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 1, 2000
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.
As of July 1, 2000, there were 56,539,780 Shares of Common Stock,
$0.01 par value outstanding
<PAGE> 1
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 1, 2000, and July 3, 1999 3
Consolidated Balance Sheets, July 1, 2000,
and December 31, 1999 4
Consolidated Statements of Cash Flows, Six
Months Ended July 1, 2000, and July 3, 1999 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 13
PART II. OTHER INFORMATION
---------------------------
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURES
-----------
Signature Page 14
<PAGE> 2
PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
BURR-BROWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Six Months Ended
Jul. 1, Jul. 3, Jul. 1, Jul. 3,
2000 1999 2000 1999
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Revenue $103,515 $68,210 $194,069 $129,217
Cost of Goods Sold 44,525 32,643 85,285 62,871
-------- ------- -------- --------
Gross Margin 58,990 35,567 108,784 66,346
% of revenue 57.0% 52.1% 56.1% 51.3%
Expenses:
Research & Development 14,798 10,426 27,869 20,489
% of revenue 14% 15% 14% 16%
Sales, Marketing, General
and Administrative 13,545 11,671 26,375 22,762
% of revenue 13% 17% 14% 18%
-------- ------- -------- --------
Total Operating Expenses 28,343 22,097 54,244 43,251
% of revenue 27% 32% 28% 33%
Income from Operations 30,647 13,470 54,540 23,095
% of revenue 30% 20% 28% 18%
Interest Expense 2,787 114 4,014 231
Other (Income) Expense (4,969) (760) (8,356) (1,477)
-------- ------- -------- --------
Income Before Income Taxes 32,829 14,116 58,882 24,341
% of revenue 32% 21% 30% 19%
Provision for Income Taxes 9,521 3,811 17,077 6,572
Effective Tax Rate 29% 27% 29% 27%
-------- ------- -------- --------
Net Income $ 23,308 $10,305 $41,805 $ 17,769
% of revenue 23% 15% 22% 14%
======== ======= ======== ========
Basic Earnings per Common
Share $ 0.41 $ 0.19 $ 0.75 $ 0.32
======== ======= ======== ========
Shares used in basic per (1) (1)
share calculation 56,255 55,160 56,036 55,100
======== ======= ======== ========
Diluted Earnings per Common
Share $ 0.38 $ 0.18 $ 0.68 $ 0.31
======== ======= ======== ========
Shares used in diluted per (1) (1)
share calculation 61,496 58,321 61,072 57,869
======== ======= ======== ========
See Notes to Consolidated Financial Statements.
(1) Common share information reflects a 3 for 2 stock split
effective December 1999.
</TABLE>
<PAGE> 3
BURR-BROWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
Jul. 1, Dec. 31,
2000 1999
---------- --------
<S> <C> <C>
(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 262,315 $ 118,132
Short-Term Investments 174,289 45,189
Trade Receivables 74,663 66,068
Inventories 54,950 49,761
Deferred Income Taxes 10,461 10,073
Other 10,158 9,133
----------- ---------
Total Current Assets 586,836 298,356
Long-term Investments 12,055
Land, Buildings and Equipment
Land 5,189 5,210
Buildings and Improvements 33,656 33,721
Equipment 187,180 179,628
----------- ---------
226,025 218,559
Less Accumulated Depreciation (128,803) (120,307)
----------- ---------
97,222 98,252
Other Assets 20,517 3,109
----------- ---------
$ 716,630 $ 399,717
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable $ 17,221 $ 16,756
Accounts Payable 22,666 17,900
Accrued Expenses 9,322 4,229
Accrued Employee Compensation and
Payroll Taxes 11,699 8,940
Deferred Profit from Distributors 13,090 10,143
Income Taxes Payable 840 9,506
Current Portion of Long-Term Debt 1,120 1,296
---------- ---------
Total Current Liabilities 75,958 68,770
Long-Term Debt 251,498 2,053
Deferred Income Taxes 3,447 4,995
Other Long-Term Liabilities 651 681
Stockholders' Equity
Preferred Stock - -
Common Stock 586 577
Additional Paid-In Capital 129,840 108,865
Retained Earnings 272,799 230,995
Accumulated Other Comprehensive Income 2,491 3,303
