SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-7422
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STANDARD MICROSYSTEMS CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2234952
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 ARKAY DRIVE, HAUPPAUGE, NEW YORK 11788
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(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 14, 1997 there were 15,553,531 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,
1997 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 10,465 $ 8,382
Accounts receivable, net of allowance for doubtful
accounts of $1,056 and $881, respectively 20,181 16,371
Inventories 24,589 31,460
Deferred tax benefits 3,462 5,412
Other current assets 13,421 10,781
---------- ----------
Total current assets 72,118 72,406
---------- ----------
Property, plant and equipment:
Land 3,832 3,832
Buildings and improvements 29,264 28,870
Machinery and equipment 92,627 93,500
---------- ----------
125,723 126,202
Less: accumulated depreciation 78,031 74,171
---------- ----------
Property, plant and equipment, net 47,692 52,031
---------- ----------
Other assets 29,066 29,024
Net assets of discontinued operations 62,961 65,807
---------- ----------
$ 211,837 $ 219,268
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 4,900 $ -
Accounts payable 9,584 15,042
Accrued expenses and other liabilities 11,255 9,319
Income taxes payable 14 129
---------- ----------
Total current liabilities 25,753 24,490
---------- ----------
Long-term debt - 7,000
Other liabilities 4,579 4,584
Minority interest in subsidiary 11,436 11,397
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 15,517,000 and 13,876,000
shares, respectively 1,552 1,388
Additional paid-in capital 102,497 87,095
Retained earnings 61,501 78,920
Unrealized gain on investment, net of tax 1,243 953
Foreign currency translation adjustment 3,276 3,441
---------- ----------
Total shareholders' equity 170,069 171,797
---------- ----------
$ 211,837 $ 219,268
========== ==========
Interim figures are subject to independent year-end audit.
</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,
------------------------- -------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $ 41,184 $ 53,687 $ 75,987 $ 114,228
Cost of goods sold 30,431 41,019 58,220 80,274
---------- ---------- ---------- ----------
Gross profit 10,753 12,668 17,767 33,954
---------- ---------- ---------- ----------
Operating expenses:
Research and development 3,284 2,572 6,501 5,129
Selling, general and administrative 8,619 10,809 17,780 22,270
---------- ---------- ---------- ----------
11,903 13,381 24,281 27,399
---------- ---------- ---------- ----------
Income (loss) from operations (1,150) (713) (6,514) 6,555
---------- ---------- ---------- ----------
Other income (expense):
Interest income 100 137 230 265
Interest expense (72) (243) (161) (336)
Litigation settlement (2,000) - (2,000) -
Other income (expense), net 16 191 128 167
---------- ---------- ---------- ----------
(1,956) 85 (1,803) 96
---------- ---------- ---------- ----------
Income (loss) before minority interest and
provision for income taxes (3,106) (628) (8,317) 6,651
Minority interest in net income of subsidiary 33 - 39 -
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes (3,139) (628) (8,356) 6,651
Provision for (benefit from) income taxes (1,070) (258) (2,948) 2,727
---------- ---------- ---------- ----------
Income (loss) from continuing operations (2,069) (370) (5,408) 3,924
---------- ---------- ---------- -----------
Income (loss) from discontinued operations,(net of
income taxes of ($3,709), $357, ($6,432) and
($1,296), respectively (7,170) 512 (12,011) (1,866)
---------- ---------- ---------- ----------
Net income (loss) $ (9,239) $ 142 $ (17,419) $ 2,058
========== ========== ========== ==========
Income (loss) per common and common equivalent share:
Income (loss) from continuing operations $ (0.14) $ (0.03) $ (0.35) $ 0.28
Income (loss) from discontinued operations (0.46) 0.04 (0.79) (0.13)
---------- ---------- ---------- ----------
Net income (loss) per common and
common equivalent share $ (0.60) $ 0.01 $ (1.14) $ 0.15
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding 15,490 13,864 15,245 13,836
Interim figures are subject to independent year-end audit.
