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 August 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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ____X____ No ________
As of October 13, 1995 there were 13,367,409 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>
August 31, February 28,
1995 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 11,934 $ 29,478
Accounts receivable, net of allowance for doubtful
accounts of $1,316 and $1,102, respectively 47,324 75,826
Inventories 52,132 45,789
Deferred tax benefits 11,391 5,392
Other current assets 4,494 6,291
Total current assets 127,275 162,776
Property, plant and equipment:
Land 3,832 3,832
Buildings and improvements 27,256 26,901
Machinery and equipment 99,817 77,639
130,905 108,372
Less: accumulated depreciation 78,116 73,464
Property, plant and equipment, net 52,789 34,908
Intangible assets 21,235 26,479
Long-term investment 13,990 -
Deferred tax benefits 2,809 1,795
Other assets 3,416 2,620
$221,514 $228,578
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 18,915 $ 24,193
Accrued expenses and other liabilities 14,408 15,527
Income taxes payable 188 3,701
Total current liabilities 33,511 43,421
Long-term debt 16,000 -
Minority interest in subsidiary 11,250 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 13,359,000 and 13,222,000
shares, respectively 1,336 1,322
Additional paid-in capital 78,700 77,319
Retained earnings 73,510 88,616
Unrealized holding gain, net of tax 1,404 718
Foreign currency translation adjustment 5,803 6,008
Total shareholders' equity 160,753 173,983
$221,514 $228,578
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 85,434 $91,964 $157,643 $171,985
Cost of goods sold 62,611 51,986 106,425 96,652
Gross profit 22,823 39,978 51,218 75,333
Operating expenses:
Research and development 7,952 6,869 16,188 13,362
Selling, general and administrative 28,686 21,967 52,191 40,113
Amortization of intangible assets 3,872 1,372 5,244 2,744
40,510 30,208 73,623 56,219
Income (loss) from operations (17,687) 9,770 (22,405) 19,114
Other income (expense):
Interest income 112 207 224 441
Interest expense (225) (359) (453) (715)
Other income (expense), net (73) (242) (118) (480)
(186) (394) (347) 754
Income (loss) before minority interest
and provision for income taxes (17,873) 9,376 (22,752) 18,360
Minority interest in net income
of subsidiary 36 55 76 94
Income (loss) before provision
for income taxes (17,909) 9,321 (22,828) 18,266
Provision for (benefit from)
income taxes (5,804) 3,738 (7,722) 7,325
Net income (loss) $(12,105) $ 5,583 $(15,106) $ 10,941
Net income (loss) per common and
common equivalent share $ (0.91) $ 0.42 $ (1.14) $ 0.83
Weighted average common and common
equivalent shares outstanding 13,331 13,188 13,298 13,172
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
August 31,
1995 1994
<S> <C>
<C>
Cash flows from operating activities:
Cash received from customers $ 185,755
$ 171,692
Cash paid to suppliers and employees (182,492)
(158,703)
Interest received 219
585
Interest paid (599)
(625)
Income taxes paid (3,453)
(6,520)
Net cash provided by (used for) operating activities (570)
6,429
Cash flows from investing activities:
Capital expenditures (19,717)
(5,025)
Long-term investment (13,990)
-
Other 17
36
Net cash used for investing activities (33,690)
(4,989)
Cash flows from financing activities:
Proceeds from issuance of common stock 806
534
Principal payments of long-term debt -
(1,500)
Net borrowings under line of credit agreements 16,000
538
Net cash provided by (used for) financing activities 16,806
(428)
Effect of foreign exchange rate changes on cash and cash equivalents (90)
464
Net increase (decrease) in cash and cash equivalents (17,544)
1,476
Cash and cash equivalents at beginning of period 29,478
32,115
Cash and cash equivalents at end of period $ 11,934
$ 33,591
Reconciliation of net income (loss)
to net cash provided by (used for) operating activities:
Net income (loss) $(15,106)
$ 10,941
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 10,621
7,473
Minority interest in net income of subsidiary 76
94
Other adjustments, net 416
707
Changes in operating assets and liabilities:
Accounts receivable 28,148
(153)
Inventories (6,364)
(6,496)
Accounts payable and accrued expenses and other liabilities (9,502)
(6,995)
Other changes, net (8,859)
858
Net cash provided by operating activities $ (570)
$ 6,429
</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 and six month periods ended August 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):
Aug. 31, 1995 Feb. 28, 1995
Raw Materials $12,963 $11,547
Work in Process 21,397 16,239
Finished Goods 17,772 18,003
$52,132 $45,789
3. Unusual Charges
During the second quarter of fiscal 1996, as a result of a review
of operating strategies of its Systems Products Division, the
Company recorded several unusual charges, as follows:
- An $11.8 million charge to cost of goods sold was recorded to reduce
the carrying value of certain inventory to its estimated net
realizable value. The primary reasons behind this write-down
were a recent unsuccessful new product introduction, lower than
projected demand for several older product lines and a recent
decision to reduce the variety of the Division's product
offerings.
