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 November 30, 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: 516-435-6000
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 13, 1998 there were 15,903,952 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,
1997 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 41,015 $ 8,382
Short-term investments 4,000 -
Accounts receivable, net of allowance for doubtful
accounts of $1,019 and $881, respectively 20,581 16,371
Inventories 20,880 31,460
Deferred tax benefits 3,932 5,412
Other current assets 18,621 10,781
---------- ----------
Total current assets 109,029 72,406
---------- ----------
Property, plant and equipment:
Land 3,832 3,832
Buildings and improvements 28,739 28,870
Machinery and equipment 93,921 93,500
---------- ----------
126,492 126,202
Less: accumulated depreciation 81,127 74,171
---------- ----------
Property, plant and equipment, net 45,365 52,031
---------- ----------
Other assets 40,027 29,024
Net assets of discontinued operations 15,021 65,807
---------- ----------
$ 209,442 $ 219,268
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 11,925 $ 15,042
Accrued expenses and other liabilities 10,259 9,319
Income taxes payable 22 129
---------- ----------
Total current liabilities 22,206 24,490
---------- ----------
Long-term debt - 7,000
Other liabilities 4,520 4,584
Minority interest in subsidiary 11,460 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 15,894,000 and 13,876,000
shares, respectively 1,589 1,388
Additional paid-in capital 106,324 87,095
Retained earnings 59,479 78,920
Unrealized gain on investment, net of tax 1,094 953
Foreign currency translation adjustment 2,770 3,441
---------- ----------
Total shareholders' equity 171,256 171,797
---------- ----------
$ 209,442 $ 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 Nine Months Ended
-------------------------- -------------------------
November 30, November 30,
------------------------- -------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues $ 42,768 $ 50,450 $ 118,755 $ 164,678
Cost of goods sold 29,977 37,610 88,197 117,884
---------- ---------- ---------- ----------
Gross profit 12,791 12,840 30,558 46,794
---------- ---------- ---------- ----------
Operating expenses:
Research and development 3,875 3,189 10,376 8,318
Selling, general and administrative 8,556 9,132 26,336 31,401
---------- ---------- ---------- ----------
12,431 12,321 36,712 39,719
---------- ---------- ---------- ----------
Income (loss) from operations 360 519 (6,154) 7,075
---------- ---------- ---------- ----------
Other income (expense):
Interest income 331 155 561 420
Interest expense (44) (151) (205) (487)
Litigation settlement - - (2,000) -
Other income (expense), net (67) (15) 61 152
---------- ---------- ---------- ----------
220 (11) (1,583) 85
---------- ---------- ---------- ----------
Income (loss) before minority interest and
provision for income taxes 580 508 (7,737) 7,160
Minority interest in net income of subsidiary 24 10 63 10
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes 556 498 (7,800) 7,150
Provision for (benefit from) income taxes 195 191 (2,753) 2,918
---------- ---------- ---------- ----------
Income (loss) from continuing operations 361 307 (5,047) 4,232
---------- ---------- ---------- -----------
Discontinued operation:
Loss from discontinued operation (net of income
taxes of ($1,838), ($2,589), ($8,270) and ($3,855)) (3,413) (4,161) (15,424) (6,027)
Gain on sale of discontinued operation (net of taxes
of $555) 1,030 - 1,030 -
---------- ---------- ---------- ----------
Net loss $ (2,022) $ (3,854) $ (19,441) $ (1,795)
========== ========== ========== ==========
Income (loss) per common and common equivalent share:
Income (loss) from continuing operations $ 0.02 $ 0.02 $ (0.33) $ 0.31
Loss from discontinued operation (0.21) (0.30) (1.00) (0.44)
Gain on sale of discontinued operation 0.06 - 0.07 -
---------- ---------- ---------- ----------
Net loss per common and
common equivalent share $ (0.13) $ (0.28) $ (1.26) $ (0.13)
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding 16,165 13,888 15,400 13,854
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>
Nine Months Ended
------------------------
November 30,
------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 114,054 $ 160,531
Cash paid to suppliers and employees (108,260) (157,754)
Interest received 433 414
Interest paid (214) (611)
Income taxes paid (97) (2,685)
Cash paid for litigation settlement (2,000) -
---------- ----------
Net cash provided by (used for) operating activities 3,916 (105)
---------- ----------
Cash flows from investing activities:
Capital expenditures (3,835) (11,913)
Purchases of short-term investments (4,000) -
Investment in Accelerix Incorporated (250) (1,483)
Escrow investment (2,020) -
Other 53 (240)
---------- ---------
Net cash used for investing activities (10,052) (13,636)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 18,287 434
Borrowings under line of credit agreements 33,960 26,610
Repayments of borrowings under line of credit agreements (40,960) (26,610)