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
August 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 72,226 $ 104,271
Cash paid to suppliers and employees (73,439) (117,634)
Interest received 209 260
Interest paid (155) (453)
Income taxes received 2,406 1,604
---------- ----------
Net cash provided by (used for) operating activities 1,247 (11,952)
---------- ----------
Cash flows from investing activities:
Capital expenditures (2,812) (6,096)
Other 45 288
---------- ---------
Net cash used for investing activities (2,767) (5,808)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 15,008 346
Borrowings under line of credit agreements 29,160 23,950
Repayments of borrowings under line of credit agreements (31,260) (15,950)
---------- ---------
Net cash provided by financing activities 12,908 8,346
---------- ---------
Effect of foreign exchange rate changes on cash and cash equivalents (140) (266)
---------- ---------
Net cash provided by (used for) discontinued operations (9,165) 2,833
---------- ---------
Net increase (decrease) in cash and cash equivalents 2,083 (6,847)
Cash and cash equivalents at beginning of period 8,382 18,459
---------- ---------
Cash and cash equivalents at end of period $ 10,465 $ 11,612
========== ==========
Reconciliation of net income (loss)
to net cash provided by (used for) operating activities:
Net income (loss) $ (17,419) $ 2,058
Add: net loss from discontinued operations 12,011 1,866
---------- ----------
Income (loss) from continuing operations (5,408) 3,924
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 6,376 6,004
Other adjustments, net 460 631
Changes in operating assets and liabilities:
Accounts receivable (4,017) (9,961)
Inventories 6,861 (7,323)
Accounts payable and accrued expenses and other liabilities (2,319) (4,503)
Other changes, net (706) (724)
---------- --------
Net cash provided by (used for) operating activities $ 1,247 $ (11,952)
========== ===========
Interim figures are subject to independent year-end audit.
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
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, 1997. 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, 1997.
2. Inventories
Inventories are valued at the lower of first-in, first-out cost or
market and consist of the following (in thousands):
Aug. 31, 1997 Feb. 28, 1997
Raw Materials $ 1,570 $ 1,788
Work in Process 19,042 23,619
Finished Goods 3,977 6,053
---------- ----------
$ 24,589 $ 31,460
========== ==========
3. Discontinued Operations
In October 1997, the Company reorganized its System Products Division
into a new corporation, SMC Networks, Inc., and sold an 80.1% interest
in the new corporation to Accton Technology Corporation of Hsinchu,
Taiwan (Accton) for approximately $40.2 million in cash. The Company
will retain a 19.9% interest in the new business, which supplies
adapter cards, hubs and switches for local area networks. This
investment will be carried by the Company at cost. As a result of this
transaction, the Company expects to report a pre-tax gain of
approximately $2 million, after related costs, in the third quarter
ended November 30, 1997.
Approximately $2.0 million of the sale proceeds have been placed into an
escrow account until January 2, 1999, as security for the Company's
indemnity obligations in this transaction. The Company will also be
providing certain administrative support services for the new business,
including finance and information services, at fair value, until such
time as either party elects to terminate such services, with notice as
defined in the related agreement.
As a result of this transaction, the net assets, operating results and
cash flows of the System Products Division have been classified as a
discontinued operation in the accompanying consolidated financial
statements. Standard Microsystems Corporation's operations will now
consist almost entirely of its Component Products Division, which
supplies integrated circuits for the personal computer industry.
Summarized financial information for the discontinued operation is as
follows (in millions):
Three Months Ended Six Months Ended
August 31, August 31,
1997 1996 1997 1996
-------------- ----------------
Revenues $ 30.3 $45.5 $ 60.0 $ 85.0
Income (loss) before income taxes (10.9) 0.9 (18.4) (3.2)
Net income (loss) (7.2) 0.5 (12.0) (1.9)
August 31, February 28,
1997 1997
-----------------------
Current assets $ 53.5 $57.7
Total assets 72.8 80.6
Current liabilities 9.8 14.8
Net assets 63.0 65.8
4. Commitments and Contingencies
In September 1997, the Company signed an agreement to settle a class
action lawsuit initiated in 1995.