- An assessment of the current market for local area networking
technologies, and the Division's business prospects in those
technologies, resulted in a $2.4 million write-down of intangible
assets to their estimated realizable values and a decision to
significantly reduce near-term development activities in
under-performing technologies. The useful lives of the Company's
assets now range from 2 to 10 years.
- The Comapny recorded a $2.5 million charge for severance and
benefit costs related to executive management changes which
occurred during the second quarter of fiscal 1996.
<PAGE>
4. Long-Term Debt
The Company has obtained a waiver respecting the failure to meet a
financial covenant under its revolving credit agreement, which has
been amended to reduce the credit line to $25.0 million. The
Company expects that its results for fiscal 1996 will not be in
compliance with another financial covenant and has so advised
the lenders. The Company intends to obtain an appropriate
waiver and is currently renegotiating the credit agreement.
<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 and six month periods ended August 31, 1995 and 1994:
3 Months 6 Months
1995 1994 1995 1994
Revenues 100.0 % 100.0 % 100.0% 100.0%
Cost of goods sold 73.3 56.5 67.5 56.2
Gross profit 26.7 43.5 32.5 43.8
Operating expenses
Research and development 9.3 7.5 10.3 7.8
Selling, general and administrative 33.6 23.9 33.1 23.3
Amortization of intangible assets 4.5 1.5 3.3 1.6
Total operating expenses 47.4 32.9 46.7 32.7
Income (loss) from operations (20.7) 10.6 (14.2) 11.1
Other income (expense), net (0.2) (0.4) (0.2) (0.4)
Income (loss) before minority interest
and taxes (20.9) 10.2 (14.4) 10.7
Minority interest in net income
of subsidiary 0.1 0.1 0.1 0.1
Income (loss) before provision
for income taxes (21.0) 10.1 (14.5) 10.6
Provision for (benefit from)
income taxes (6.8) 4.1 (4.9) 4.3
Net income (loss) (14.2) % 6.0 % (9.6)% 6.3%
Revenues and Cost of Goods Sold
Revenues of $85.4 million for the three months ended August 31, 1995, were
7% lower than the $92.0 million recorded for the three months ended
August 31, 1994. Revenues from system products declined 23% to $50.3 million
in the second quarter of fiscal 1996 from $65.3 million in the second
quarter of fiscal 1995. Component products revenue increased 32% to
$35.1 million from $26.7 million.
Revenues of $157.6 million for the six months ended August 31, 1995, were
8% lower than the $172.0 million recorded for the six months ended August
31, 1994. Revenues from system products declined 27% to $90.6 million
in the first half of fiscal 1996 from $124.5 million in the first half of
fiscal 1995. Component products revenue increased 41% to $67.0 million
from $47.5 million.
System products revenue delined 23% to $50.3 million for the second quarter
from $59.2 million for the comparable year-earlier period. For the first
half, system products revenue declined 27% to $90.6 million from $124.5
million for the comparable year-earlier period. This decline resulted
chiefly from lower unit shipments and lower average selling prices
of network interface cards. A primary reason for the lower unit shipments
was a reduction of inventory levels at a number of the Company's major
distributors. These inventories had increased during fiscal 1995.
Component products revenue increased 32% to $35.1 million for the second
quarter from $20.8 million for the comparable year-earlier period. For
the first half, component products revenue increased 41% to $67.0 million
from $47.5 million for the comparable year-earlier period. Led by
increased shipments of personal computer input/output integrated
circuits, component products revenue increased despite an
industry-wide shortage of wafer fabrication capacity. The Company's
components foundry operation also contributed to this growth, with
revenue improving substantially for the second quarter and first half from
a small base in the comparable year-earlier periods.