Treasury Stock (20,640) (20,522)
----------- ---------
385,076 323,218
----------- ---------
$ 716,630 $ 399,717
=========== =========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 4
BURR-BROWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
Six Months Ended
Jul. 1, Jul. 3,
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 41,805 $ 17,769
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 10,345 9,167
Benefit from Deferred Income Taxes (3,095) 23
Increase (Decrease) in Deferred Profit
from Distributors 2,947 (61)
Other (91) 319
Changes in Operating Assets and
Liabilities:
(Increase) Decrease in Trade Receivables (9,558) (7,382)
(Increase) Decrease in Inventories (5,202) 524
(Increase) Decrease in Other Assets (1,757) (349)
Increase (Decrease) in Accounts Payable 4,996 (66)
Increase (Decrease) in Accrued Expenses
and Other Liabilities 15,170 3,527
--------- ---------
Net Cash Provided By Operating Activities 55,560 23,471
INVESTING ACTIVITIES:
Purchases of Investments (183,466) (4,238)
Maturities of Investments 32,154 11,779
Purchases of Land, Buildings and
Equipment (9,757) (9,943)
--------- ---------
Net Cash Used in Investing Activities (161,069) (2,402)
FINANCING ACTIVITIES:
Proceeds from Short-Term and Long-Term
Borrowings 244,018
Payments on Short-Term and Long-Term
Borrowings (633) (651)
Proceeds from (Payments for) Capital
Stock Activity, Net 6,453 (804)
--------- ---------
Net Cash Provided By (Used In) Financing
Activities 249,838 (1,455)
Effect of Exchange Rate Changes (146) (918)
--------- ---------
Increase in Cash and Cash Equivalents 144,183 18,696
Cash and Cash Equivalents at Beginning of
Year 118,132 72,427
--------- ---------
Cash and Cash Equivalents at End of Six
Months $ 262,315 $ 91,123
========== =========
See Notes to Consolidated Financial Statements.
</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 quarter ended July 1, 2000,
are not necessarily indicative of the results to be expected for
the year ending December 31, 2000. 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, 1999, as 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 and six
months ended July 1, 2000 and July 3, 1999. References to share
and per share amounts have been restated to reflect a three-for-
two stock split declared December 2, 1999 and distributed on
December 20, 1999, to shareholders of record on December 10,
1999. Fractional shares were paid in cash to those stockholders
whose shares on the record date were not evenly divisible by two.
<TABLE>
Three Months Six Months
Ended Ended
Jul. 1, Jul.3, Jul.1, Jul.3,
2000 1999 2000 1999
------- ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 56,255 55,160 56,036 55,100
Dilutive effect of stock options
outstanding
Using the Treasury Stock Method 5,241 3,161 5,036 2,769
------- ------ ------ ------
Shares used in computed Diluted
Earnings Per Share 61,496 58,321 61,072 57,869
======= ====== ====== ======
</TABLE>
3. DEBT
---------
On February 24, 2000, the Company completed a private placement
pursuant to SEC Rule 144 of $250,000 of 4 1/4% Convertible
Subordinated Notes due February 15, 2007 with semiannual interest
payable on February 15 and August 15 of each year commencing
August 15, 2000. The Notes are convertible, at the option of the
holder, into the Company's common stock at any time after the
original purchase date, at a conversion price of $57.78 per
share, subject to adjustment in certain events. The Company has
registered the Notes and the common stock issuable upon
conversion of the Notes held by requesting securityholders. The
net proceeds of the offering were approximately $243,000 after
payment of placement discounts and expenses of the offering,
which will be amortized over the term of the Notes. The proceeds
have been invested primarily in interest bearing mutual funds and
reported as cash equivalents, short-term investments and long-
term investments on our balance sheet.
