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, 1996
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 July 12, 1996 there were 13,834,203 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 29,
1996 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 12,841 $ 18,459
Accounts receivable, net of allowance for doubtful
accounts of $1,544 and $1,369, respectively 63,591 55,976
Inventories 80,831 60,408
Deferred tax benefits 8,853 8,607
Other current assets 5,396 5,434
Total current assets 171,512 148,884
Property, plant and equipment:
Land 3,832 3,832
Buildings and improvements 27,038 26,839
Machinery and equipment 114,713 109,235
145,583 139,906
Less: accumulated depreciation 83,668 79,698
Property, plant and equipment, net 61,915 60,208
Other assets 50,819 51,567
$284,246 $260,659
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 34,659 $ 30,801
Accrued expenses and other liabilities 24,195 23,884
Income taxes payable 1,803 1,096
Total current liabilities 60,657 55,781
Long-term debt 16,250 -
Minority interest in subsidiary 11,376 11,376
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 13,782,000 and 13,711,000
shares, respectively 1,378 1,371
Additional paid-in capital 85,407 84,737
Retained earnings 102,134 100,217
Unrealized holding gain, net of tax 2,417 2,226
Foreign currency translation adjustment 4,627 4,951
Total shareholders' equity 195,963 193,502
$284,246 $260,659
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1996 1995
<S> <C> <C>
Revenues $100,072 $72,209
Cost of goods sold 63,196 43,814
Gross profit 36,876 28,395
Operating expenses:
Research and development 5,986 8,236
Selling, general and administrative 26,412 23,505
Amortization of intangible assets 1,241 1,372
33,639 33,113
Income (loss) from operations 3,237 (4,718)
Other income (expense):
Interest income 129 112
Interest expense (93) (228)
Other income (expense), net (24) (45)
12 (161)
Income (loss) before minority interest
and provision for income taxes 3,249 (4,879)
Minority interest in net income
of subsidiary 0 41
Income (loss) before provision
for income taxes 3,249 (4,920)
Provision for (benefit from)
income taxes 1,332 (1,919)
Net income (loss) $1,917 $ (3,001)
Net income (loss) per common and
common equivalent share $ 0.14 $ (0.22)
Weighted average common and common
equivalent shares outstanding 13,806 13,460
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1996 1995
<S> <C>
<C>
Cash flows from operating activities:
Cash received from customers $ 92,392
$ 102,367
Cash paid to suppliers and employees (109,218)
(91,555)
Interest received 127
112
Interest paid (2)
(382)
Income taxes paid (400)
(3,349)
Net cash provided by (used for) operating activities
(17,101) 7,193
Cash flows from investing activities:
Capital expenditures (4,647)
(10,121)
Long-term investment 0
(13,990)
Other 1
28
Net cash used for investing activities (4,646)
(24,083)
Cash flows from financing activities:
Proceeds from issuance of common stock 110
426
Borrowings under line of credit agreements
23,950 17,000
Repayment of borrowings under line of credit agreements (7,700)
(7,000)
Net cash provided by financing activities 16,360
10,426
Effect of foreign exchange rate changes on cash and cash equivalents
(231) 1,060
Net decrease in cash and cash equivalents (5,618) (5,404)
Cash and cash equivalents at beginning of period 18,459
29,478
Cash and cash equivalents at end of period $ 12,841
$ 24,074
Reconciliation of net income (loss)
to net cash provided by (used for) operating activities:
Net income (loss) $1,917
$ (3,001)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 5,447
4,319
Other adjustments, net 531
220
Changes in operating assets and liabilities:
Accounts receivable (7,685)
30,159
Inventories (20,477)
(15,309)
Accounts payable and accrued expenses and other liabilities 3,149
(5,092)
Other changes, net 17
(4,103)
Net cash provided by (used for) operating activities
$ (17,101) $ 7,193
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
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, 1996. 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 29, 1996.