<PAGE>
The Company's gross profit margin of 26.7% for the second quarter of
fiscal 1996 declined from 43.5% for the second quarter of fiscal 1995.
The gross profit margin of 32.5% for the first half of fiscal 1996 declined
from 43.8% for the first half of fiscal 1995. The principal reason for
the lower gross margins was an $11.8 million charge to cost of goods sold,
in the seconfquarter, for the write-down of certain system products inventory
to estimated net realizable value. The write-down reflected the
disappointing reception of a new product and the reduction of
its selling price, lower than projected demand for several older product
lines that are being replaced by newer, improved products and a decision
to reduce the variety of networking products that perform the same
function.
In addition to $11.8 million charge, lower revenues and lower average
selling prices for network interface cards, partially offset by a
reduction in production costs, were the principal reasons for the reduced
gross profit margin in both the second quarter and first half. Excluding
the impact of the inventory charge, gross profit margins would have been
40.5% for the second quarter and 40.0% for the first half of fiscal 1996.
Operating Expenses
Research and development expenses increased 16% in the second quarter and
21% in the first half of fiscal 1996 from the comparable year-earlier
periods, reflecting increases for the development of LAN switching and
hub products as well as component products.
Selling, general and administrative expenses increased 31% in the second
quarter and 30% in the first half of fiscal 1996 from the comparable
year-earlier periods. Without severance related benefit charges of
$2.5 million, selling, general and administrative expenses would have
increased 19% in the second quarter and 24% in the first half of fiscal
1996 from the comparable year-earlier periods. Without special charges,
most of the increases in the second quarter and the first half reflected
higher selling and marketing expenses for LAN switching and
hub products as well as component products.
The increases in amortization of intangible assets in the second quarter
and the first half of fiscal 1996, from the levels of comparable year-earlier
periods, reflected a $2.4 million write-down of previously acquired LAN
technology to its estimated realizable value. The charge was taken as a
result of a reassessment of the Company's business prospects, and the
decision to reduce development activity, for this technology.
<PAGE>
Other Income and Expenses
The decline in interest expense and other income (expense) in the second
quarter and first half of fiscal 1996 from the second quarter and first
half of fiscal 1995, reflected reductions in average borrowings,
interest rates on borrowings and financing fees. A reduction in
interest income reflected lower average cash balances.
Income Taxes
Income taxes were provided at a rate of 32.4% for the second quarter
of fiscal 1996 and at 33.8% for the first half of fiscal 1996. In both
comparable year-earlier periods, income taxes were accrued at a rate of
40.1%. The effective rate for accruing tax benefits in fiscal 1996
reflects the statutory rate and non-deductible goodwill amortization.
Liquidity and Capital Resources
Working capital was $93.8 million at August 31, 1995, compared to $119.4
million at February 28, 1995. The reduction primarily reflected lower cash
and cash equivalents and accounts receivable, partially offset by higher
inventories, deferred tax benefits and lower current liabilities.
Accounts receivable at August 31, 1995, represented approximately 50 days
sales outstanding, compared to 64 days at August 31, 1994, and 67 days
at February 28, 1995. The improvement chiefly represents a more even
distribution of revenues during the quarter than in either the second or
fourth quarters of fiscal 1995.
Inventories increased to $47.3 million at August 31, 1995, from $45.8 million
at February 28, 1995, but declined from $61.3 million at May 31, 1995.
The decline from May 31, 1995, level chiely reflected the $11.8 milliion
write-down of system products inventory and adjustments to production
to reflect current shipment levels.
Additions to property, plant and equipment were $19.7 million during the
first half of fiscal 1996, compared to $5.0 million during the
year-earlier period. The most significant capital expenditures were $11.3
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, and $2.8 million for
improvement to the Company's informations systems.
In addition, a long-term investment of $14.0 was made under a
$20 million commitment to purchase a minority interest in Chartered
Semiconductor Pte Ltd. of Singapore. This and the AT & T invnestment are
intended to provide SMC with a portion of its long-term requirements for
integrated circuits, beginning near the end of fiscal 1996.
During the first six months of fiscal 1996, SMC used $17.5 million of cash
and $16.0 million of its credit line chiefly for capital items and the
investment in Chartered Semiconductor.