4. COMPREHENSIVE INCOME
------------------------
The components of comprehensive income, net of related tax, for
the three months ended July 1, 2000 and July 3, 1999 are as
follows:
<TABLE>
Jul. 1, Jul. 3,
2000 1999
--------- ---------
<S> <C> <C>
Net Income $ 23,308 $ 10,305
Unrealized gain/(loss) on cash
flow hedges 215 (254)
Unrealized gain/(loss) on
investments (106) (66)
Foreign currency translation
adjustment (203) (255)
---------- ---------
Comprehensive income $ 23,214 $ 9,730
========== ==========
</TABLE>
<PAGE> 6
The components of comprehensive income, net of related tax, for
the six months ended July 1, 2000 and July 3, 1999 are as
follows:
<TABLE>
Jul. 1, Jul. 3,
2000 1999
---------- ---------
<S> <C> <C>
Net Income $ 41,805 $ 17,769
Unrealized gain on cash flow
hedges 90 144
Unrealized (loss) on
investments (91) (77)
Foreign currency translation
adjustment (811) (1,372)
---------- ---------
Comprehensive income $ 40,993 $ 16,464
========== =========
The components of accumulated other comprehensive income, net of
related tax, at July 1, 2000 and December 31, 1999 are as
follows:
Jul. 1, Dec. 31,
2000 1999
---------- ---------
<S> <C> <C>
Unrealized (loss) on cash flow
hedges $ (106) $ (196)
Unrealized (loss) on
investments (95) (4)
Foreign currency translation
adjustment 2,692 3,503
---------- ---------
Accumulated other comprehensive
income $ 2,491 $ 3,303
========== =========
5. INVENTORIES
---------------
Inventories consist of the following:
Jul. 1, Dec.31,
2000 1999
---------- ---------
<S> <C> <C>
Raw Materials $ 7,996 $ 7,661
Work-in-Process 33,105 30,543
Finished Goods 13,849 11,557
---------- ---------
$ 54,950 $ 49,761
========== =========
</TABLE>
6. TAX RATE
------------
The Company's effective tax rate for 2000 is estimated to be
approximately 29%. 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.
7. BUSINESS SEGMENT DATA
------------------------
The Company has three reportable segments: North American
(principally the United States), Far Eastern (principally Japan,
but including Singapore beginning in 1998), and European
(principally the United Kingdom, France, Germany, and Italy).
Revenue is derived in each of these segments 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 1,
2000 and July 3, 1999 is as follows:
<PAGE> 7
<TABLE>
Three Months Ended Six Months Ended
Jul. 1, Jul. 3, Jul. 1, Jul. 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Revenue:
North American Operations:
Unaffiliated customers $ 42,219 $ 30,022 $75,967 $53,344
Foreign unaffiliated
customers 18,876 10,328 36,942 21,969
Consolidated subsidiaries 27,639 15,463 49,862 32,303
-------- -------- -------- -------
88,734 55,813 162,771 107,616
European Operations:
Unaffiliated customers 12,130 8,152 23,474 16,120
Far Eastern Operations:
Unaffiliated customers 30,290 19,698 57,686 37,773
Consolidated subsidiaries 9,077 6,190 16,313 10,441
-------- -------- -------- --------
39,367 25,888 73,999 48,214
Eliminations (36,716) (21,643) (66,175) (42,733)
-------- -------- -------- --------
$103,515 $ 68,210 $194,069 $129,217
======== ======== ======== ========
Three Months Ended Six Months Ended
Jul. 1, Jul. 3, Jul. 1, Jul. 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income (Loss) Before Income Taxes:
North American Operations $ 43,544 $ 19,030 $ 62,677 $ 28,112
European Operations 978 545 2,031 1,015
Far Eastern Operations 6,672 3,492 12,526 4,032
Eliminations - primarily
United States (18,365) (8,951) (18,352) (8,818)
-------- -------- -------- --------
$ 32,829 $ 14,116 $ 58,882 $ 24,341
======== ======== ======== ========
Jul. 1, Jul. 3,
Identifiable Assets: 2000 1999
--------- --------
<S> <C> <C>
North American Operations $676,798 $317,547
European Operations 19,362 15,492
Far Eastern Operations 49,477 44,846
Eliminations (29,007) (22,835)
-------- --------
$716,630 $355,050
======== ========
</TABLE>
8. FOREIGN CURRENCY CONTRACTS AND HEDGING ACTIVITIES
----------------------------------------------------
Due to the Company's significant international sales, both to
unaffiliated 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 1,
2000, 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 $9,545 and hedged
anticipated Japanese Yen denominated sales transactions. The
Company assesses the effectiveness of its foreign currency
purchased option and forward contracts 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 in the three and six months ended July 1, 2000.