---------- ---------
Net cash provided by financing activities 11,287 434
---------- ---------
Effect of foreign exchange rate changes on cash and cash equivalents (458) (564)
---------- ---------
Net cash provided by (used for) discontinued operation (8,837) 5,619
---------- ---------
Net cash provided by sale of discontinued operation 36,777 -
---------- ---------
Net increase (decrease) in cash and cash equivalents 32,633 (8,252)
Cash and cash equivalents at beginning of period 8,382 18,459
---------- ---------
Cash and cash equivalents at end of period $ 41,015 $ 10,207
========== ==========
Reconciliation of net loss
to net cash provided by (used for) operating activities:
Net loss $ (19,441) $ (1,795)
Add: net loss from discontinued operation 15,424 6,027
Subtract: gain from sale of discontinued operation (1,030) -
---------- ----------
Income (loss) from continuing operations (5,047) 4,232
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used for) operating activities:
Depreciation and amortization 10,015 9,045
Other adjustments, net 897 1,026
Changes in operating assets and liabilities:
Accounts receivable (4,807) (4,168)
Inventories 10,471 (12,190)
Accounts payable and accrued expenses and other liabilities (939) 3,044
Other changes, net (6,674) (1,094)
---------- --------
Net cash provided by (used for) operating activities $ 3,916 $ (105)
========== ===========
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
nine month periods ended November 30, 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. Cash, Cash Equivalents, and Short-term Investments
Cash and cash equivalents consist principally of cash in banks and
highly liquid debt instruments purchased with maturities of three months
or less. These debt instruments are categorized as available for sale
and are recorded at fair value which approximates cost. Short-term
investments consist of debt instruments with original maturities of
between three and twelve months. These investments are all classified as
available-for-sale. While the Company's intent is to hold these
investments to maturity, the Company has classified all securities as
available-for-sale as the sale of such securities may be required prior
to maturity to support current operations or to take advantage of other
investment opportunities. Pursuant to Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," such investments are stated at fair value and
any unrealized gains and losses on such investments are reflected, net
of taxes, in Shareholders' equity.
3. Inventories
Inventories are valued at the lower of first-in, first-out cost or
market and consist of the following (in thousands):
Nov. 30, 1997 Feb. 28, 1997
Raw Materials $ 1,528 $ 1,788
Work in Process 15,428 23,619
Finished Goods 3,924 6,053
-------------- ---------------
$ 20,880 $ 31,460
============== ===============
4. Subsequent Event
On December 17, 1997, the Company and Cabletron Systems, Inc.
("Cabletron") settled a lawsuit initiated in May 1997 by Cabletron. The
action claimed violation of the non-competition clause included in the
January 1996 Asset Purchase Agreement (the "Agreement") between the
Company and Cabletron, and requested unspecified damages and an
injunction. As part of this settlement, the Company paid Cabletron
approximately $530,000 from an escrow account established for
indemnification obligations as part of the Agreement. The remaining
balance of the escrow account of $7,110,000 was released to the Company.
<PAGE>
5. Discontinued operation
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
retained a 19.9% interest in the new business, which supplies adapter
cards, hubs and switches for local area networks. This investment is
carried by the Company at cost. As a result of this transaction, the
Company reported a pre-tax gain of approximately $1 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 Nine Months Ended
November 30, November 30,
1997 1996 1997 1996
-------------- ----------------
Revenues $ 5.4 $43.3 $ 65.4 $128.4
Income (loss) before income taxes (3.7) (6.8) (22.1) (9.9)
Net income (loss) (2.4) (4.2) (14.4) (6.1)
November 30, February 28,
1997 1997
-------------------------
Current assets $ 17.9 $57.7
Total assets 17.9 80.6
Current liabilities 2.9 14.8
Net assets 15.0 65.8
<PAGE>
6 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 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.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview:
Discontinued Operation
During the third quarter of fiscal 1998, Standard Microsystems Corporation (the
Company) reorganized its former Systems Products Division, which designed,
produced and marketed products used in the local area networking of personal
computers, into a new corporation called SMC Networks, Inc. Following this
reorganization, the Company sold an 80.1% interest in this new corporation to
Accton Technology Corporation (Accton)of Hinschu, Taiwan, for approximately $40
million in cash. The Company retained a 19.9% ownership interest in SMC
Networks, Inc., and carries this investment at cost on its consolidated balance
sheet.
