UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
- ------- Securities Exchange Act of 1934
For the quarterly period ended July 3, 1999
or
Transition Report Pursuant to Section 13 or 15(d) of
the
- -------- Securities Exchange Act of 1934
Commission File Number 0-11438
BURR-BROWN CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0445468
------------- ---------------
(State of Incorporation) (IRS Employer I.D. No.)
6730 South Tucson Boulevard
Tucson, Arizona 85706
----------------------------
(Address of principle executive offices)
(520) 746-1111
-----------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, not including shares held in treasury,
as of the close of the period covered by this report.
Common Stock, $0.01 par value 36,901,559 Shares
BURR-BROWN CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page#
Item 1 Financial Statements (Unaudited)
Consolidated Statements of Income, Three and Six
Months Ended July 3,1999, and July 4,1998 3
Consolidated Balance Sheets, July 3, 1999,
and December 31, 1998 4
Consolidated Statements of Cash Flows, Six
Months Ended July 3, 1999, and July 4, 1998 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosure of
Market Risk 14
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES
Signature Page 16
<PAGE> 2
PART I. FINANCIAL INFORMATION
BURR-BROWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Jul. 3, Jul. 4, Jul. 3, Jul. 4,
1999 1998 1999 1998
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Revenue $ 68,210 $ 66,518 $ 129,217 $135,203
Cost of Goods Sold 32,643 31,997 62,871 65,084
--------- --------- --------- --------
Gross Margin 35,567 34,521 66,346 70,119
% of revenue 52.1% 51.9% 51.3% 51.9%
Expenses:
Research &
Development 10,426 9,970 20,489 19,780
% of revenue 15% 15% 16% 15%
Sales, Marketing,
General and
Administrative 11,671 12,343 22,762 24,474
% of revenue 17% 19% 18% 18%
--------- --------- --------- --------
Total Operating
Expenses 22,097 22,313 43,251 44,254
% of revenue 32% 34% 33% 33%
Income from
Operations 13,470 12,208 23,095 25,865
% of revenue 20% 18% 18% 19%
Interest Expense 114 108 231 201
Other (Income)
Expense (760) (789) (1,477) (1,748)
--------- --------- --------- --------
Income Before
Income Taxes 14,116 12,889 24,341 27,412
% of revenue 21% 19% 19% 20%
Provision for
Income Taxes 3,811 3,455 6,572 7,812
Effective Tax Rate 27% 27% 27% 28%
--------- --------- --------- --------
Net Income $ 10,305 $ 9,434 $ 17,769 $ 19,600
% of revenue 15% 14% 14% 14%
========= ========= ========= ========
Basic Earnings per
Common Share $ 0.28 $ 0.26 $ 0.48 $ 0.54
========= ========= ========= ========
Shares used in basic
per share calculation 36,773 36,660 36,733 36,554
========= ========= ========= ========
Diluted Earnings per
Common Share $ 0.27 $ 0.25 $ 0.46 $ 0.51
========= ========= ========= ========
Shares used in diluted
per share calculation 38,881 38,505 38,579 38,434
======== ======== ========= ========
<FN>
See Notes to Consolidated Financial
Statements.
