SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-7422
STANDARD MICROSYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-2234952
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 ARKAY DRIVE, HAUPPAUGE, NEW YORK 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 516-273-3100
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 reprts),
and (2) has been subject to such filing requirements for the past 90
days.
Yes ____X____ No ________
As of July 14, 1995 there were 13,321,423 shares of the
registrant's common stock outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
May 31, February 28,
1995 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 24,074 $ 29,478
Accounts receivable, net of allowance for doubtful
accounts of $1,129 and $1,102, respectively 45,734 75,826
Inventories 61,301 45,789
Deferred tax benefits 6,707 5,392
Other current assets 5,412 6,291
Total current assets 143,228 162,776
Property, plant and equipment:
Land 3,832 3,832
Buildings and improvements 27,126 26,901
Machinery and equipment 87,380 77,639
118,338 108,372
Less: accumulated depreciation 76,002 73,464
Property, plant and equipment, net 42,336 34,908
Intangible assets 25,107 26,479
Long-term investment 13,990 -
Deferred tax benefits 1,846 1,795
Other assets 2,915 2,620
$229,422 $228,578
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 21,295 $ 24,193
Accrued expenses and other liabilities 13,389 15,527
Income taxes payable 87 3,701
Total current liabilities 34,771 43,421
Long-term debt 10,000 -
Minority interest in subsidiary 11,215 11,174
Shareholders' equity:
Preferred stock, $.10 par value-
Authorized 1,000,000 shares, none outstanding - -
Common stock, $.10 par value-
Authorized 30,000,000 shares,
outstanding 13,301,000 and 13,222,000
shares, respectively 1,330 1,322
Additional paid-in capital 78,062 77,319
Retained earnings 85,615 88,616
Unrealized gain on investment, net of tax 863 718
Foreign currency translation adjustment 7,566 6,008
Total shareholders' equity 173,436 173,983
$229,422 $228,578
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended
May 31,
1995 1994
Revenues $72,209 $80,020
Cost of goods sold 43,814 44,665
Gross profit 28,395 35,355
Operating expenses:
Research and development 8,236 6,492
Selling, general and administrative 23,505 18,147
Amortization of intangible assets 1,372 1,372
33,113 26,011
Income (loss) from operations (4,718) 9,344
Other income (expense):
Interest income 112 234
Interest expense (228) (356)
Other income (expense), net (45) (238)
(161) (360)
Income (loss) before minority interest and
provision for income taxes (4,879) 8,984
Minority Interest in net income of subsidiary 41 39
Income (loss) before provision for income taxes (4,920) 8,945
Provision for (benefit from) income taxes (1,919) 3,587
Net income (loss) $(3,001) $5,358
Net income (loss) per common and
common equivalent share $ (0.22) $ 0.41
Weighted average common and common
equivalent shares outstanding 13,460 13,156
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $102,367 $ 89,349
Cash paid to suppliers and employees (91,555) (82,239)
Interest received 112 229
Interest paid (382) (306)
Income taxes paid (3,349) (2,726)
Net cash provided by operating activities 7,193 4,307
Cash flows from investing activities:
Capital expenditures (10,121) (2,216)
Long-term investment (13,990) -
Other 28 36
Net cash used for investing activities (24,083) (2,180)
Cash flows from financing activities:
Proceeds from issuance of common stock 426 375
Principal payments of long-term debt (750)
Net borrowings under line of credit agreements 10,000 252
Net cash provided by (used for) financing activities 10,426 (123)
Effect of foreign exchange rate changes on cash and cash equivalents 1,060 54
Net increase (decrease) in cash and cash equivalents (5,404) 2,058
Cash and cash equivalents at beginning of period 29,478 32,115
Cash and cash equivalents at end of period $24,074 $34,173
Reconciliation of net income (loss)
to net cash provided by operating activities:
Net income (loss) $(3,001) $ 5,358
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,319 3,678
Minority interest in net income of subsidiary 41 39
Other adjustments, net 179 379
Changes in operating assets and liabilities:
Accounts receivable 30,159 9,317
Inventories (15,309) (7,337)
Accounts payable and accrued expenses and other liabilities (5,092) (7,298)
Other changes, net (4,103) 171
Net cash provided by operating activities $ 7,193 $ 4,307
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim financial statements furnished reflect all adjustments
(consisting of only normal and recurring adjustments) which are, in the
opinion of management, necessary to present a fair statement of the
Company's financial position and results of operations for the three
month period ended May 31, 1995. The financial statements should
be read in conjunction with the summary of significant accounting
policies and notes to consolidated financial statements included in the
Company's annual report on Form 10-K filed with the Securities and
Exchange Commission for the fiscal year ended February 28, 1995.