The former Systems Products Division was discontinued on October 7, 1997 and is
presented as a discontinued operation on the accompanying consolidated
financial statements. For additional information about this discontinued
operation, refer to the Company's Form 8-K report filed on October 22,1997.
Continuing Operations
The Company's continuing operations now consist almost entirely of the
operations of its Component Products Division, which designs, develops,
produces, and markets very-large-scale-integrated circuits, mainly for control
of various personal computer functions. These integrated circuits (ICs) consist
of input/output (I/O), local area network and embedded control devices. The
Company also operates a wafer foundry that manufactures Microelectromechanical
Systems (MEMS). The Company's 80% owned subsidiary, Toyo Microsystems
Corporation (TMC), sells component and system products in the Japanese market.
The accompanying financial statements have been restated to reflect the former
System Products Division as a discontinued operation, and this Management's
Discussion and Analysis of Financial Condition and Results of Operations
discusses the continuing operation. As part of the System Products Division
reorganization, the Company sold the rights to the SMC trade name and logo to
SMC Networks, Inc. The Company has changed its trade name to SMSC, which is
consistent with the Company's NASDAQ stock ticker symbol.
Results of Continuing Operations
Revenues
The Company's revenues of $42.8 million for the third quarter of fiscal 1998
represent a decline of 15.2% from the year-earlier revenues of $50.5 million.
Revenues of $118.8 million for the first nine months of fiscal 1998 have
declined 27.9% compared to $164.7 million of revenues for the first nine months
of fiscal 1997. The revenue decrease resulted from aggressive pricing by the
Company's personal computer (PC) input/output (I/O) device competitors, in both
the fiscal 1998 three and nine month periods. This pricing required the Company
to lower unit prices more than planned and also hurt unit sales. Revenues from
the Company's wafer foundry were 5.7% and 5.4% of total revenues for the three
and nine month periods ended November 30, 1997, respectively, compared to 4.9%
and 8.0% for the corresponding periods in the prior fiscal year.
Gross Profit
The Company's gross profit margin for the third quarter of fiscal 1998 was
29.9% compared with the 25.5% margin reported for the third quarter of fiscal
1997. For the nine month period ended November 30, 1997, the Company's gross
profit margin was 25.7% compared with the year-earlier margin of 28.4%.
Sales of new, higher-margin products contributed principally to greater gross
margins in the third quarter.
The principal factors contributing to the gross profit margin decrease for the
first nine months of fiscal 1998, were sharply reduced selling prices on PC I/O
devices, which were only partially offset by reductions in manufacturing costs,
and a decline in wafer foundry revenues and the consequent increase in
under-utilized wafer foundry manufacturing overhead.
Operating Expenses
Research and development expenses increased 21.9% to $3.9 million in the third
quarter of fiscal 1998, from $3.2 million in the year-earlier period. For the
current nine month period, research and development expenses increased by 25.3%
to $10.4 million, from $8.3 million in the year-earlier period. These increases
in spending for both the three month and nine month periods reflect an
increased engineering staff, as well as increases in other development costs,
compared to the comparable year-earlier periods.
Selling, general and administrative expenses declined 5.5% to $8.6 million in
the third quarter of fiscal 1998, compared to $9.1 million in the year-earlier
quarter, and declined 16.2% to $26.3 million for the current nine month period,
compared to the year-earlier expenses of $31.4 million. These lower selling,
general and administrative expenses reflected lower sales commissions and other
variable selling expenses associated with lower revenues and a reduction of
staff levels in general and administrative areas.
Other Income and Expenses
During the second quarter of fiscal 1998, the Company recorded a $2.0 million
charge for the settlement of a class action litigation initiated in 1995.
Please refer to Note 6 to the Consolidated Financial Statements included
herein for additional details.
Income Taxes
For the three and nine month periods of fiscal 1998, income tax benefits have
been recorded at effective tax rates of 35.0% and 35.3%, respectively, compared
to effective tax rates of 38.4% and 40.8%, respectively, for the corresponding
year-earlier periods. The Company's effective income tax rate primarily
reflects statutory tax rates, income tax credits, and the impact of certain
non-deductible expenses and tax-exempt income.
Liquidity and Capital Resources
As of November 30, 1997, the Company's cash and cash equivalents totaled $41.0
million, an increase of $32.6 million from February 28, 1997. The Company's
principal sources and uses of cash during the nine month period ended November
30, 1997 were as follows:
- Cash provided from continuing operations of $3.5 million reflects a
substantial decrease in inventories to $20.9 million as of November 30,
1997, from $31.5 million as of February 28, 1997. This decrease resulted
from higher than planned inventories at February 28, 1997 (due to sharply
reduced revenues in the fourth quarter of fiscal 1997), and the subsequent
efforts by the Company to restore inventories to planned levels.