The loss recorded as other comprehensive income on cash flow
hedges amounted to $106 net of the deferred tax effect of $65.
Such amounts will be reflected in the Company's income statements
between July 2000 and September 2000 as the forecasted
transactions occur. No fair value hedges matured during the
second quarter and no contracts were designated as fair value
hedges at July 1, 2000. Gains on cash flow hedges were immaterial
to the three and six months ended July 1, 2000.
<PAGE> 8
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 1, 2000:
Foreign Currency Contracts-Japanese Yen
Foreign Currency Contracts Notional Fair Value
-------------------------------------------------------------
Forward contracts $ 6,767 $ (18)
Purchased option contracts 2,778 -
-------------------------------
$ 9,545 $ (18)
========= ===========
9. PROPOSED MERGER
------------------
On June 21, 2000, The Company announced that it had entered into
a definitive agreement and plan of merger to be acquired by Texas
Instruments Incorporated ("TI"). Under the terms of the
transaction, Burr-Brown will become a wholly owned subsidiary of
TI and each share of Burr-Brown common stock outstanding will be
exchanged for 1.3 shares of TI common stock. Similar adjustments
will be made to the shares of Burr-Brown stock issuable under
options and convertible notes. The transaction was valued at
approximately $7.6 billion based upon TI's stock price at the
time of announcement. The transaction is intended to qualify as
a pooling of interests for accounting purposes and as a tax-free
exchange of shares under IRS regulations. The transaction has
been approved by the boards of directors of both companies and is
subject to approval by Burr-Brown's stockholders. The joint
proxy statement/prospectus of Burr-Brown and TI has been declared
effective by the SEC, and proxy materials were mailed to
stockholders on or about July 25, 2000. In addition, the U.S.
Federal Trade Commission granted early termination of the waiting
period for antitrust review of the proposed merger under the Hart-
Scott-Rodino Act and the German Federal Cartel Office has
rendered a decision clearing the proposed transaction under the
Act against Restraints of Competition of 1958 (as amended). Burr-
Brown will hold a special meeting of its stockholders on August
24, 2000 for stockholders of record on July 19, 2000 to vote on
the merger. If stockholder approval is obtained, the merger is
expected to close shortly thereafter.
ITEM 2.
BURR-BROWN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
REVENUE. Second quarter 2000 revenue was $103.5 million, the
highest quarterly revenue in our history, compared to $68.2
million in the second quarter of 1999. This represents a 51.8%
increase in revenue over the second quarter of 1999 and a 14.3%
increase in revenue over the preceding first quarter of 2000.
This marked the fourth consecutive quarter that the Company
achieved record revenue. Revenue for all product lines increased
relative to the second quarter of 1999. Strongest growth was
achieved in our newer Communications, Audio and Video and
Computer markets. Revenue from Communications increased 73% from
the same period a year ago and 53.3% sequentially. Revenue from
the Computing market increased 167.3% from the same period a year
ago and 34.7% sequentially. Revenue for the Audio and Video
market increased 48.2% from the same period a year ago. The
Company has experienced broad-based demand across all its served
markets and geographic regions.
GROSS MARGIN. Gross margin improved 200 basis points to 57.0% in
the second quarter of 2000 from 55.0% in the first quarter of
2000. Gross margin was 52.1% of revenue in the second quarter
of 1999. This improvement was driven by the increase in revenue
discussed above combined with higher factory utilization,
manufacturing cost improvements and a higher margin product mix
driven by our targeted market applications. This marks the sixth
consecutive quarter in which the Company has set a new record for
gross margin as a percent of sales. It is the Company's intent
to increase its penetration of high volume, fast growing,
emerging applications. It is the Company's goal that this
strategy, if successfully executed, will increase unit volumes,
decrease aggregate average selling price and expand gross margins
due to increased operating leverage.
<PAGE> 9
RESEARCH AND DEVELOPMENT. Research and Development (R&D) expenses
of 14.3% of revenue in the second quarter of 2000 were lower in
percentage terms and higher in absolute dollars by $4.4 million
than the second quarter of 1999. The lower percentage is
primarily due to the increased revenues. The Company's strategy
is to continue to maintain a substantial level of R&D investment
as the primary driver of revenue growth while constraining growth
in Sales, Marketing, General & Administrative (SMG&A) expenses.
