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 NOVEMBER 30, 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 January 12, 1996 there were 13,233,867 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>
November 30, February 28,
1995 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 12,594 $ 29,478
Accounts receivable, net of allowance for doubtful
accounts of $1,498 and $1,102, respectively 50,456 75,826
Inventories 50,151 45,789
Deferred tax benefits 10,929 5,392
Other current assets 5,889 6,291
Total current assets 130,019 162,776
Property, plant and equipment:
Land 3,832 3,832
Buildings and improvements 27,722 26,901
Machinery and equipment 105,017 77,639
136,571 108,372
Less: accumulated depreciation 80,616 73,464
Property, plant and equipment, net 55,955 34,908
Intangible assets 19,663 26,479
Long-term investment 13,990 -
Deferred tax benefits 2,904 1,795
Other assets 4,287 2,620
$226,818 $228,578
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 17,712 $ 24,193
Accrued expenses and other liabilities 17,739 15,527
Income taxes payable 174 3,701
Total current liabilities 35,625 43,421
Long-term debt 18,000 -
Minority interest in subsidiary 11,327 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 13,416,000 and 13,222,000
shares, respectively 1,342 1,322
Additional paid-in capital 79,467 77,319
Retained earnings 73,813 88,616
Unrealized holding gain, net of tax 1,929 718
Foreign currency translation adjustment 5,315 6,008
Total shareholders' equity 161,866 173,983
$226,818 $228,578
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues $ 90,570 $104,771 $248,213 $276,756
Cost of goods sold 52,914 59,538 159,339 156,190
Gross profit 37,656 45,233 88,874 120,566
Operating expenses:
Research and development 7,749 7,235 23,937 20,597
Selling, general and administrative 27,468 24,815 79,659 64,928
Amortization of intangible assets 1,572 1,372 6,816 4,116
36,789 33,422 110,412 89,641
Income (loss) from operations 867 11,811 (21,538) 30,925
Other income (expense):
Interest income 74 244 299 685
Interest expense (325) (340) (778) (1,055)
Other income (expense), net (23) (249) (141) (729)
(274) (345) (620) (1,099)
Income (loss) before minority interest
and provision for income taxes 593 11,466 (22,158) 29,826
Minority interest in net income
of subsidiary 76 78 153 172
Income (loss) before provision
for income taxes 517 11,388 (22,311) 29,654
Provision for (benefit from)
income taxes 214 4,567 (7,508) 11,891
Net income (loss) $ 303 $ 6,821 $(14,803) $17,763
Net income (loss) per common and
common equivalent share $ 0.02 $ 0.51 $ (1.11) $ 1.34
Weighted average common and common
equivalent shares outstanding 13,519 13,315 13,325 13,225
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
1995 1994
<S> <C>
<C>
Cash flows from operating activities:
Cash received from customers $ 273,037
$ 268,564
Cash paid to suppliers and employees (262,355)
(238,154)
Interest received 290
823
Interest paid (957)
(938)
Income taxes paid (3,470)
(11,640)
Net cash provided by (used for) operating activities 6,545
18,655
Cash flows from investing activities:
Capital expenditures (28,231)
(7,779)
Long-term investment (13,990)
-
Other 44
36
Net cash used for investing activities (42,177)
(7,743)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,168
1,241
Principal payments of long-term debt -
(3,250)
Borrowings under line of credit agreement 32,000
834
Repayments of borrowings under line of credit agreements (14,000)
-
Net cash provided by (used for) financing activities 19,168
(1,175)
Effect of foreign exchange rate changes on cash and cash equivalents (420)
502
Net increase (decrease) in cash and cash equivalents (16,884)
10,239
Cash and cash equivalents at beginning of period 29,478
32,115
Cash and cash equivalents at end of period $ 12,594
$ 42,354
Reconciliation of net income (loss)
to net cash provided by (used for) operating activities:
Net income (loss) $(14,803)
$ 17,763
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 14,988
11,108
Minority interest in net income of subsidiary 153
172
Other adjustments, net 815
1,094
Changes in operating assets and liabilities:
Accounts receivable 24,696
(8,043)
Inventories (4,458)
(6,889)
Accounts payable and accrued expenses and other liabilities (4,577)
3,133
Other changes, net (10,269)
317
Net cash provided by operating activities $ 6,545
$ 18,655
</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 nine month periods ended November 30, 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):
Nov. 30, 1995 Feb. 28, 1995
Raw Materials $14,411 $11,547
Work in Process 22,067 16,239
Finished Goods 13,673 18,003
$50,151 $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 for 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 waivers respecting the failure to meet
financial covenants under its revolving credit agreement, which was
amended in October 1995, to reduce the credit line to $25.0 million.