The Company has recently experienced reduced revenues, losses from operations
and write-downs. In connection therewith, the Company obtained a waiver
respecting the failure to meet a financial covenant under its revolving
credit agreement, which has been amended to reduce the credit line to $25.0
million. The Company expects that its results for fiscal 1996 will not be
in compliance with another financial covenant and has so advised the lenders.
The Company intends to obtain appropriate waiver and is currently
renegotiating the credit agreement. The Company believes that its
present cash and cash equivalents position, combined with expected cash
flows and borrowing capacity under a renegotiated credit line, will be
sufficient to meet its working capital and capital expenditure
requirements for the next twelve months.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of security
holders at the Registrant's annual meeting of shareholders
which was held on July 6, 1995.
The following were elected directors, each receiving the
number of votes set opposite his name:
Broker
For Withheld Non-votes
Ivan T. Frisch 11,847,338 373,707 -0-
Victor F. Trizzino 11,847,943 373,102 -0-
Robert M. Brill 11,845,773 395,327 -0-
Raymond Frankel 11,825,718 395,327 -0-
Votes withheld as to all nominees 333,272
The 1994 Director Stock Option Plan was approved and adopted by
the following vote:
Broker
For Against Abstain Non-votes
10,900,210 1,180,831 138,804 1,200
At the meeting, the selection of Arthur Andersen LLP as the
Company's auditors for the current year was ratified by
the following vote:
Broker
For Against Abstain Non-votes
10,992,460 179,807 48,778 -0-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Material Contracts
(a) Amendment to Executive Officer Employment Agreement
Exhibit 27 - Financial Data Schedule
(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: October 13, 1995 /S/ Anthony M. D'Agostino
(Signature)
Anthony M. D'Agostino
Senior Vice President, Finance
and Treasurer
(Principal Financial Officer)
Amendment to Employment Agreement Dated March 1, 1995
between Standard Microsystems Corporation and Paul Richman
The Agreement made as of the first day of March, 1995 between the
undersigned, Standard Microsystems Corporation and Paul Richman (the
"Agreement"), is hereby amended as follows, effective July 10, 1995:
1. The second sentence in subsection THIRD (a) shall be replaced by the
following:
"The base rate shall be $450,000 provided, however, that the Base Rate shall
be modified as of March 1, 1996, and as of each successive March 1 to the
end of the term of this Agreement, in proportion to any increase in the
Consumer Price Index, as hereinafter defined, between the February levels
of the two immediately preceding years."
2. The last paragraph in subsection THIRD (b) shall be replaced by the
following:
"Notwithstanding the preceding provisions of this subsection THIRD (b), the
aggregate amount payable pursuant to this subsection THIRD (b) for the fiscal
year of SMC ending February 29, 1996, and for each fiscal year of SMC
thereafter, shall not exceed $450,000.00 of the Base Rate then currently
in effect, whichever amount is higher."
3. The Agreement is amended only to the extent specified above. It is
not intended to extend or renew any other provision of the Agreement that
would not continue if this Amendment had not been effected.
IN WITNESS HEREOF, SMC has caused this Agreement to be executed on its
behalf by its representative, thereunto duly authorized, and Paul Richman
has executed this Agreement as of July 10, 1995.
STANDARD MICROSYSTEMS CORPORATION
/S/ Paul Richman /S/ Herman Fialkov
(Signature) (Signature)
Herman Fialkov
Director and Chairman,
Compensation Committee
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> AUG-31-1995
<CASH> 11,934
<SECURITIES> 0
<RECEIVABLES> 47,324
<ALLOWANCES> 1,316
<INVENTORY> 52,132
<CURRENT-ASSETS> 127,275
<PP&E> 130,905
<DEPRECIATION> 78,116
<TOTAL-ASSETS> 221,514
<CURRENT-LIABILITIES> 33,511
<BONDS> 16,000
<COMMON> 1,336
0
0
<OTHER-SE> 159,417
<TOTAL-LIABILITY-AND-EQUITY> 221,514
<SALES> 157,643
<TOTAL-REVENUES> 157,643
<CGS> 106,425
<TOTAL-COSTS> 106,425
<OTHER-EXPENSES> 73,623
<LOSS-PROVISION> 290
<INTEREST-EXPENSE> 453
<INCOME-PRETAX> (22,828)
<INCOME-TAX> (7,722)
<INCOME-CONTINUING> (15,106)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,106)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