</FN>
</TABLE>
<PAGE> 3
BURR-BROWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
Jul. 3, Dec. 31,
1999 1998
----------- ---------
<S> <C> <C>
(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 91,123 $ 72,427
Short-Term Investments 24,481 3,620
Trade Receivables 60,634 54,677
Inventories 51,455 52,296
Deferred Income Taxes 6,607 6,447
Other 9,942 9,960
----------- ---------
Total Current Assets 244,242 199,427
Long-Term Investments 15,924 44,209
Land, Buildings and Equipment
Land 5,128 5,145
Buildings and Improvements 32,158 28,214
Equipment 169,765 167,596
----------- ---------
207,051 200,955
Less Accumulated Depreciation (114,894) (108,791)
----------- ---------
92,157 92,164
Other Assets 2,727 2,891
----------- ---------
$ 355,050 $ 338,691
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 16,200 $ 17,289
Accounts Payable 15,551 16,179
Accrued Expenses 3,969 3,649
Accrued Employee Compensation and
Payroll Taxes 6,544 6,056
Deferred Profit from Distributors 8,729 8,790
Income Taxes Payable 5,821 4,857
Current Portion of Long-Term Debt 1,138 1,235
---------- ---------
Total Current Liabilities 57,952 58,055
Long-Term Debt 2,178 2,921
Deferred Income Taxes 3,865 3,547
Other Long-Term Liabilities 587 655
Stockholders' Equity
Preferred Stock - -
Common Stock 390 386
Additional Paid-In Capital 106,095 100,212
Retained Earnings 203,056 185,295
Accumulated Other Comprehensive
Income 1,434 2,739
Treasury Stock (20,507) (15,119)
---------- ---------
290,468 273,513
---------- ---------
$ 355,050 $ 338,691
========== =========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 4
BURR-BROWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
Jul. 3, Jul. 4,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 17,769 $ 19,600
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation and Amortization 9,167 7,965
Benefit from Deferred Income Taxes 23 141
Increase (Decrease) in Deferred Profit
from Distributors (61) 653
Other 306 (116)
Changes in Operating Assets and
Liabilities:
(Increase) Decrease in Trade Receivables (7,382) (6,844)
(Increase) Decrease in Inventories 524 495
(Increase) Decrease in Other Assets (349) (3,702)
Increase (Decrease) in Accounts Payable (66) 1,308
Increase (Decrease) in Accrued Expenses
and Other Liabilities 3,527 (4,567)
-------- --------
Net Cash Provided By Operating Activities 23,458 14,933
INVESTING ACTIVITIES:
Purchases of Investments (4,238) (8,596)
Maturities of Investments 11,779 27,169
Purchases of Land, Buildings and
Equipment (9,943) (12,430)
Proceeds from Sale of Equipment 13 138
-------- --------
Net Cash (Used in) Provided by Investing
Activities (2,389) 6,281
FINANCING ACTIVITIES:
Proceeds from Short-Term and Long-Term
Borrowings 5,606
Payments on Short-Term and Long-Term
Borrowings (651) (308)
Proceeds from (Payments for) Capital
Stock Activity, Net (804) 3,534
-------- --------
Net Cash (Used In) Provided By Financing
Activities (1,455) 8,832
Effect of Exchange Rate Changes (918) (111)
-------- --------
Increase in Cash and Cash Equivalents 18,696 29,935
Cash and Cash Equivalents at Beginning of
Year 72,427 54,284
-------- --------
Cash and Cash Equivalents at End of Six
Months $ 91,123 $ 84,219
======== ========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE> 5
BURR-BROWN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except per share amounts)
1. BASIS OF PRESENTATION
- ------------------------
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six months ended
July 3, 1999 are not necessarily indicative of the results to be
expected for the year ending December 31, 1999. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
2. EARNINGS PER SHARE
- ---------------------
The following table sets forth the shares used in the computation
of basic and diluted earnings per share for the three months
ended July 3, 1999 and July 4, 1998.
<TABLE>
<CAPTION>
Jul. 3, Jul. 4,
1999 1998
------------ ----------
<S> <C> <C>
Weighted average common shares
outstanding 36,773 36,660
Dilutive effect of stock options
outstanding using the Treasury
Treasury Stock Method 2,108 1,845
------------ ----------
Shares used in computed Diluted
Earnings Per Share 38,881 38,505
============ ==========
</TABLE>
The following table sets forth the shares used in the computation
of basic and diluted earnings per share for the six months
ended July 3, 1999 and July 4, 1998.