In June 1995, several actions were filed against the Company and certain
of its officers and directors. These complaints were consolidated into a
class action on behalf of the purchasers of Standard Microsystems'
common stock between September 19, 1994, and June 2, 1995. The
consolidated complaint asserted claims under federal securities laws and
alleged that the price of the Company's commons stock had been
artificially inflated during the class action period by false and
misleading statements and the failure to disclose certain information.
The Company, its officers and its directors strongly denied, and
continue to deny, all of these allegations.
On September 10, 1997, the Company and counsel for the class action
plaintiffs signed an agreement to settle the consolidated action in its
entirety. Although Standard Microsystems believes that the claims
asserted in the class action were without merit, the Company believes
that it was in the best interest of its shareholders to settle the case
due to the continuing costs of defense, the distraction of management's
attention and the uncertainties inherent in any litigation.
As a result of this settlement, the Company recorded a net pre-tax
charge of $2.0 million in its second quarter ended August 31, 1997.
Several steps remain before this settlement can become effective. Before
notice can be sent to the class, the settlement must be approved by the
Federal judge who was assigned this case. If the court does not approve
the settlement, or if certain other circumstances as set forth in a
notice to class members occur, the proposed settlement may not become
effective.
In May 1997, Cabletron Systems, Inc. and Cabletron Systems
Acquisition, Inc. (together, Cabletron) commenced legal action in the
Superior Court for the Commonwealth of Massachusetts, against the
Company claiming violation of the non-competition clause included in
the January 1996 Asset Purchase Agreement among the Company and
Cabletron. The action seeks an injunction and unspecified damages.
Cabletron's motion for preliminary injunctive relief was denied in
May 1997. The Company firmly believes that this claim is without
merit and intends to vigorously defend against it.
<PAGE>
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Discontinued Operations
In October 1997, the Company reorganized its System Products Division into
a new corporation, SMC Networks, Inc., and sold an 80.1% interest in the new
corporation to Accton Technology Corporation of Hinschu, Taiwan (Accton) for
approximately $40.2 million in cash. The Company will retain a 19.9% interest
in the new business, which supplies adapter cards, hubs and switches for local
area networks. This investment will be carried by the Company at cost. As a
result of this transaction, the Company expects to report a pre-tax gain of
approximately $2 million, after related costs, in the third quarter ended
November 30, 1997.
Approximately $2.0 million of the sale proceeds have been placed into an escrow
account until January 1999, as security for the Company's indemnification
obligations in this transaction. The Company will also be providing certain
administrative support services for the new business, including finance and
information systems services, at fair value, until such time as either party
elects to terminate such services, with notice to the other party as defined in
the related agreement.
As a result of this transaction, the net assets, operating results and cash
flows of the Company's System Products Division have been classified as a
discontinued operation within the accompanying consolidated financial
statements. Standard Microsystems Corporation's operations will now consist
almost entirely of its Component Products Division, which supplies integrated
circuits for the personal computer industry. As part of the agreement for this
transaction, SMC Networks, Inc. will obtain exclusive right to use the "SMC"
trade name and logo. Standard Microsystems Corporation will adopt the trade name
"SMSC", which also serves as the Company's NASDAQ stock ticker symbol.
Continuing Operations
The Company will now conduct its operations primarily through its Component
Products Division, which designs, produces and markets
very-large-scale-integrated circuits, mainly for control of various personal
computer functions. The Division also operates a wafer foundry which supplies
specialized semiconductor-related products.