Increases in R&D spending were the result of technical hiring and
an increase in new product output.
SALES, MARKETING, GENERAL & ADMINISTRATIVE. SMG&A expenses
continue to decline as a percentage of revenue. SMG&A expenses
declined to 13.1% of revenue for the second quarter of 2000 from
14.2% during the first quarter and 17.1% in the second quarter of
1999. The sequential increases in SMG&A in absolute dollars is
due to higher sales related costs and increased variable
compensation expense.
OPERATING INCOME. Second quarter operating income was a record
$30.6 million, or 29.6% of revenue, an increase of 28.3% over the
previous quarter and 127.5% higher than the second quarter of
1999. This increase was due to higher revenues, improved gross
margin and modest increases in operating expenses.
OTHER INCOME. Other income was $2.2 million for the second
quarter of 2000, an increase of 237.8% over the second quarter of
1999. This was due primarily to an increase in interest income
from higher levels of invested cash and equivalents. Cash and
equivalents increased as a result of cash flow generated from
operations and net interest earned on the proceeds from
convertible notes that were issued during the first quarter of
2000.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for
2000 is expected to be approximately 29%. 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. The effective tax rate
increased 2 percentage points over 1999 due to the expectation of
higher earnings in Japan and reduced foreign sales corporation
benefits.
NET INCOME. Net income for the second quarter of 2000 was a
record $23.3 million or 22.5% of revenue. This represents an
increase of 26% sequentially on a 14.3% increase in revenue from
the first quarter and 126.2% on a 51.8% increase in revenue above
the same quarter a year ago. This marked the fifth consecutive
quarter of record net income and the second time in the Company's
history that its net income exceeded 20% of revenue. The increase
in net income was a result of increased revenue, a higher margin
product mix resulting in record gross margins, improved
manufacturing efficiencies and continued SMG&A cost containment.
The diluted earnings per share for the quarter were $.38 compared
to $.18 for the second quarter of 1999 and $.31 in the preceding
quarter.
On June 21, 2000 Burr-Brown and Texas Instruments Incorporated
entered into a merger agreement by which Burr-Brown will become a
wholly owned subsidiary of Texas Instruments and each share of
Burr-Brown stock will be exchanged for 1.3 shares of Texas
Instruments stock. The merger is expected to close in the third
quarter of this year. Through the end of the second quarter,
Burr-Brown had incurred approximately $0.9 million of acquisition
related costs. These costs primarily consisted of fees for
external auditors, legal counsel, and financial advisors.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Our cash, cash equivalents and investments increased by $285.3
million to $448.7 million as of July 1, 2000 from $163.3 million
at December 31, 1999.
During the second quarter, Burr-Brown invested $10 million for
an approximately 19.9% ownership in BethelTronix, a California
company that develops and markets highly integrated radio
frequency integrated circuits for use in GSM, GPS and consumer
wireless products.
Accounts receivable were $74.7 million at July 1, 2000, an
increase of $8.6 million from $66.1 million at December 31, 1999.
This increase was a result of the higher levels of revenue. Days
sales outstanding decreased by 5 days to 66 days at July 1, 2000
from 71 days at December 31, 1999. This improvement was due to
increased shipment linearity and enhanced collection efforts.
Inventories increased by $5.2 million, or 10.4%, to $55.0
million at July 1, 2000 from $49.8 million at December 31, 1999.
This increase is due primarily to steps performed by the Company
to insure a source of supply in this very strong demand
environment. The increase is almost exclusively in products
procured from external wafer foundries in anticipation of higher
revenue in the remaining quarters of the year. Inventory turns
in the second quarter of 2000 were approximately 3.2, up from 2.5
in the same period in 1999.
<PAGE> 10
Net deferred tax assets were up $1.9 million to $7.0 million at
July 1, 2000, compared to $5.1 million at December 31, 1999.
Accounts payable and accrued expenses increased by $12.6 million,
or 40.6%, to $43.7 million at July 1, 2000 as compared to $31.1
million at December 31, 1999, due primarily to a higher level of
manufacturing activity. Deferred income was at $13.8 million, up
$3.6 million from December 31, 1999. This was primarily a result
of the Company's distributors carrying a higher level of
inventory as a result of revenue increases.
