for settlement
of the stock trade at the custodian and the corresponding
transfer of assets to Fidelity.
MANAGED INCOME PORTFOLIO
I. EXCHANGES BETWEEN MUTUAL FUNDS AND MANAGED INCOME
PORTFOLIO
Participants who wish to exchange between a Mutual Fund
and the Managed Income Portfolio may call on any business
day. If the request is received before 4:00 p.m. (ET), it
will receive that day's trade date. Calls received after
4:00 p.m. (ET) will be processed on a next business day
basis.
II. EXCHANGES FROM MANAGED INCOME PORTFOLIO INTO SPONSOR STOCK
Sponsor Stock exchanges are processed on a daily cycle.
Participants who wish to exchange out of the Managed
Income Portfolio into Sponsor Stock may call on any
business day. Calls received after 4:00 p.m. (ET) will be
processed as if received on the following business day.
Managed Income Portfolio shares are sold and Company Stock
is purchased on the following business day.
III. EXCHANGES FROM SPONSOR STOCK INTO MANAGED INCOME PORTFOLIO
Participants who wish to exchange out of Sponsor Stock
into Mutual Funds may call on any business day. Calls
received after 4:00 p.m. (ET) will be processed as if
received on the following business day. The Sponsor Stock
is sold on the business day following the call and the
subsequent purchase into the Managed Income Portfolio will
take place three (3) business days later. This allows for
settlement of the stock trade at the custodian and the
corresponding transfer of assets to Fidelity.
IV. Exchange Restrictions
Participants will not be permitted to make direct
transfers from the Managed Income Portfolio into a
competing fund. Participants who wish to exchange from
the Managed Income Portfolio into a competing fund, must
first exchange into a non-competing fund for a period of
90 days.
BURR-BROWN CORPORATION
By: \s\ S. P. Madavi
----------------
SCHEDULE "H"
OPERATIONAL GUIDELINES FOR NON-FIDELITY MUTUAL FUNDS
PRICING
By 7:00 p.m. Eastern Time ("ET") each Business Day, the Non-
Fidelity Mutual Fund Vendor (Fund Vendor) will input the
following information ("Price Information") into the Fidelity
Participant Recordkeeping System ("FPRS") via the remote
access price screen that Fidelity Investments Institutional
Operations Company, Inc. ("FIIOC"), an affiliate of the
Trustee, has provided to the Fund Vendor: (1) the net asset
value for each Fund at the Close of Trading, (2) the change
in each Fund's net asset value from the Close of Trading on
the prior Business Day, and (3) in the case of an income fund
or funds, the daily accrual for interest rate factor ("mil
rate"). FIIOC must receive Price Information each Business
Day (a "Business Day" is any day the New York Stock Exchange
is open). If on any Business Day the Fund Vendor does not
provide such Price Information to FIIOC, FIIOC shall pend all
associated transaction activity in the Fidelity Participant
Recordkeeping System ("FPRS") until the relevant Price
Information is made available by Fund Vendor.
TRADE ACTIVITY AND WIRE TRANSFERS
By 7:00 a.m. ET each Business Day following Trade Date
("Trade Date plus One"), FIIOC will provide, via facsimile,
to the Fund Vendor a consolidated report of net purchase or
net redemption activity that occurred in each of the Funds up
to 4:00 p.m. ET on the prior Business Day. The report will
reflect the dollar amount of assets and shares to be invested
or withdrawn for each Fund. FIIOC will transmit this report
to the Fund Vendor each Business Day, regardless of
processing activity. In the event that data contained in the
7:00 a.m. ET facsimile transmission represents estimated
trade activity, FIIOC shall provide a final facsimile to the
Fund Vendor by no later than 9:00 a.m. ET. Any resulting
adjustments shall be processed by the Fund Vendor at the net
asset value for the prior Business Day.