<TABLE>
<CAPTION>
Jul. 3, Jul. 4,
1999 1998
------------ ----------
<S> <C> <C>
Weighted average common shares
outstanding 36,733 36,554
Dilutive effect of stock options
outstanding using the Treasury
Stock Method 1,846 1,880
------------ ----------
Shares used in computed Diluted
Earnings Per Share 38,579 38,434
============ ==========
</TABLE>
3. COMPREHENSIVE INCOME
- ------------------------
The components of comprehensive income, net of related tax, for
the three months ended July 3, 1999 and July 4, 1998 are as
follows:
<TABLE>
<CAPTION>
Jul. 3, Jul. 4,
1999 1998
----------- ----------
<S> <C> <C>
Net Income $ 10,305 $ 9,434
Unrealized loss on cash flow
hedges (254) -
Unrealized loss on
investments (66) (49)
Foreign currency translation
adjustment (255) (228)
------------ ----------
Comprehensive income $ 9,730 $ 9,157
============ ==========
</TABLE>
<PAGE> 6
The components of comprehensive income, net of related tax, for
the six months ended July 3, 1999 and July 4, 1998 are as
follows:
<TABLE>
<CAPTION>
Jul. 3, Jul. 4,
1999 1998
----------- ----------
<S> <C> <C>
Net Income $ 17,769 $ 19,600
Unrealized gain on cash flow
hedges 144 -
Unrealized loss on
investments (77) (132)
Foreign currency translation
adjustment (1,372) (821)
------------ ----------
Comprehensive income $ 16,464 $ 18,647
============ ==========
</TABLE>
The components of accumulated other comprehensive income, net of
related tax, at July 3, 1999 and December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Jul. 3, Dec.31,
1999 1998
----------- ----------
<S> <C> <C>
Unrealized loss on cash flow
hedges $ (7) $ (151)
Unrealized gain on
investments 88 165
Foreign currency translation
adjustment 1,353 2,725
------------ ----------
Accumulated other
comprehensive income $ 1,434 $ 2,739
============ ==========
</TABLE>
4. INVENTORIES
- --------------
<TABLE>
<CAPTION>
Inventories consist of the following:
Jul. 3, Dec.31,
1999 1998
------------ ---------
<S> <C> <C>
Raw Material $ 7,191 $ 8,762
Work-in-Process 29,830 25,718
Finished Goods 14,434 17,816
------------ ---------
$ 51,455 $ 52,296
============ =========
</TABLE>
5. TAX RATE
- -----------
The effective tax rate for 1999 is estimated to be 27%. The
Company's effective tax rate is lower than the U.S. statutory
rate due to expected benefits from tax exempt investment income,
a foreign sales corporation, and tax credits.
6. BUSINESS SEGMENT DATA
- ------------------------
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.
Segment information for the three and six months ended July 3,
1999 and July 4, 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Jul. 3, Jul. 4, Jul. 3, Jul. 4,
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Revenue:
North American Operations:
Unaffiliated customers $30,022 $22,320 $ 53,344 $48,140
Foreign unaffiliated
customers 10,328 11,041 21,969 21,526
Consolidated
subsidiaries 15,463 17,970 32,303 37,000
------- ------- -------- -------
55,813 51,331 107,616 106,666
European Operations:
Unaffiliated customers 8,152 9,924 16,120 20,545
Consolidated
subsidiaries - 3,009 - 4,612
------- ------- -------- -------
8,152 12,933 16,120 25,157
Far Eastern Operations:
Unaffiliated customers 19,698 23,234 37,773 44,992
Consolidated
subsidiaries 6,190 2,424 10,441 4,696
------- ------- -------- -------
25,888 25,658 48,214 49,688
Eliminations (21,643) (23,404) (42,733) (46,308)
-------- -------- -------- --------
$ 68,210 $ 66,518 $129,217 $135,203
======== ======== ======== ========
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Jul. 3, Jul. 4, Jul. 3, Jul. 4,
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Income (Loss) Before Income Taxes:
North American
Operations $ 19,030 $ 7,838 $ 28,112 $ 18,602
European Operations 545 1,552 1,015 1,942
Far Eastern Operations 3,492 2,787 4,032 6,816
Eliminations - primarily
United States (8,951) 712 (8,818) 52
-------- -------- -------- --------
$ 14,116 $ 12,889 $ 24,341 $ 27,412
======== ======== ======== ========
Jul. 3, Jul. 4,
Identifiable Assets: 1999 1998
-------- --------
<S> <C> <C>
North American
Operations $317,547 $283,634
European Operations 15,492 28,083
Far Eastern Operation s 44,846 44,993
Eliminations (22,835) (34,424)
-------- --------
$355,050 $322,286
======== ========
</TABLE>
7. 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 revenue, operating expense
transactions, 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 forward and purchased options contracts
to hedge forecasted Yen denominated sales transactions and specific
Yen dominated cost transactions and uses foreign currency forward
contracts to hedge Yen denominated accounts receivable.
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. At July 3,
1999, the Company's foreign currency contracts designated as cash
flow hedges consisted of purchased options and forward contracts.
These contracts had a notional value of $16,618 and hedged
anticipated Japanese Yen denominated sales transactions. At July
3, 1999, the Company's fair value hedges consisted of forward
contracts. These contracts had a notional value of $2,877 and
hedged Japanese Yen denominated accounts receivable. The Company
assesses the effectiveness of its foreign currency hedges using
the spot rate, and views the option premium as the inherently
ineffective portion of its purchased option contracts. The
ineffectiveness resulting from such contracts is reflected in
other (income) expense, and was immaterial to the three and six
months ended July 3, 1999. The loss deferred as other
comprehensive income on cash flow hedges amounted to $7 net of
the deferred tax effect of $4. Such amounts will be reflected in
the Company's income statements between July and December 1999 as
the forecasted transactions occur. Gains on fair value hedges
were reflected in other (income) expense, and were immaterial to
the three and six months ended July 3,1999.