2. Inventories consist of the following (in thousands):
May 31, 1995 Feb. 28, 1995
Raw Materials $12,456 $11,547
Work in Process 19,790 16,239
Finished Goods 29,055 18,003
$61,301 $45,789
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table sets forth, as percentages of revenues, the items
included in the Company's Consolidated Statements of Income for the
three month periods ended May 31, 1995 and 1994:
Three Months Ended May 31, 1995 1994
Revenues 100.0 % 100.0 %
Cost of goods sold 60.7 55.8
Gross profit 39.3 44.2
Operating expenses
Research and development 11.4 8.1
Selling, general and administrative 32.5 22.7
Amortization of intangible assets 1.9 1.7
Total operating expenses 45.8 32.5
Income (loss) from operations (6.5) 11.7
Other income (expense), net (0.2) (0.5)
Income (loss) before minority interest and taxes (6.7) 11.2
Minority interest in net income of subsidiary 0.1 -
Income (loss) before provision for income taxes (6.8) 11.2
Provision for (benefit from) income taxes (2.6) 4.5
Net income (loss) (4.2)% 6.7 %
Revenues and Cost of Goods Sold
Revenues of $72.2 million for the three months ended May 31, 1995, were
10% lower than the $80.0 million recorded for the three months ended May
31, 1994. Revenues from system products declined 32% to $40.3 million
in the first quarter of fiscal 1996 from $59.2 million a year earlier.
Component products revenue increased 53% to $31.9 million from $20.8
million for the same periods.
The decline in system products revenue resulted from a program to reduce
excessive inventory levels at a number of the Company's major
distributors. These inventories had increased during fiscal 1995 as
distributors' shipments to resellers failed to achieve targeted levels.
The growth of component products revenues continues to be led by
increased shipments of personal computer input/output integrated
circuits. Despite an industry-wide shortage of manufacturing capacity,
shipments and net operating profits grew substantially over year-earlier
levels.
The Company's gross profit margin of 39.3% for the first quarter of
fiscal 1996 declined from 44.2% in the year-earlier period. Costs
associated with marketing programs designed to reduce inventory of
networking products at distribution, as well as lower average selling
prices on network interface cards, were the principal reasons for the
lower margin.
Operating Expenses
The 27% increase in research and development expenses in the first
quarter, compared to the year-earlier period, reflected personnel
increases. Most of the increase was for the development of LAN
switching and hub products.
<PAGE>
Selling, general and administrative expenses increased 30% in the first
quarter of fiscal 1996 from the year-earlier period. Most of the
increase reflected selling and marketing expenses for LAN switching and
hub products. In addition, the Company continues to expand its worldwide
LAN sales force and support costs.
Other Income and Expenses
The decline in interest expense and other income (expense) in the first
quarter of fiscal 1996, compared to a year earlier, reflected lower
average borrowings and financing fees. A reduction in interest income
reflected lower average cash balances.
Income Taxes
Income taxes for the first quarter were provided at the Company's
expected effective income tax rate for fiscal 1996 of 39.0%. The prior
year's three month effective tax rate was 40.1%. The reduction in the
first quarter tax rate for fiscal 1996 primarily reflects the benefit of
an election, made in the fourth quarter of fiscal 1995, under section
197 of the Internal Revenue Code, allowing the deductibility of goodwill
associated with the October 1991 acquisition of the LAN adapter business
of Western Digital Corporation.
