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 May 31, 1998
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
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(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 July 10, 1998 there were 15,971,293 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 28,
1998 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 51,292 $ 47,155
Short-term investments 4,000 8,603
Accounts receivable, net of allowance for doubtful
accounts of $1,021 and $1,011, respectively 24,598 22,268
Inventories 20,893 19,471
Deferred tax benefits 6,004 6,226
Other current assets 6,659 4,884
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Total current assets 113,446 108,607
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Property, plant and equipment:
Land 3,832 3,832
Buildings and improvements 29,001 28,897
Machinery and equipment 102,461 99,087
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135,294 131,816
Less: accumulated depreciation 87,983 84,397
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Property, plant and equipment, net 47,311 47,419
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Other assets 37,251 37,688
Net assets of discontinued operation 17,068 17,076
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$ 215,076 $ 210,790
======================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 16,129 $ 10,637
Accrued expenses and other liabilities 7,749 8,458
Current portion of obligations under capital leases 564 553
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Total current liabilities 24,442 19,648
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Obligations under capital leases 2,379 2,524
Other liabilities 4,528 4,773
Minority interest in subsidiary 11,464 11,468
Shareholders' equity:
Preferred stock, $.10 par value-
Authorized 1,000,000 shares, none outstanding - -
Common stock, $.10 par value-
Authorized 30,000,000 shares,
outstanding 15,967,000 and 15,926,000
shares, respectively 1,597 1,593
Additional paid-in capital 107,796 107,306
Retained earnings 60,444 59,999
Accumulated other comprehensive income 2,426 3,479
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Total shareholders' equity 172,263 172,377
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$ 215,076 $ 210,790
======================================================================================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1998 1997
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<S> <C> <C>
Revenues $ 37,595 $ 34,803
Cost of goods sold 26,211 27,789
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Gross profit 11,384 7,014
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Operating expenses:
Research and development 4,067 3,578
Selling, general and administrative 7,084 8,801
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11,151 12,379
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Income (loss) from operations 233 (5,365)
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Other income (expense):
Interest income 591 130
Interest expense (62) (89)
Other income (expense), net (36) 112
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493 153
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Income (loss) before minority interest and
provision for income taxes 726 (5,212)
Minority interest in net income (loss) of subsidiary (4) 5
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Income (loss) before provision for income taxes 730 (5,217)
Provision for (benefit from) income taxes 285 (1,878)
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Income (loss) from continuing operations 445 (3,339)
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Loss from discontinued operation (net of income tax
benefit of $2,723) - (4,841)
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Net income (loss) $ 445 $ (8,180)
======================================================================================
Basic and diluted net income (loss) per share:
Income (loss) from continuing operations $ 0.03 $ (0.22)
Loss from discontinued operation - (0.32)
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Basic and diluted net income (loss) per share: $ 0.03 $ (0.54)
======================================================================================
Weighted average common shares outstanding
Basic 15,946 15,056
Diluted 16,034 15,056
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 35,131 $ 33,174
Cash paid to suppliers and employees (31,953) (36,148)
Interest received 494 68
Interest paid (62) (75)
Income taxes paid (77) (79)
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Net cash provided by (used for) operating activities 3,533 (3,060)
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Cash flows from investing activities:
Capital expenditures (3,458) (2,066)
Sales of short-term investments 4,603 -
Other (19) -
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Net cash provided by (used for) investing activities 1,126 (2,066)
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Cash flows from financing activities:
Proceeds from issuance of common stock 242 14,769
Borrowings under line of credit agreements - 14,060
Repayments of borrowings under line of credit agreements - (16,490)
Repayments of obligations under capital leases (134) -
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Net cash provided by financing activities 108 12,339
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Effect of foreign exchange rate changes on cash and cash
equivalents (638) 216
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Net cash provided by (used for) discontinued operation 8 (7,102)
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Net increase in cash and cash equivalents 4,137 327
Cash and cash equivalents at beginning of period 47,155 8,382
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Cash and cash equivalents at end of period $ 51,292 $ 8,709
======================================================================================
Reconciliation of net income (loss) to net cash
provided by (used for) operating activities:
Net income (loss) $ 445 $ (3,339)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 3,828 3,180
Other adjustments, net 139 212
Changes in operating assets and liabilities:
Accounts receivable (2,558) (1,668)
Inventories (1,615) 3,092
Accounts payable and accrued expenses and
other liabilities 4,575 (2,137)
Other changes, net (1,281) (2,400)
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Net cash provided by (used for) operating activities $ 3,533 $ (3,060)
======================================================================================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited 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, 1998. 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, 1998.