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 July 3, 1999:
Foreign Currency Contracts-Japanese Yen
Foreign Currency Contracts Notional Fair Value
- ------------------------------------------------------------
Forward contracts $ 12,624 $ 83
Purchased option contracts 6,871 -
---------------------------
$ 19,495 $ 83
======== =========
<PAGE> 8
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 were insignificant for the three and six months ended
July 4, 1998.
BURR-BROWN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis contains forward-looking
statements that involve risks and uncertainties. Factors that
might cause actual results to differ from those currently
anticipated include, but are not limited to, those discussed
under "Quantitative and Qualitative Disclosure of Market Risk."
RESULTS OF OPERATIONS
- ---------------------
Net income for the second quarter of 1999 was $10.3 million or
$.27 per diluted share. This compares to net income of $7.5
million or $.20 per diluted share for the preceding quarter and
to net income of $9.4 million or $.25 per diluted share for the
same quarter of 1998. Net income for the first six months of 1999
was $17.8 million or $.46 per diluted share. This compares to
$19.6 million or $.51 per diluted share for the same period in
1998. Bookings for the second quarter of 1999 increased
approximately 41% over the prior quarter.
Second quarter revenue of $68.2 million was 11.8% higher than the
preceding quarter and 2.5% higher than the second quarter of
1998. Revenue for all product lines increased relative to the
first quarter of 1999, with the products serving the
communications market showing the fastest growth rate of 32.5%.
For the first six months of 1999, revenue at $129.2 million
decreased 4.4% over the same period last year.
Relative to the first quarter of 1999, sales increased in all
regions of the world. The North American region experienced the
largest increase in dollar terms, approximately $4 million, or
7.7%. The Japan and Southeast Asia regions were also strong,
showing increases of approximately $3.6 million, or 16%. For
the first six months of 1999, revenue increased slightly in the
North American region, while declining in Europe and the Far
East.
Gross margin for the quarter was 52.1% of revenue. This compares
to gross margin of 50.5% of revenue in the first quarter of 1999
and 51.9% of revenue in the second quarter of 1998. Like
product, like volume pricing, as has been typical, remained
stable during the quarter. 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. The Company's plan is to improve gross margin if
there is an acceleration of revenue growth. For the first six
months of 1999, gross margin was 51.3% of revenue, compared to
51.9% of revenue for the same period last year.
Total operating expenses at $22.1 million were up $943,000 from
the first quarter of 1999, but down $216,000 from the second
quarter of 1998. Sales, Marketing and General & Administrative
(SMG&A) expenses of $11.7 million for the quarter was up $580,000,
sequentially, but down $672,000 from the second quarter of 1998.
Research and Development (R&D) expenses at 15.3% of revenue
were lower in percentage terms when compared to the first quarter
of 1999, but higher in absolute terms by $363,000. R&D spending
as compared to the same quarter a year ago, is up both in absolute
terms, $456,000 and percentage terms, from 15.0% to 15.3%. For the
first six months of 1999, SMG&A spending was down $1.7 million while
R&D spending was up $709,000 as compared to the same period in 1998.
It is the Company's intention to target investment in R&D at
approximately 15% to 16% of revenue and to maintain SMG&A at less
than 18% of revenue. This reflects the Company's continuing
strategy to maintain a substantial level of R&D investment
as the primary driver of revenue growth while
constraining growth in SMG&A expenses.
Second quarter operating income of $13.5 million or 19.7% of
revenue increased by 39.9% over the first quarter of 1999. This
increase was driven both by higher revenues and higher margins.
Operating income as a percentage of revenue increased from 18.4%
in the second quarter of 1998 to 19.7% in the second quarter of
1999. This was due to lower functional expenses and to higher
margins in the second quarter of 1999. For the first six months
of 1999 operating income decreased 10.7%, on a revenue decrease
of 4.4% as compared to the same period in 1998.