Capital expenditures have totaled $9.8 million through July 1,
2000. Significant portions of the capital expenditures were for
test capacity expansion given recent unit volume increases. We
expect to make approximately $40-45 million of additional capital
expenditures during the remainder of 2000.
At July 1, 2000, total debt was $269.8 million, of which $252.6
million was term debt. This represents a $249.7 million increase
in total debt over 1999. Term debt of $252.6 million is 93.6% of
total debt. On February 24, 2000, the Company issued $250 million
of 4 1/4% convertible notes with a seven-year term, representing
92.7% of total debt. Term debt issued in connection with our
foreign operations at July 1, 2000 was $2.6 million and is 1.0%
of total debt, and represents interest rate arbitrage in Japan.
In addition credit facilities of approximately $42.8 million,
including overdraft credit facilities with both domestic and
international banks, were available to us at July 1, 2000, of
which approximately $17.2 million, or 40.2%, was utilized,
representing 6.4% of total debt.
Our current ratio improved to 7.73 at July 1, 2000, from 4.34
at December 31, 1999. Current ratio improvement was primarily due
to increases in cash and investments resulting from the
convertible note issuance and free cash flow generated from
operations. Our debt-to-equity ratio increased in the second
quarter of 2000 to .70 from .06 at December 31, 1999 as a result
of the convertible note issuance.
We believe that our existing liquid resources, expected cash
generated from operations and existing credit facilities will be
adequate to meet our operating and capital requirements and
obligations for at least the next 12 months, while also providing
the necessary funds to pursue strategic purposes such as capacity
expansions.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
--------------------------------------------
In addition to historical information, this Form 10-Q contains
statements relating to our future expectations. These statements
include certain projections of revenues, expense levels, R&D
investments and the results thereof, our ability to increase and
maintain favorable product mix and profit margins, and business
trends which are "forward-looking," as well as statements
concerning our proposed merger with Texas Instruments. The
words "believe," "expect," "intend," "anticipate," "project" and
similar expressions identify forward-looking statements, which
speak only as of the date the statement was made. Such forward-
looking statements are within the meaning of that term in Section
27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These forward-
looking statements also include express or implied statements
with respect to the growth of the semiconductor market, the
growth of the communication, computing and consumer markets, the
introduction of new products, the ability to develop application
specific products with customers, the demand for analog and mixed
signal products, competitive advantages resulting from our pool
of experienced analog designers, the life cycle of our customers'
products, our ability to access working capital, our anticipated
capital expenditures, the success of cost reduction strategies,
the impact of foreign currency fluctuations, our product pricing
levels and the impact of litigation on our business. We do not
undertake to update or revise the forward-looking statements,
whether as a result of new information, future events or
otherwise.
Actual results may differ materially from projected results as
a result of certain risks and uncertainties. These risks and
uncertainties include, without limitation, those described in
Exhibit 99, "Risk Factors," to our Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, as well as those set
forth below and those detailed from time to time in our filings
with the SEC or other public announcements:
<PAGE> 11
* fluctuations in manufacturing, assembly and test yields;
* the availability and pricing of wafer supplies;
* availability and utilization of manufacturing capacity;
* retention and recruitment of key management and technical
personnel;
* successful development and timely introduction of new
products;
* demand for and market acceptance of new and existing
products;
* product obsolescence;
* global and market conditions, including, without limitation,
the cyclical nature of the semiconductor industry and the
markets related to our and our customers' products;
* pricing pressures and other competitive factors;
* changes in product mix;
* our ability to develop and implement new technologies and to
obtain protection of the related intellectual property;
* our labor relations and those of our customers and suppliers;
* our successful integration of potential acquisitions;
* risks related to our international business operations; and
* other risks and uncertainties.
We also face risks relating to the proposed TI merger.
On June 21, 2000, we executed a merger agreement with TI.
Under the terms of the agreement, each outstanding share of Burr-
Brown common stock will be exchanged for 1.3 shares of TI common
stock. The announcement of the proposed merger may have a
negative impact on our ability to attract and retain employees
and customers and maintain relationships with third parties. For
example, our employees may experience uncertainty about their
future role with TI.