The following table presents the Company's Consolidated Statements of Income,
through income (loss) from continuing operations, as percentages of revenues,
for the three and six month periods ended August 31, 1997 and 1996 :
Three Months Ended Six Months Ended
August 31, August 31,
------------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 73.9 76.4 76.6 70.3
------- ------- ------- -------
Gross profit 26.1 23.6 23.4 29.7
------- ------- ------- -------
Operating expenses:
Research and development 8.0 4.8 8.6 4.5
Selling, general and administrative 20.9 20.1 23.4 19.5
------- ------- ------- -------
28.9 24.9 32.0 24.0
------- ------- ------- -------
Income (loss) from operations (2.8) (1.3) (8.6) 5.7
------- ------- ------- -------
Other income (expense):
Interest income 0.2 0.3 0.3 0.2
Interest expense (0.2) (0.5) (0.2) (0.3)
Litigation settlement (4.9) 0.0 (2.6) 0.0
Other income (expense), net 0.0 0.4 0.2 0.1
------- ------- ------- -------
(4.7) 0.2 (2.4) 0.1
------- ------- ------- -------
Income (loss) from continuing operations
before minority interest and
provision for income taxes (7.5) (1.2) (10.9) 5.8
------- ------- ------- -------
Minority interest in net income
of subsidiary 0.1 0.0 0.1 0.0
------- ------- ------- -------
Income (loss) from continuing operations
before provision for income taxes (7.6) (1.2) (11.0) 5.8
------- ------- ------- -------
Provision for (benefit from) income taxes (2.6) (0.5) (3.9) 2.4
------- ------- ------- -------
Income (loss) from continuing operations (5.0)% (0.7)% (7.1)% 3.4%
------- ------- ------- -------
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Revenues
The Company's revenues of $41.2 million for the second quarter of fiscal 1998
declined 23.3% from year-earlier revenues of $53.7 million. For the first six
months of fiscal 1998, revenues of $76.0 represent a decline of 33.5% compared
to $114.2 for the year-earlier six month period. This revenue decline was the
result of competitive market conditions for its personal computer (PC)
input/output (I/O) devices in both the first and second quarters of fiscal 1998,
compared to the previous year. These competitive conditions led to aggressive
pricing by several of the Company's competitors, resulting in considerable
declines in average selling prices. In addition, revenues reported by the
Company's foundry business unit declined from $4.7 million and $10.7 million for
the three and six months ended August 31, 1996, respectively, to $2.4 and $4.0
million for the corresponding periods of fiscal 1998.
Gross Profit
The Company's gross profit margin for the second quarter of fiscal 1998 was
26.1%, an increase of 2.5% from 23.6% reported in for the second quarter of
fiscal 1997. Gross profit margin for the six months ended August 31, 1997 was
23.4%, compared to 29.7% for the six months ended August 31, 1996, a decrease
of 6.3%.
The principal factor contributing to the 2.5% gross margin increase in the
second quarter of fiscal 1998, compared to the second quarter of fiscal 1997,
was a shift in product mix towards higher margin devices. The decline in gross
margin for the six months ended August 31, 1997, as compared to the
fiscal 1997 margin, resulted from sharply reduced selling prices on PC I/O
devices, a decline in foundry business unit revenue and a decline in licensing
revenues.
Operating Expenses
Research and development expenses increased 26.9% to $3.3 million in the second
quarter of fiscal 1998, from $2.6 million in the year-earlier period. Such
expenses for the current six month period increased by 27.5% to $6.5 million,
from $5.1 million in the year-earlier period. This increase for both the current
year's three and six month periods reflects an increased engineering staff
compared to the year-earlier periods.
Selling, general and administrative expenses declined 19.4% to $8.7 million in
the second quarter of fiscal 1998, compared to $10.8 million in the year-earlier
period, and declined 20.2% to $17.8 million for the current six month period,
compared to $22.3 million for the comparable year-earlier period. These lower
selling, general and administrative expenses reflected lower variable selling
expenses associated with lower revenues and reduced staffing in corporate
administrative areas, including finance and information systems.
Other Income and Expense
During the second quarter of fiscal 1998, the Company recorded a $2.0 million
charge for the settlement of class action litigation initiated in 1995. Please
see Note 4 to the Consolidated Financial Statements included herein for
additional details.