<PAGE> 9
Other income was essentially flat relative to the first quarter
of 1999 and the second quarter of 1998. The effective tax rate
for 1999 is expected to be 27%. The Company's effective tax rate
is lower than the U.S. statutory rate due to expected benefits
from tax exempt investment income, a foreign sales corporation, and
tax credits. For the first six months of 1999, other income
decreased by $271,000, while the tax rate decreased to 27% as
compared to the same period in 1998.
As compared to the first quarter of 1999 net income was up 38.1%
on a 11.8% increase in revenue. Net income and revenue, relative
to the second quarter of 1998, were up 9.2% and 2.5%,
respectively. Year to date for 1999, net income decreased $1.8
million or 9.3% as compared to the same period for 1998. It is
the Company's goal to improve profit performance through gross
margin expansion, by continued constraint on SMG&A expenses, and
by revenue growth. The Company's strategy is to achieve revenue
growth through new product development, increased penetration of
traditional markets such as the industrial market, and expanded
participation in new, emerging markets such as communications,
consumer, and computing.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company believes that its financial position as of July 3,
1999 remains very sound. Despite approximately $10 million in
capital spending for the year through July 3, 1999, cash, cash
equivalents, and investments were $131.5 million at quarter end,
an increase of $11.3 million or 9.4% during 1999.
Inventories decreased by $.8 million or 1.6% during 1999 to $51.5
million at July 3, 1999. The Company was able to decrease its
finished goods inventory, while at the same time continuing to
build strategic die bank inventory. This is consistent with the
Company's intention to have sufficient die bank inventory to
improve delivery performance to customers by achieving reduced
cycle times.
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. Inventory turns are 2.4 for 1999, improved from 2.3
turns in the fourth quarter of 1998. The Company's 1999
objective is to improve this to over 3.
During 1999, net accounts receivable increased $6.0 million
relative to the end of 1998. Days sales outstanding (DSO)
increased to 81 days at July 3, 1999 from 79 days at December 31,
1998. The increase in DSO reflected non-linearity in monthly
shipments during the year. DSO is planned to improve in the
second half of 1999 due to increased use of distribution,
improved shipment linearity, and more aggressive collection
activity.
Capital expenditures totaled $5.1 million for the second quarter
1999, essentially flat relative to the first quarter of 1999.
Backend capacity expansion for increased unit volume, next
generation technology development, and modernization and
standardization of manufacturing equipment 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 July 3, 1999, total debt was $19.5 million of which $3.3
million was term debt. This represented a $1.9 million decline in
total debt compared to December 31, 1998. 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 $16.2 million or
39.2% was utilized. The current ratio improved to 4.21 at July 3,
1999 from 3.44 at December 31, 1998. The debt to equity ratio
declined from .08 at 1998's fiscal year end to .07 at 1999's
second quarter end. 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. As of July 3,
1999, the Company has purchased 415,000 shares, 10,000 of which
were purchased in the second quarter of 1999. Stockholders'
equity increased by $17.0 million from December 31, 1998 and
$14.2 million from the first quarter of 1999.
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.
When compared to the first six months of 1998, the effect of
foreign exchange rate changes had an approximate 7.8% favorable
impact on 1999 year to date revenue.(See also "Business
Outlook-Market Risks")
<PAGE> 10
The impact of inflation on the Company's financial position and
results of operations has not been significant during the six
month period ended July 3, 1999.
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
YEAR 2000 ISSUE
- ---------------
"Year 2000 Initiative". The Year 2000 issue concerns potential
malfunctions resulting from computer programs using two-digit
year codes in dates instead of four-digit codes. This may result
in hardware and software not functioning properly before or
following January 1, 2000, which may lead to minor or significant
problems associated with manufacturing, distribution, and other
business operations. Burr-Brown's Year 2000 initiative is being
addressed by a multi-disciplinary committee led by senior
information system technology managers.
The committee is evaluating Year 2000 issues in the following
five key categories:
a. Company products;
b. Business application systems;
c. Information technology ("IT") infrastructure;
d. Non-IT infrastructure(factory and facilities equipment and
infrastructure); and
e. Third party suppliers and customers.
The committee is addressing each of these categories in three
phases:
1. Inventory (identify items with possible Year 2000 risk);
2. Assessment (prioritize the inventory, assess Year 2000
compliance, plan corrective action, and identify initial
contingency plans); and
3. Remediation (implement corrective action, test and verify
compliance, and execute contingency plans if not compliant).