Liquidity and Capital Resources
Working capital was $108.5 million at May 31, 1995, compared to $119.4
million at February 28, 1995.
Accounts receivable at May 31, 1995, represented approximately 57 days
sales outstanding, compared to 63 days a year earlier and 67 days at
February 28, 1995. The improvement chiefly represents a more even
distribution of revenues during the quarter than in either the first or
fourth quarters of fiscal 1995. Inventories increased to $61.3 million
at May 31, 1995, from $45.8 million at February 28, 1995, mainly
reflecting lower than expected shipments for the first quarter. Second
quarter production is being adjusted in an effort to reduce inventories.
Additions to property, plant and equipment were $10.1 million during the
first quarter of fiscal 1996, compared to $2.2 million during the
year-earlier period. The most significant capital expenditures were $2.3
million for a project to improve the Company's information systems, and $4.1
million pursuant to an agreement to purchase approximately $16 million
of wafer manufacturing equipment for installation at an AT&T
Microelectronics facility in Madrid, Spain.
In addition, a long-term investment of $14.0 million was made under a
$20 million commitment to purchase a minority interest in Chartered
Semiconductor Pte Ltd. of Singapore. These two investments are intended
to provide SMC with a portion of its long-term requirements for
integrated circuits, beginning near the end of fiscal 1996.
SMC used $5.4 million of cash and $10 million of its $80 million credit
line, chiefly for capital items and the investment in Chartered
Semiconductor.
The Company believes that its present working capital position, combined
with expected cash flows and available borrowing capacity, will be
sufficient to meet its cash requirements for the foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Matters
1. Gaffney v. Richman, et al., CV-95-2282
Russ v. Richman, CV-95-2283
Weinstein v. Richman, CV-95-2284
Altman v. Standard Microsystems Corp., et al., CV-95-2578
Slaby v. Standard Microsystems., Corp. CV-95-2266
Goodman v. Standard Microsystems Corp., et al., CV-95-2621
These related actions were filed in June 1995 by certain
shareholders of Standard Microsystems Corporation who purport to
represent a class of commonly-situated individuals. These
shareholders are seeking damages against the company and certain
officers and directors of the company for the diminution of the
value of their stock. In substance, the complaints allege that
between December 20, 1994, and June 2, 1995, the price of Standard
Microsystems Corporation common stock was artificially inflated
by false and misleading statements made by the defendants and by
failure of the defendants to disclose certain information.
Standard Microsystems Corporation intends to vigorously defend
against these suits.
<PAGE>
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
STANDARD MICROSYSTEMS CORPORATION
(Registrant)
DATE: July 14, 1995 /S/ Anthony M. D'Agostino
(Signature)
Anthony M. D'Agostino
Senior Vice President, Finance
and Treasurer
(Principal Financial Officer)
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<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> MAY-31-1995
<CASH> 24,074
<SECURITIES> 0
<RECEIVABLES> 45,734
<ALLOWANCES> 1,129
<INVENTORY> 61,301
<CURRENT-ASSETS> 143,228
<PP&E> 118,338
<DEPRECIATION> 76,002
<TOTAL-ASSETS> 229,422
<CURRENT-LIABILITIES> 34,771
<BONDS> 10,000
<COMMON> 1,330
0
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<OTHER-SE> 172,106
<TOTAL-LIABILITY-AND-EQUITY> 229,422
<SALES> 72,209
<TOTAL-REVENUES> 72,209
<CGS> 43,814
<TOTAL-COSTS> 43,814
<OTHER-EXPENSES> 33,113
<LOSS-PROVISION> 133
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> (4,879)
<INCOME-TAX> (1,919)
<INCOME-CONTINUING> (3,001)
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<EXTRAORDINARY> 0
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<NET-INCOME> (3,001)
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