If the merger is successfully completed, holders of Burr-
Brown common stock will become holders of TI's common stock.
TI's business differs somewhat from our business, and TI's
results of operations as well as the price of TI's common stock
may be affected by factors different than those affecting our
results of operations and the price of our common stock before
the merger. For further information on TI's business and certain
factors to consider in connection with the proposed merger and
TI's business, please see TI's Annual Report on Form 10-K and 10-
K/A for the fiscal year ended December 31, 1999 and TI's Form S-4
and S-4/A filed on July 7 and July 20, respectively - all of
which may be accessed through the SEC's EDGAR filings on their
website at www.sec.gov.
If the merger is completed, our stockholders will receive a
fixed number of shares of TI common stock despite changes in the
market value of our common stock or TI's common stock. The 1:1.3
ratio of our common stock to TI common stock is a fixed number
and will not be adjusted in the event of any increase or decrease
in the price of TI common stock or our common stock, except with
respect to stock dividends, splits, and similar events, as
specifically set forth in the merger agreement. The prices of TI
common stock and our common stock have varied, and may continue
to vary until the closing of the proposed merger, from their
respective prices on the date the merger agreement was signed and
publicly announced. These prices may vary because of the changes
in the business, operations or prospects of TI or Burr-Brown,
market assessments of the merger, the prospects of post-merger
operations, general market and economic conditions as well as
other factors.
Our failure to complete the proposed merger with TI could
adversely affect our stock price and future business and
operations.
The merger is subject to approval by our stockholders and we
cannot assure you that the merger will be successfully completed.
In the event that the merger is not successfully completed, Burr-
Brown may be subject to a number of material risks, including the
following:
<PAGE> 12
* Burr-Brown may be required to pay TI a termination fee in
certain circumstances detailed in the merger agreement;
* the price of Burr-Brown's common stock may decline to the
extent that the current market price for our common stock
reflects a market assumption that the proposed merger will be
completed; and
* our costs related to the proposed merger, such as legal,
accounting, and financial advisory fees must be paid by us, even
if the merger is not completed.
In addition, in the event that the merger is not completed and
our board of directors determines to seek another merger or
business combination, it may not be able to find a partner
willing to pay an equivalent or more attractive price than that
which would have been paid in the merger with TI.
If the merger is completed, achieving the anticipated
benefits of the proposed acquisition of our company by TI is
dependent in part upon successful integration of the two
companies' products and technologies, research and development
activities, sales and marketing, and administrative
organizations. This may not occur. Also, the integration
process may divert management attention from day-to-day business.
Failure to successfully accomplish integration could materially
harm the business, financial condition or results of operations
of the combined company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
--------------------------------------------------------------
MARKET RISKS: The Company is exposed to certain financial market
risks, principally changes in interest rates and foreign currency
exchange rates.
INTEREST RATE RISKS: The Company's interest rate risk primarily
relates to its investments and debt held at July 1, 2000. The
Company's cash equivalents and short-term investments had a fair
value of $428.2 million with a weighted yield of 5.81% and long-
term investments of $12.1 million with a weighted yield of 6.45%
at July 1, 2000. It is the objective of the Company to concentrate
investments in tax advantaged securities to maximize after tax
return.
The Company's debt at July 1, 2000 was $269.8 million, of which
92.7% relates to a fixed rate debt obligation. An increase in
interest rates would not significantly increase interest expense
due to the fixed nature of this obligation.
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
and thus far in 2000. The following summarizes the foreign
currency forward and option contracts, which settle between July
2000 and September 2000, in effect at July 1, 2000:
Notional Weighted
Amount Ave. Rate Fair Value
---------------------------------------
Japanese Yen Forward
Contracts $ 6,766,614 105.22 $ ( 18,008)
Japanese Yen Option
Contracts 2,778,035 107.99 --
----------------------------------------------------------------
Total $ 9,544,649 $ ( 18,008)
=======================================
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
a. Exhibits
27. Financial Data Schedule.
b. Reports on Form 8-K: The Company filed a Report on Form 8-K
on June 22, 2000 relating to its plan of merger with Texas
Instruments Incorporated.
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 15, 2000
---------------
<PAGE> 14