"State of Readiness". The Company has determined that its
semiconductor products should not produce errors processing data
as a result of Year 2000 failures, provided that all other
products (e.g., other software, hardware, and electronic
components) used with the Burr-Brown semiconductor products
properly exchange accurate data. The Company's products are used
in a wide variety of applications in conjunction with other
electronic components and software from many different vendors;
to verify proper Year 2000 operation of a complete system,
customers will need to verify proper operation of each individual
component as well as the system as a whole in the specific
application environment.
The committee has completed an inventory of all domestic business
applications systems and IT infrastructure (including software,
hardware and communications infrastructure, systems developed in-
house, purchased software and hardware, and services provided by
third parties). The Company began a worldwide replacement of its
primary business systems in 1994 to provide additional
significant information system functionality as well as Year 2000
readiness. This replacement is complete. 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 and assessment of non-
IT infrastructure. Non-IT infrastructure includes physical
fabrication and test facilities and equipment for production.
Burr-Brown's manufacturing processes are highly automated. The
preliminary inventory has identified assembly and test equipment
that contains embedded proprietary software or is integrated into
PC software databases that needed 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.
<PAGE> 11
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 400 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.
Burr-Brown anticipates completing its remediations and testing
by the third quarter of 1999, its contingency planning by the
fourth 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 $15.5 million on information system replacement.
The committee currently anticipates spending between $0.2 - $1.2
million to achieve Year 2000 compliance for presently identified
IT and Non-IT infrastructure that will require remediation. The
committee has and will continue to use, as required, external
consultants to assess and mitigate Year 2000 problems. To the
extent the Company is required to use outside consultants more
than presently anticipated, the Company's costs to address Year
2000 issues will increase. These cost estimates may change as
more information becomes known. All Year 2000 costs have been and
will continue to be funded from operations.
"Critical Risks". Although the Company intends that its Year
2000 initiative will avoid any material adverse effect on its
operations, cash flows, or financial condition, it recognizes
that the occurrence of worst case Year 2000 scenarios could
significantly impede its ability to manufacture, distribute, and
sell its products for an indefinite period of time. The Company
is dependent on basic public and private infrastructure for its
normal operations. In the event utilities, distribution
channels, banking systems, or other fundamental services are
unavailable as a result of Year 2000 failures, this would have a
severe impact on continuing business operations. Any long-term
interruption would have a material adverse impact on the Company.
In addition, the Company does not have readily available
alternative sources of supply for certain materials and services
(e.g., specific wafer production processes). The Company would
not be able to replace these critical suppliers without
significant delay and cost.
BUSINESS OUTLOOK
- ----------------
In order to provide our shareholders with better insight to our
future plans, directions, and objectives, the following forward
looking statements are provided.
MARKETS: The Company intends to continue to emphasize the
industrial and process control and test and instrumentation
markets in which it holds a leadership position in order to
protect and enhance market penetration. The Company expects to
hold a steady market position in the digital audio and video
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 and video 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, application specific products which target specific needs
of very high growth market segments.
<PAGE> 12
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 July 3, 1999 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 July
3, 1999:
Fair Value Weighted Yield
-----------------------------
Maturities from
07/99 to 06/2000 $ 108,224,000 4.10%
Maturities after
06/2000 15,924,000 5.01%
- ------------------------------------------------------
Total $ 124,148,000 4.21%
================================
It is the objective of the Company to concentrate investments in
tax advantaged securities to maximize after tax return.
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 1998 and 1999.
The following summarizes the foreign currency forward and option
contracts, which settle in 1999, in effect at July 3, 1999:
Notional Average Fair
Amount Rate Value
----------------------------------------
Japanese Yen
Forward Contracts $12,624,000 119.51 $ 83,000
Japanese Yen
Option Contracts 6,871,000 123.59 -
- --------------------------------------------------------------
Total $19,495,000 $ 83,000
========================================
<PAGE> 13
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
- ------------------------------------------------------
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.
Historically, average selling prices in the semiconductor
industry have decreased over the life of particular products. If
the Company is unable to introduce new products with higher
average selling prices or is unable to reduce manufacturing costs
to offset decreases in the prices of its existing products, the
Company's operating results will be adversely affected. In
addition, the Company is limited in its ability to reduce costs
quickly in response to any revenue shortfalls.