5. Sale of Business Unit
On January 9, 1996, the Company signed an agreement to sell
substantially all of the assets of its Enterprise Networks Business
Unit, including substantially all of the assets of the Company's
wholly owned subsidiary, SMC Enterprise Networks, Inc., to
Cabletron Systems, Inc., of Rochester, New Hampshire,
for approximately $75.0 million in cash. This transaction is expected
to close on or about January 12, 1996. SMC plans to utilize
the proceeds from the sale after transaction fees and taxes, to,
among other things, paydown existing borrowings under line of
credit agreements, obtain additional integrated circuit
production for its Component Products Division,
and to invest in its other System Products' business units.
6. Litigation
In June 1995, several actions were filed against the Company and
certain of its directors and officers. The claims purport to be
class actions on behalf of the purchasers of the Company's common
stock from December 20, 1994, through June 2, 1995. The complaints
assert claims under federal securities laws, and allege that the
Company artificially inflated the price of its common stock
during the class action period by false and misleading statements
and the failure to disclose certain information. The Company
intends to vigorously defend against these claims.
<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 nine month periods ended November 30, 1995 and 1994:
3 Months 9 Months
1995 1994 1995 1994
Revenues 100.0 % 100.0 % 100.0% 100.0%
Cost of goods sold 58.4 56.8 64.2 56.4
Gross profit 41.6 43.2 35.8 43.6
Operating expenses
Research and development 8.6 6.9 9.6 7.4
Selling, general and administrative 30.3 23.7 32.1 23.5
Amortization of intangible assets 1.7 1.3 2.8 1.5
Total operating expenses 40.6 31.9 44.5 32.4
Income (loss) from operations 1.0 11.3 (8.7) 11.2
Other income (expense), net (0.3) (0.4) (0.2) (0.4)
Income (loss) before minority interest
and taxes 0.7 10.9 (8.9) 10.8
Minority interest in net income
of subsidiary 0.1 - 0.1 0.1
Income (loss) before provision
for income taxes 0.6 10.9 (9.0) 10.7
Provision for (benefit from)
income taxes 0.3 4.4 (3.0) 4.3
Net income (loss) 0.3 % 6.5 % (6.0)% 6.4%
Revenues and Cost of Goods Sold
Revenues of $90.6 million for the three months ended November 30, 1995, were
14% lower than the $104.8 million recorded for the three months ended
November 30, 1994. Revenues of $248.2 million for the nine months ended
November 30, 1995, were 10% lower than the $276.8 million recorded for the
nine months ended November 30, 1994.
System products revenue declined 25% to $53.6 million for the third quarter
from $71.7 million for the comparable year-earlier period. For the first
nine months, system products revenue declined 27% to $144.2 million from
$196.2 million for the comparable year-earlier period. This decline resulted
chiefly from lower unit shipments and 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 during the first nine months. These inventories had increased
during fiscal 1995. Revenues also declined for hub and switching products,
also reflecting a reduction of inventory levels at a number of major
distributors.
Component products revenue increased 12% to $37.0 million for the third
quarter from $33.1 million for the comparable year-earlier period. For
the first nine months, component products revenue increased 29% to
$104.0 million from $80.6 million for the comparable year-earlier period.
The Company's components foundry operation contributed significantly to
this growth, with revenue improving substantially for the third quarter
and first nine months from a small base in the comparable year-earlier
periods. For the nine months, higher shipments of personal computer
input/output integrated circuits, led the increase in component products
revenue despite an industry-wide shortage of wafer fabrication capacity.
<PAGE>
The Company's gross profit margin of 41.6% for the third quarter of
fiscal 1996 declined from 43.2% for the third quarter of fiscal 1995.
The gross profit margin of 35.8% for the first nine months of fiscal 1996
declined from 43.6% for the first nine months of fiscal 1995. The
principal reasons for the lower gross margins for the third quarter and
factors contributing to lower gross margins for the first nine months were
(i) reduced margins on switching and hub product revenues and (ii) lower
revenues and lower average selling prices for network interface cards,
partially offset by a reduction in production costs.