- Cash used for investing activities of $10.0 million included capital
expenditures of $3.8 million, down from $12.0 million in the year-earlier
nine month period. The Company expects future capital spending to increase
to support an expansion of the Company's production testing and wafer
foundry manufacturing capacity. Also included within the current fiscal
year's investing activities is $4.0 million of short-term investments in
securities with maturities from three and twelve months.
- Cash provided by financing activities of $11.3 million during the first
nine months of fiscal 1998 includes $18.3 million of cash received from
the issuance of the Company's common stock, offset by the repayment of
$7.0 million of long-term bank debt. As of November 30, 1997, the Company
had no long-term bank debt. The majority of the cash received from the
issuance of common stock was provided by a March 1997 equity investment
of $14.6 million in the Company by Intel Corporation of Santa Clara,
California.
- Cash used by the discontinued operation was $8.8 million, and cash
provided from the sale of the discontinued operation was $36.7 million,
after related expenses. As previously reported, the Company received $40.2
million in cash in October 1997 pursuant to the reorganization of its
System Products Division and the concurrent sale of an 80.1% interest in
the reorganized business. $2.0 million of these proceeds have been
deposited into an escrow account until January 1999, as security for the
Company's indemnification obligations on this transaction.
The Company's working capital increased $38.9 million to $86.8 million as of
November 30,1997, from $47.9 million as of February 28, 1997, most of which was
provided by cash received pursuant to the System Products Division
reorganization. Included within Other current assets at November 30, 1997 and
February 28, 1997 were $7.6 million and $7.3 million, respectively, 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. These funds were scheduled to be released to the Company in July
1997. 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 a related agreement. In December 1997, the Company
and Cabletron agreed to settle this action. The settlement resulted in a
payment from the escrow account of $0.5 million to Cabletron, and the remainder
was released to the Company.
The Company maintains a $25.0 million line of credit with several 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 November 30, 1997, the Company
had no outstanding borrowings against this line of credit.
The Company believes that its current cash and cash equivalents, cash flows
generated from operations, and its existing line of credit will be sufficient
to meet both its cash 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 Company's competitors in this market 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 often experiences a greater magnitude of demand
fluctuation then the Company'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.
Several countries in the Asia and Pacific Rim region have recently been
experiencing economic uncertainty and devalued currencies. The Company is
currently monitoring the backlog and order input from its customers in this
region, as well as reviewing the credit position of these customers.
Management is currently unable to determine the impact these conditions may
have, if any, on its business in the future.
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
On December 17, 1997, the Company and Cabletron Systems, Inc.
("Cabletron") settled a lawsuit initiated in May 1997 by Cabletron.
The action claimed violation of the non-competition clause included
in the January 1996 Asset Purchase Agreement (the "Agreement")
between the Company and Cabletron, and requested unspecified damages
and an injunction. As part of this settlement, the Company paid
Cabletron approximately $530,000 from an escrow account established
for indemnification obligations as part of the Agreement. The
remaining balance of the escrow account of $7,110,000 was released
to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated October 22, 1997, was filed during
the last quarter of the period covered by this report. The
Form 8-K reported the sale of the assets and liabilities of
the Systems Products Division and contained the following
financial statement pursuant to Item 7:
Unaudited Pro Forma Consolidated Condensed Statement of Income
for the year ended February 28, 1997.
<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 13, 1998 /S/ Eric M. Nowling
---------------------------------
(Signature)
Eric M. Nowling
Vice President and Controller
(Chief Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> NOV-30-1997
<CASH> 41,015
<SECURITIES> 4,000
<RECEIVABLES> 20,581
<ALLOWANCES> 1,019
<INVENTORY> 20,880
<CURRENT-ASSETS> 109,029
<PP&E> 126,492
<DEPRECIATION> 81,127
<TOTAL-ASSETS> 209,442
<CURRENT-LIABILITIES> 22,206
<BONDS> 0
0
0
<COMMON> 1,589
<OTHER-SE> 169,667
<TOTAL-LIABILITY-AND-EQUITY> 209,442
<SALES> 118,755
<TOTAL-REVENUES> 118,755
<CGS> 88,197
<TOTAL-COSTS> 88,197
<OTHER-EXPENSES> 36,712
<LOSS-PROVISION> 254
<INTEREST-EXPENSE> 205
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</TABLE>