Certain items shown have been reclassified to conform with the fiscal
1999 presentation.
2. Inventories
Inventories are valued at the lower of first-in, first-out cost or
market and consist of the following (in thousands):
May 31, 1998 Feb. 28, 1998
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Raw Materials $ 1,353 $ 1,269
Work in Process 13,186 11,879
Finished Goods 6,354 6,323
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$ 20,893 $ 19,471
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3. Net Income Per Share
Basic net income per share is based upon the weighted-average number of
common shares outstanding during the period. Diluted net income per
share is computed using the weighted-average common shares outstanding
during the period plus the dilutive effect of shares issuable through
stock options and warrants. The shares used in calculating basic and
diluted net income (loss) per share are reconciled as follows
(in thousands):
Three months ended May 31, 1998 1997
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Average shares outstanding for
basic net income (loss) per share 15,946 15,056
Dilutive effect of stock options 88 -
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Average shares outstanding for
diluted net income (loss) per share 16,034 15,056
================================================================
The Company reported a loss in the first quarter of fiscal 1998, and
accordingly, the effect of stock options and warrants was anti-dilutive
for this period and was therefore excluded from the calculation of
average common shares outstanding for diluted net income (loss) per
share.
<PAGE>
4. Comprehensive Income
Beginning with the first quarter of fiscal 1999, the Company adopted
Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Reporting Comprehensive Income." SFAS No. 130 separates comprehensive
income into two components: net income and other comprehensive income.
Other comprehensive income refers to revenues, expenses, gains and
losses that, under generally accepted accounting principles, are
recorded as elements of shareholders' equity and are excluded from net
income. The Company's other comprehensive income consists of foreign
currency translation adjustments from those subsidiaries not using the
U.S. dollar as their functional currency, and unrealized gains and
losses on a long-term equity investment. The components of the Company's
comprehensive loss for the three month periods ended May 31, 1998 and
1997 were as follows (in thousands):
Three months ended May 31, 1998 1997
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Net income (loss) $ 445 $ (8,180)
Other comprehensive income (loss):
Currency translation adjustment (981) 328
Unrealized gain (loss) on investment (72) 101
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Total comprehensive loss $ (608) $ (7,751)
==============================================================
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Standard Microsystems Corporation (the Company) is a worldwide supplier of
MOS/VLSI integrated circuits (ICs) for the personal computer industry and is
also a foundry supplier of MicroElectroMechanical Systems (MEMS) devices. The
Company designs and markets input/output (I/O) circuits for personal computers,
which perform many of the basic input/output functions required in every
personal computer, including floppy disk control, keyboard control and BIOS,
parallel port control and serial port control. The Company also supplies ICs
for local area network applications, connectivity applications and embedded
control systems. While most of the Company's IC products are manufactured by
world-class semiconductor foundries and assemblers, the Company's MEMS devices
are produced in the Company's own wafer foundry, which specializes in MEMS
manufacturing. The Company conducts its business in Japan through its
majority-owned subsidiary, Toyo Microsystems Corporation.
Revenues
The Company operates predominantly in one industry segment in which it designs,
develops and markets integrated circuits for the personal computer industry and
provides foundry services for MicroElectroMechanical Systems (MEMS) customers.