2. Inventories
Inventories are valued at the lower of first-in, first-ot or market and
consist of the following (in thousands):
May 31, 1996 Feb. 29, 1996
Raw Materials $13,489 $ 9,556
Work in Process 46,444 34,622
Finished Goods 20,898 16,230
$80,831 $60,408
3. Long-term Debt
During the first quarter of fiscal 1997, the Company obtained waivers
respecting the failure to meet one financial covenant under its $25.0 million
line of credit agreement.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table presents the Company's Consolidated Statements of
Income, as percentages of revenues, for the three month periods ended
May 31, 1996 and 1995:
3 Months
1996 1995
Revenues 100.0 % 100.0 %
Cost of goods sold 63.2 60.7
Gross profit 36.8 39.3
Research and development 6.0 11.4
Selling, general and administrative 26.4 32.5
Amortization of intangible assets 1.2 1.9
Total operating expenses 33.6 45.8
Income (loss) from operations 3.2 (6.5)
Other income (expense), net 0.0 (0.2)
Income (loss) before minority interest
and taxes 3.2 (6.7)
Minority interest in net income
of subsidiary 0.0 0.1
Income (loss) before provision
for income taxes 3.2 (6.8)
Provision for (benefit from)
income taxes 1.3 (2.6)
Net income (loss) 1.9 % (4.2) %
Results of Operations by Industry Segment
The following table presents the Company's revenues and operating income by
industry segment for the three month periods ended May 31, 1996 and 1995
(in millions):
Three months ended May 31, 1996 1995
Component products
Integrated circuit revenues $50.1 $27.6
Foundry device revenues 5.9 2.4
Total component products revenue $56.0 $30.0
Operating income 12.1 8.5
% of revenues 21.7 % 28.4%
System products
Adapter revenues $30.7 $31.4
Hub and switch revenues 8.8 7.6
Total system product revenues $39.5 $39.0
Operating loss (3.4) (9.6)
% of revenues (8.6)% (24.6)%
Toyo Microsystems Corporation
Revenues $4.5 $3.2
Operating income 0.0 0.2
% of revenues (0.3)% 4.9%
General, corporate and other
Operating loss ($5.5) ($3.8)
<PAGE>
Standard Microsystems Corporation conducts its operations primarily through
the Component Products Division and the System Products Division. The
Component Products Division designs, produces and markets very-large-scale-
integrated circuits, mainly for control of various personal computer functions
and specialized semiconductor-related products that are produced in SMC's
own foundry. The System Products Division designs, produces and markets
products that connect personal computers to, and allow communications over,
local area networks (LANs). The Company's subsidiary, Toyo Microsystems
Corporation (TMC), sells component and system products in the Japanese
market.
Revenue transfers between industry segments are excluded from the above
figures. The majority of these transfers consist of component and system
products shipped to TMC for resale in Japan.
Revenues
The Company's revenues rose 39% to $100.1 million in the first quarter of
fiscal 1997 from $72.2 million in the first quarter of fiscal 1996. Component
products' revenues, which rose 87% in the first quarter over the year earlier
period, increased to 56.0% of consolidated revenues from 41.6% a year earlier.
System products' revenues, which rose 1% in the first quarter over the year
earlier period, declined to 39.5% of consolidated revenues from 54.0%
a year earlier. TMC's revenues, which rose 41% in the first quarter over
the year earlier period, increased to 4.5% from 4.4% of revenues.
The growth of component products revenues continues to be led by
increased shipments of personal computer input/output (PC I/O) integrated
circuits and a device used in inkjet printer cartridges that is produced in
SMC's own wafer foundry. Shipments were aided by a relaxation in an
industry-wide shortage of manufacturing capacity, that had restrained
shipments of integrated circuits during most of fiscal 1996.
During the fourth quarter of fiscal 1996, SMC received initial production
wafers from two suppliers under specific prgrams discussed in the Wafer
Purchase Agreements section of this discussion. The Comapny also received
initial wafers from other suppliers, requiring no specific investment. All
of these sources of integrated circuit wafer capacity contributed to an
increase in first quarter component products revenues over levels of the
first quarter of fiscal 1996.
System products' higher revenue relected an increase in hub and LAN switch
revenues, partially offset by a decline in network interface card (adapter)
revenues, principally reflecting lower unit shipments and average
selling prices despite a shift in product mix toward newer products with
higher selling prices than those they are displacing.
Hub and LAN switch revenues increased despite the January 1996 sale of the
Enterprise Networks Business Unit (ENBU) to Cabletron Systems, Inc. It's
revenues were approximately $3 million in the first quarter of fiscal 1996.
TMC's growth came principally from increased PC I/O device sales.
The following table presents the Company's revenues by geographic area as
percentages of total revenues to unaffiliated customers. All but Japan (TMC),
within the category Revenues outside the United States, are considered export
revenues shipped from U.S. operations.
Three months ended May 31, 1996 1995
United States 42.8% 40.2%
Asia and Pacific Rim 37.3 25.4
Europe 11.7 23.5
Canada 2.0 3.6
Other 1.7 2.9
Export revenues 52.7 55.4
Japan (TMC) 4.5 4.4
Revenues outside the
United States 57.2 59.8
Total revenues 100.0% 100.0%
<PAGE>
United States revenues increased 48% in the first quarter of fiscal 1997 to
42.8% of revenues from 40.2% a year earlier. The increase was led by
shipments of components products, principally PC I/O and foundry products.