Income Taxes
For the second quarter of fiscal 1998, the Company recorded an income tax
benefit at an effective tax rate of 34.1%, compared to the 41.1% effective tax
benefit rate used in the comparable period of fiscal 1997. The Company's
effective income tax rate primarily reflects statutory tax rates and the impact
of certain non-deductible goodwill amortization.
Liquidity and Capital Resources
As previously discussed, the Company received $40.2 million of cash in October
1997 pursuant to the reorganization of its System Products Division and
concurrent sale of an 80.1% interest in the reorganized business. $2.0 million
of these proceeds have been deposited in an escrow account until January 1999.
These proceeds are currently intended to provide working capital for, and help
finance capital and other investment requirements of, the Company's Component
Products Division.
For the first six months of fiscal 1998, net cash provided by continuing
operating activities was $1.2 million; investing activities used $2.8 million
and cash provided by financing activities was $12.9 million; the effect of
foreign exchange rate changes was a gain of $0.1 million, giving the Company a
net increase in cash from continuing operations of $11.2 million.
Discontinued operations used $9.2 million during the current six
month period. The majority of the cash provided by investing activities in
fiscal 1998 was provided pursuant to a March 1997 equity investment of $14.6
million in the Company by Intel Corporation of Santa Clara, California.
The Company's working capital decreased $1.5 million to $46.4 million at August
31,1997, compared to $47.9 million as of February 28, 1997. Inventory levels
declined noticeably during the period, from $31.5 million to $24.6 million, as
inventory turnover improved to slightly over four times per year. Capital
expenditures declined to $2.8 million during the current six month period,
compared to $6.1 million in the prior year six month period. Capital
expenditures are expected to increase during the second half of the current
fiscal year to support an expansion of the Company's manufacturing capacity.
Included within Other current assets as of August 31, 1997 is $7.5 million held
in an interest-bearing escrow account. This account was established pursuant to
the Company's January 1996 sale of a business unit to Cabletron Systems Inc.
(Cabletron), as security for the Company's indemnification obligations in that
transaction. In April 1997, Cabletron filed a claim against the escrow account,
and in May 1997 filed a related lawsuit, alleging breach by the Company of the
non-competition clause of related agreement. The lawsuit seeks an injunction and
unspecified damages. The Company firmly believes this claim is without merit and
is pursuing its claim to this escrow fund.
The Company maintains a $25 million line of credit with two banks, which
permits the Company to borrow funds on a revolving basis, primarily to finance
working capital needs. In May 1997, the Company and its banks renegotiated the
terms of the credit line, extending the agreement through July 1998. This
agreement provides the banks with a general security interest in the Company's
trade accounts receivable and inventory. As of August 31, 1997, borrowings under
this line of credit totaling $4.9 million have been classified as short-term
borrowings due to the July 1998 expiration of the current agreement. The Company
intends to renegotiate this credit line, or pursue other financing arrangements,
prior to such expiration.
The Company believes that its current cash reserves, cash flows generated from
operations and existing line of credit will be sufficient to meet its liquidity
requirements for the next twelve months.
Factors That May Affect Future Results
Certain statements and information contained in this quarterly report,
constitute "forward-looking statements" within the meaning of the Federal
Securities laws. These forward-looking statements involve risks and
uncertainties which may cause actual results and performance to be different
from those expressed or implied in such statements.
The Company competes in the personal computer semiconductor market
which is characterized by intense competition, rapid changes in
technology and price erosion. Many of the competitors in these markets are
larger and have significantly greater financial and other resources than the
Company.
The Company's quarterly and annual operating results may be influenced by
factors, including, among other things: worldwide demand for personal computers,
the ability to introduce competitive products on a timely basis, constraints on
the availability and fluctuations in the cost of subcontract manufacturing, the
ability to forecast market and customer demand and new products and technologies
introduced by competitors.