The Fund Vendor shall send via regular mail to FIIOC
transaction confirms for all daily activity in each of the
Funds. The Fund Vendor shall also send via regular mail to
FIIOC, by no later than the fifth Business Day following
calendar month close, a monthly statement for each Fund.
FIIOC agrees to notify the Fund Vendor of any balance
discrepancies within twenty (20) Business Days of receipt of
the monthly statement.
For purposes of wire transfers, FIIOC shall transmit a daily
wire for aggregate purchase activity and the Fund Vendor
shall transmit a daily wire for aggregate redemption
activity, in each case including all activity across all
Funds occurring on the same day.
PROSPECTUS DELIVERY
FIIOC shall be responsible for the timely delivery of Fund
prospectuses and periodic Fund reports ("Required Materials")
to Plan participants, and shall retain the services of a
third-party vendor to handle such mailings. The Fund Vendor
shall be responsible for all materials and production costs,
and hereby agrees to provide the Required Materials to the
third-party vendor selected by FIIOC. The Fund Vendor shall
bear the costs of mailing annual Fund reports to Plan
participants. FIIOC shall bear the costs of mailing
prospectuses to Plan participants.
PROXIES
The Fund Vendor shall be responsible for all costs associated
with the production of proxy materials. FIIOC shall retain
the services of a third-party vendor to handle proxy
solicitation mailings and vote tabulation. Expenses
associated with such services shall be billed directly to the
Fund Vendor by the third-party vendor.
PARTICIPANT COMMUNICATIONS
The Fund Vendor shall provide internally-prepared fund
descriptive information approved by the Funds' legal counsel
for use by FIIOC in its written participant communication
materials. FIIOC shall utilize historical performance data
obtained from third-party vendors (currently Morningstar,
Inc., FACTSET Research Systems and Lipper Analytical
Services) in telephone conversations with plan participants
and in quarterly participant statements. The Sponsor hereby
consents to FIIOC's use of such materials and acknowledges
that FIIOC is not responsible for the accuracy of such third-
party information. FIIOC shall seek the approval of the Fund
Vendor prior to retaining any other third-party vendor to
render such data or materials under this Agreement.
COMPENSATION
FIIOC shall be entitled to fees as set forth in a separate
agreement with the Fund Vendor.
Exhibit 10.8 Amendment No. 3 to Loan Agreement
AMENDMENT NO. 3 TO LOAN AGREEMENT
THIS AMENDMENT NO. 3 TO LOAN AGREEMENT (this "Amendment"),
is made this 2nd day of December, 1998, 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.
1.1 Borrower 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, Amendment No. 1 to Loan
Agreement dated November 15, 1996 and Amendment No. 2 dated
December 21, 1997 (the "Loan Agreement"). Capitalized terms
used without definition herein are used with the meanings
attributed to such terms in the Loan Agreement.
1.2 Borrower 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
9.3 of the Loan Agreement relating to net worth be amended and
restated.
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.
2.1 The 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 5, 2000 or (b) the date on which the
Revolving Commitment is terminated pursuant to subsection
10.2."'
2.1.2 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
$225,000,000.00."
3. BORROWER'S REPRESENTATIONS; EFFECTIVENESS OF THIS AMENDMENT.
Borrower represents and warrants to the Bank that:
3.1 Immediately 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
3.2 Immediately 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. ACKNOWLEDGEMENTS. 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; and (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.
5. GENERAL.
5.1 Borrower 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.
5.2 This 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.
5.3 Any 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.
5.4 This 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.
5.5 This Amendment shall be binding upon and inure to the
benefit of Borrower and the Bank and their respective
successors and assigns.
5.6 This instrument supersedes and replaces any and all
prior versions of this Amendment No. 3 to Loan Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 3 to Loan Agreement to be executed as of the day
and year first above written.
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: \s\PAUL C. HORNUNG
-------------------
Paul C. Hornung
Vice President
BURR-BROWN CORPORATION
By: \s\ G. Roger Myers
-------------------
Title: Treasurer