System products' first quarter fiscal 1997, domestic revenues rose as year
earlier results had been impeded by the liquidation of excess distributor
inventories.
International revenues were 57.2% of the Company's revenues in the first
quarter of fiscal 1997, compared with 59.8% in the year earlier period.
Asian and Pacific Rim revenues grew over 100% largely because
component products' domestic branded customers increased the proportion
of PC s produced in offshore factories and demand grew from a major
Asian-based PC producer. European revenues fell 35%, chiefly reflecting
a decline in system products' revenues from its major international
market. This decline reflected the absence of the divested ENBU product
line.
Gross Profit
The gross profit margin declined to 36.8% for the first quarter of
fiscal 1997 from 39.3% for the first quarter of fiscal 1996.
Factors contributing to the 2.5 percentage points gross margin decline were:
- Lower average selling prices for network interface cards, switching and
hub products, only partially offset by a reduction in production costs
- Lower margins of PC I/O integrated circuits, in which higher costs more
than offset higher average selling prices for the newest generation of
devices
- Lower margins from greater competition for foundry products
Operating Expenses
Research and development expenses declined to $6.0 million, or 6.0% of
revenues, in the first quarter of fiscal 1997 from $8.2 million, or 11.4% of
revenues, in the year earlier period. The decline reflected elimination
of the divested ENBU's expenditures, partially offset by higher
R&D spending for component products and the remaining networking
products business.
Selling, general and administrative expenses increased 12% to $26.4 million,
or 26.4% or revenues, in the first quarter of fiscal 1997, compared to
$23.5 million, or 32.5% or revenues, in the year earlier period.
The higher spending resulted chiefly from increases in: (I) selling and
marketing costs in support of higher revenues and (ii) costs related to
an upgrade to a new client/server information system.
A 10% decrease in amortization of intangible assets in the first quarter
of fiscal 1997 from the year earlier period reflected an accelerated
write-off of certain assets during fiscal 1996, reducing the rate of
quarterly amortization in succeeding periods.
Operating Profits
In the first quarter of fiscal 1997, the Comapny reported an operating profit
of $3.2 million, or 3.2% of revenues, which compared to an operating loss
of $4.7 million, or 6.5% of revenues, a year earlier. The major contributors
to the increase were the elimination of losses from the divested ENBU and
higher component products revenues. These benefits more than offset lower
gross profit margins and higher information systems costs.
Other Income and Expenses
In the first quarter of fiscal 1997, interest expense and other income
(expense) improved by $0.15 million over the year-earlier period,
associated principally with lower interest charges from lower
average loan balances during the period.
<PAGE>
Income Taxes
In the first quarter of fiscal 1997, income taxes were provided at the
Company's expected effective rate for fiscal 1997 of 41.0%. An income tax
benefit of 39.0% for the first quarter of fiscal 1996 reflected 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 an October 1991 business acquisition.
Wafer Purchase Agreements
During fiscal 1996, the Company purchased $16.0 million of wafer
fabrication equipment for installation in a semiconductor plant
owned by Lucent Technologies' (formerly AT & T Corp.)
Microelectronics Business Unit in Madrid, Spain. The agreement,
under which the equipment was purchased, allocates sub-micron wafer
production capacity to the Company for five years beginning in March 1996.
In fiscal 1996, SMC purchased a minority equity interest in Singapore-based
Chartered Semiconductor Pte Ltd. for $19.9 million which is included within
other assets on the accompanying balance sheet. Under this agreement,
Chartered allocates sub-micron wafer production capacity to the Company for
ten years. This arrangement and the Lucent agreement are intended
to provide a portion of the Company's long-term production requirements
for integrated circuits.
Liquidity and Capital Resources
The Company's working capital increased to $110.9 million at May 31, 1996,
from $93.1 million at the end of fiscal 1996. The increase in working capital
was primarily from increases of $20.4 million in inventories and
$7.6 million in accounts receivable partially offset by decreases of $5.6
million in cash and cash equivalents and an increase of $4.9 million in
current liabilities.
For reasons described below, the decrease in cash and cash equivalents to
$12.8 million primarily relected financing capital expenditures of $4.6
million and the increase in inventories and accounts receivable,
partially offset by an increase in long term debt of $16.3 million.
During the first quarter of fiscal 1997, days sales outstanding (DSOs)
increased to 57 days from 54 in the fourth quarter of fiscal 1996, but
remained level with the first quarter of fiscal 1996. The increased
DSOs and receivables in the first quarter of fiscal 1997 reflected
a greater percentage of sales occurring toward the end of the
quarter when compared to the preceding period.