Sales of most of the Company's products depend largely on sales of personal
computers. Reductions in the rate of growth in the PC market could adversely
affect the Company's operating results. In addition, as a component supplier to
PC manufacturers, the Company's Component Products Division often experiences a
greater magnitude of demand fluctuation than the Division's customers themselves
experience. Also, some of the Company's products are used in PCs for the
consumer market, which tends to be more volatile than other segments of the PC
marketplace.
The Company's success is highly dependent upon its ability to develop new
products, bring them to the market ahead of its competitors and induce customers
to select its products for their needs. In an environment of accelerating
changes in technology and short product life cycles, these factors have become
increasingly challenging and important.
The vast majority of the Company's products are manufactured, assembled and
tested by independent foundries and subcontract manufacturers. This reliance
upon foundries and subcontractors involves certain risks, including potential
lack of manufacturing availability, reduced control over delivery schedules,
availability of advanced process technologies, changes in manufacturing yields
and potential cost fluctuations.
The Company generally must order inventory to be built by its foundries and
subcontract manufacturers well in advance of product shipments. Because the
Company's markets are volatile, there is risk that the Company may forecast
incorrectly and produce excess or insufficient inventories. This inventory risk
is increased by the recent trend for customers to place orders with increasingly
shorter lead times.
A significant number of the Company's foundries and subcontractors are located
in Asia. Many of the Company's customers also manufacture in Asia or subcontract
their manufacturing to Asian companies. This concentration of manufacturing and
selling activity in Asia poses risks that could affect demand for and supply of
the Company's products, including currency exchange rate fluctuations, economic
and trade policies and the Asian political environment.
The Company's performance is inherently dependent upon hiring and retaining
employees with specific skills. The inability to hire and retain such employees
could hinder the Company's product development and ability to manufacture,
market and sell its products.
A limited number of customers account for a significant portion of the Company's
revenues. The Company's revenues from any one customer can fluctuate from period
to period depending upon market demand for that customer's products, the
customer's inventory management and the overall financial condition of the
customer.
<PAGE>
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In September 1997, the Company signed an agreement to settle a class
action lawsuit initiated in 1995.
In June 1995, several actions were filed against the Company and
certain of its officers and directors. These complaints were
consolidated into a class action on behalf of the purchasers of
Standard Microsystems' common stock between September 19, 1994, and
June 2, 1995. The consolidated complaint asserted claims under
federal securities laws and alleged that the price of the Company's
common stock had been artificially inflated during the class action
period by false and misleading statements and the failure to disclose
certain information. The Company, its officers and its directors
strongly denied, and continue to deny, all of these allegations.
On September 10, 1997, the Company and counsel for the class action
plaintiffs signed an agreement to settle the consolidated action in
its entirety. Although Standard Microsystems believes that the claims
asserted in the class action were without merit, the Company believes
that it was in the best interest of its shareholders to settle the
case due to the continuing costs of defense, the distraction of
management's attention and the uncertainties inherent in any
litigation.
As a result of this settlement, the Company recorded a net pre-tax
charge of $2.0 million in its second quarter ended August 31, 1997.
Several steps remain before this settlement can become effective.
Before notice can be sent to the class, the settlement must be
approved by the Federal judge who was assigned this case. If the
court does not approve the settlement, or if certain other
circumstances as set forth in a notice to class members occur, the
proposed settlement may not become effective.
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 15, 1997.
The following were elected directors, each receiving the number of
votes set opposite his name:
Broker
For Withheld Non-votes
Robert M. Brill 14,311,046 17,714 -0-
Paul Richman 14,235,054 93,706 -0-
A stockholder proposal relating to director retirement plans was
defeated by the following vote:
Broker
For Against Abstain Non-votes
3,389,548 5,901,000 204,814 5,119,995
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
14,453,736 110,524 51,097 -0-
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: October 14, 1997 /S/ Eric M. Nowling
---------------------------------
(Signature)
Eric M. Nowling
Vice President and Controller
(Chief Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
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