The principal reason for the lower gross margin for the first nine months
was an $11.8 million charge to cost of goods sold, in the second quarter,
for the write-down of certain system products inventory to estimated net
realizable value. The write-down relfected 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 similar functions. Excluding the impact
of the inventory charge, the gross profit margin would have been 40.6%
compared to 35.8% reported for the first nine months of fiscal 1996.
Operating Expenses
Research and development expenses increased 7% in the third quarter and
16% in the first nine months 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 11% in the third
quarter and 23% in the first nine months of fiscal 1996 from the comparable
year-earlier periods. Without severance related benefit charges of
$2.5 million in the second quarter, selling, general and administrative
expenses would have increased 19% in the first nine months of fiscal 1996
from the comparable year-earlier periods. Most of the increases in the
third quarter and the first nine months, excluding special charges, 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 third quarter
and the first nine months of fiscal 1996, from the levels of comparable
year-earlier periods, reflected an accelerated write-off of certain
assets. The increase in the first nine months also relected a
$2.4 million write-down of previously acquired LAN technology to
its estimated realizable value in the second quarter. 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 third
quarter and first nine months of fiscal 1996 from the third quarter and
first nine months of fiscal 1995, reflected reductions in interest rates
and financing fees related to the Company's line of credit. A reduction in
interest income reflected lower average cash balances.
Income Taxes
Income tax benefits were provided at a rate of 41.4% for the third quarter
of fiscal 1996 and at 33.7% for the first nine months 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 $94.4 million at November 30, 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 November 30, 1995, represented approximately 50 days
sales outstanding, compared to 63 days at November 30, 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 third or
fourth quarters of fiscal 1995.
Inventories increased to $50.2 million at November 30, 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 in the second quarter
and adjustments to production to reflect current shipment levels.
Additions to property, plant and equipment were $28.2 million during the
first nine months of fiscal 1996, compared to $7.8 million during the
year-earlier period. The most significant capital expenditures were $13.9
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, $5.0 million for
improvement to the Company's informations systems and $2.3 million for
semiconductor testing equipment.
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. The remaining $6 million is to be paid
during the fourth quarter. 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 nine months of fiscal 1996, SMC used $16.9 million of cash
and $18.0 million of its credit line chiefly for capital items and the
investment in Chartered Semiconductor.
The Company experienced reduced revenues, losses from operations and write-
downs in the first half of fiscal 1996. In connection therewith, the
Company obtained waivers respecting the failure to meet financial
covenants under its revolving credit agreement, which was amended to
reduce the credit line to $25.0 million.
On January 9, 1996, SMC signed an agreement to sell substantially all of
the assets of its Enterprise Networks Business Units and all of the assets
of the Company's wholly owned subsidiary,SMC Enterprise Networks, Inc., to
Cabletron Systems, Inc., for approximately $75 million. This transaction
is expected to close on or about January 12, 1996. SMC plans to utilize
the proceeds from the sale, after transaction fees and taxes to, among
other things, paydown existing borrowings under line of credit agreements,
obtain additional integrated circuit production for its Component
Products Division and invest in its other System Products' business units.
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 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: January 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> 9-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> NOV-30-1995
<CASH> 12,594
<SECURITIES> 0
<RECEIVABLES> 50,456
<ALLOWANCES> 1,498
<INVENTORY> 50,151
<CURRENT-ASSETS> 130,019
<PP&E> 136,571
<DEPRECIATION> 80,616
<TOTAL-ASSETS> 226,818
<CURRENT-LIABILITIES> 35,625
<BONDS> 18,000
<COMMON> 1,342
0
0
<OTHER-SE> 160,524
<TOTAL-LIABILITY-AND-EQUITY> 226,818
<SALES> 248,213
<TOTAL-REVENUES> 248,213
<CGS> 159,339
<TOTAL-COSTS> 159,339
<OTHER-EXPENSES> 110,412
<LOSS-PROVISION> 471
<INTEREST-EXPENSE> 778
<INCOME-PRETAX> (22,311)
<INCOME-TAX> (7,508)
<INCOME-CONTINUING> (14,803)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,803)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