Cost of goods sold divided by inventory declined to 3.1 times, annualized,
for the first quarter of fiscal 1997 from 4.0 times for the fourth
quarter of fiscal 1996 but increased from 2.9 times for the year earlier
period. The quarter-to-quarter decline in inventory turnover primarily
relected an increase in component products inventory. This increase
principally relected the fulfillment of commitments to acquire semiconductor
wafers. These commitments were concluded when wafers were difficult to
obtain. Because processed wafers have become more available, SMC
received ample supplies during the first quarter. The Company
expects to reduce this inventory over the balance of fiscal 1997.
During the first quarter of fiscal 1997, the decrease in inventory turns
resulted in the Company's noncompliance with a financial covenant
under its $25.0 million line of credit agreement. In connection therewith,
the Company obtained waivers from its banks respecting the failure to meet
this covenant.
The most significant capital expenditures in the first quarter were $2.1
million for production equipment to be used in SMC's own wafer foundry
and $1.3 million for upgrading the Company's information system.
The Company believes that its present working capital position, combined
with forecasted cash flow and available borrowing capacity, will be
sufficient to meet cash requirements for the next twelve months. Cash flow
anticipated from operations, supplemented by borrowings under the
revolving credit line, as necessary, is anticipated to be used chiefly to fund
capital expenditures during the remainder of fiscal 1997. Capital
expenditures expected in fiscal 1997 include upgrading the Company's
information system and purchasing various foundry production,
design and test equipment.
<PAGE>
Factors That May Affect Future Results
Except for the historical information contained in this quarterly report,
certain matters discussed herein are forward - looking statements that
involve risks and uncertianties. The forward-looking statements
contained herein are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995.
A number of variables could affect the Company's future operating results,
including worldwide demand for personal computers and numerous
competitive factors. The Company's most important customers for
component products are personal computer producers, and a slowdown in the
rate of growth in demand for PC s could affect the Company's growth and
intensify competition. The inability to obtain adequate integrated circuit
wafers could allow competitors who process wafers internally to gain market
share relative to the Company. These competitors may also, more
aggressively, reduce product prices.
The Company's adapters are inserted in newly sold and previously installed
PC s, so that the sales growth of PC s influences sales of adapters.
Improvements in PC performance require more powerful adapters, and that has
led to a shift in the mix of adapters that the Company sells towards the high
speed PCI bus and Fast Ethernet adapters. The Company also sells PC cards for
portable computers. Product mix, product prices and the acceptance of
newly introduced products can be altered by competitors' new products,
promotions and pricing.
The Company's product development, sales and marketing progress is
dependent on hiring and retaining employees with specific skills. The
Company is also dependent on a limited number of suppliers for certain
components, assemblies, software and finished products.
High levels of production by PC manufacturers led to an industry-wide
shortage of silicon wafer fabrication capacity in fiscal 1996 and 1995. While
these shortages eased during the fourth quarter of fiscal 1996, they could
occur again and lead to difficulty in securing additional manufacturing
capacity, potentially curtailing revenue and profit growth over the
remainder of fiscal 1997 and beyond. Alternatively, PC production could
weaken, leading customers to cancel or delay orders for the Company's
products.
With 57% of the Company's revenues in the first quarter of fiscal 1997
shipped to customers located outside of the United States, global economic
conditions and changes in foreign currecny exchange rates can influence the
demand for the Company's products.Because of these and other circumstances
that could affect the Company's operating results, past financial performance
is not necessarily indicative of results to be expected in the future.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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: July 12, 1996 /S/ Anthony M. D'Agostino
(Signature)
Anthony M. D'Agostino
Senior Vice President, Finance
and Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> MAY-31-1996
<CASH> 12,841
<SECURITIES> 0
<RECEIVABLES> 63,591
<ALLOWANCES> 1,544
<INVENTORY> 80,831
<CURRENT-ASSETS> 171,512
<PP&E> 145,583
<DEPRECIATION> 83,668
<TOTAL-ASSETS> 284,246
<CURRENT-LIABILITIES> 60,657
<BONDS> 16,250
<COMMON> 1,378
0
0
<OTHER-SE> 282,868
<TOTAL-LIABILITY-AND-EQUITY> 284,246
<SALES> 100,072
<TOTAL-REVENUES> 100,072
<CGS> 63,196
<TOTAL-COSTS> 63,196
<OTHER-EXPENSES> 33,639
<LOSS-PROVISION> 174
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> 3,249
<INCOME-TAX> 1,917
<INCOME-CONTINUING> 1,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,917
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