The fabrication of integrated circuits is a highly complex and
precise process. Manufacturing yields can be impacted by a
variety of factors, many of which are outside the Company's
control. A large portion of the Company's manufacturing costs
are relatively fixed and consequently the number of shippable die
per wafer for a given product is critical to the Company's
results of operations. To the extent the Company does not achieve
acceptable manufacturing yields or experiences product shipment
delays, its financial condition, cash flows, and results of
operations would be materially and adversely affected. To meet
anticipated future demand and to utilize a broader range of
fabrication processes, the Company intends to increase its
manufacturing capacity at some future point. Although the Company
has internal capability to produce wafers for many of its
products, it is dependent on outside wafer fabs for a significant
portion of its wafer supply. As is typical in the semiconductor
industry, from time to time the Company has experienced
disruptions in the supply of processed wafers from external fabs
due to quality and yield problems and capacity constraints. If
these outside wafer foundries are not able to produce required
supplies of processed wafers conforming to the Company's quality
standards, the Company's business and relationships with its
customers for the quantities of products produced by these
foundries could be adversely affected. In addition, the Company
relies on domestic and international subcontractors to perform
assembly, packaging, and testing services. Disruption of these
services could adversely affect the Company's operations.
The Company desires to continue to expand its operations outside
of the United States and to enter additional international
markets, which will require significant management attention and
financial resources and subject the Company further to the risks
of operating internationally. These risks include unexpected
changes in regulatory requirements, delays resulting from
difficulty in obtaining export licenses for certain technology,
tariffs, and other barriers and restrictions, and the burdens of
complying with a variety of foreign laws. In addition, because
most of the Company's international sales are denominated in
foreign currencies, gains and losses on the conversion to U.S.
dollars of accounts receivable and accounts payable arising from
international operations may contribute to fluctuations in the
Company's operating results. A substantial portion of the
Company's revenue is attributable to sales in Japan and Southeast
Asia. The recent economic instability in Japan and Southeast
Asia has had a negative impact on the Company's sales during 1998
and 1999, 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 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.
<PAGE> 14
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> 15
PART II. OTHER INFORMATION
- ---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS
- -----------------------------------------------------------------
a. The Company's Annual Meeting of Shareholders was held April 23,
1999. The total shares entitled to vote as of the record date were
36,702,364, and 34,738,639 shares (94.6%) were voted at the
meeting.
b. The following Directors were elected to serve until the next
Annual Meeting and until their successors are duly elected and
qualified. The shares voted for and withheld from voting for such
Directors were as follows:
NOMINEE FOR WITHHELD
-----------------------------------------------------------
Thomas R. Brown, Jr. 34,700,927 37,712
Syrus P. Madavi 34,693,487 45,152
John S. Anderegg, Jr. 34,701,134 37,505
Francis J. Aguilar 34,691,281 47,358
Marcelo A. Gumucio 34,703,988 34,651
c.The shareholders also approved the selection of Ernst & Young
LLP as independent auditors for the Company for the ensuing
fiscal year. Voting on this resolution were 34,718,338 shares
for, 13,911 shares against, and 6,390 shares not voted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibits
27.Financial Data Schedule.
b. Reports on Form 8-K: The Company did not file any reports
on Form 8-K during the quarter ended July 3, 1999.
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BURR-BROWN CORPORATION
----------------------
Registrant
By: J. SCOTT BLOUIN
---------------
J. Scott Blouin
Chief Financial Officer
Principal Accounting Officer
Date: August 17, 1999
<PAGE> 16
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF BURR-BROWN CORPORATION FOR THE
SIX MONTHS ENDED JULY 3, 1999
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUL-3-1999
<CASH> 91,123
<SECURITIES> 40,405
<RECEIVABLES> 61,226
<ALLOWANCES> 592
<INVENTORY> 51,455
<CURRENT-ASSETS> 244,242
<PP&E> 207,051
<DEPRECIATION> 114,894
<TOTAL-ASSETS> 355,050
<CURRENT-LIABILITIES> 57,952
<BONDS> 0
0
0
<COMMON> 390
<OTHER-SE> 290,078
<TOTAL-LIABILITY-AND-
EQUITY> 355,050
<SALES> 129,217
<TOTAL-REVENUES> 129,217
<CGS> 62,871
<TOTAL-COSTS> 62,871
<OTHER-EXPENSES> 43,251
<LOSS-PROVISION> (99)
<INTEREST-EXPENSE> 231
<INCOME-PRETAX> 24,341
<INCOME-TAX> 6,572
<INCOME-CONTINUING> 17,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,769
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.46
</TABLE>