The following table presents the Company's consolidated revenues for the three
month periods ended May 31, 1998 and 1997 (in thousands):
Three months ended May 31, 1998 1997
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Standard Microsystems Corporation
Integrated circuit revenues $ 30,343 $ 28,978
Foundry revenues 2,593 1,619
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32,936 30,597
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Toyo Microsystems Corporation
Integrated circuit revenues 3,496 2,776
Other revenues 1,163 1,430
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4,659 4,206
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Total revenues $ 37,595 $ 34,803
==============================================================
Combined integrated circuit revenues $ 33,839 $ 31,754
==============================================================
The Company's revenues of $37.6 million for the first quarter of fiscal 1999
increased 8.0% from year-earlier revenues of $34.8 million. This increase in
revenue was primarily the result of higher revenues from I/O products, and
increased revenues from both foundry services and Toyo Microsystems. Unit
shipments of I/O devices increased by about 24%, but were partially offset by a
decline in average I/O selling prices. Overall, I/O devices contributed
approximately 89% of the combined integrated circuit revenues for the three
months ended May 31, 1998, and approximately 88% for the year-earlier period.
Gross Profit
The Company's gross profit margin for the first quarter of fiscal 1999 was
30.3%, compared to a gross profit margin of 20.2% reported in for the first
quarter of fiscal 1998. The gross profit margin for the first quarter of
fiscal 1998 had been significantly restrained by accelerated selling price
reductions on certain I/O products at that time. The gross profit margin
improvement in the first quarter of fiscal 1999 reflects stabilized market
conditions (as compared to the first quarter of fiscal 1998) which moderated
the rate of decline in average selling prices, as well as shipments of new,
higher-margined products. In addition, higher foundry revenues allowed for
better utilization of fixed manufacturing overhead.
Operating Expenses
Research and development expenses increased $0.5 million, or 13.9%, to $4.1
million in the first quarter of fiscal 1999, compared to $3.6 million for the
year-earlier period. This change reflects increases in engineering staff and
higher product development expenses.
Selling, general and administrative expenses declined $1.7 million, or 19.3%,
to $7.1 million in the first quarter of fiscal 1999, compared to $8.8 million
in the year-earlier period. This decrease reflects reductions in general
administrative expenses (including finance, information systems, human
resources, legal and other administrative support) resulting from the Company's
October 1997 divestiture of a majority interest in SMC Networks, Inc., its
former system products division.
The Company is continuing to provide information systems and facilities support
services for SMC Networks, Inc., at fair value. SMC Networks no longer utilizes
the Company for finance or human resources services.
Other Income and Expense
During the first quarter of fiscal 1999, the Company's other income (net)
increased to $0.5 million, from $0.2 million in the first quarter of fiscal
1998. This increase reflects higher interest income as a result of higher
average cash and short-term investment balances for the first three months of
fiscal 1999 compared to the year-earlier period.
Income Taxes
For the first quarter of fiscal 1999, income taxes have been provided at an
effective tax rate of 39.0%, compared to a tax benefit at an effective tax rate
of 36.0% for the first quarter of fiscal 1998. 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
Cash and cash equivalents were $51.3 million as of May 31, 1998, compared to
$47.2 million at February 28, 1998, an increase of $4.1 million. Short-term
investments were $4.0 million at May 31, 1998, compared to $8.6 million as of
February 28,1998, a reduction of $4.6 million. Working capital was $89.0 million
at both May 31, 1998 and February 28, 1998.
For the first three months of fiscal 1999, the Company's operating activities
provided $3.5 million of cash, investing activities provided $1.1 million, and
financing activities provided $0.1 million. Partially offsetting these sources
was a net foreign exchange translation loss of $0.6 million, primarily the
result of the recent devaluation of the Japanese yen.
The Company's inventories increased modestly from $19.5 million at February 28,
1998 to $20.9 million at May 31, 1998. Overall annual inventory turnover for
the first quarter was about 5.0 times, compared to about 5.3 for the fourth
quarter of fiscal 1998. Accounts receivable also increased from $22.3 million
to $24.6 million, partially reflecting higher revenues in the first quarter of
fiscal 1999 compared to the fourth quarter of fiscal 1998. Accounts payable
increased significantly, from $10.6 million at February 28, 1998 to $16.1
million at May 31, 1998, reflecting a larger amount of inventory purchased
during the last month of the quarter, as well as higher accounts payable for
capital expenditures.
Net assets of discontinued operations consists primarily of income tax refunds
associated with the Company's fiscal 1998 net operating loss, most of which was
allocable to the operations of the now discontinued system products division.
The Company's capital expenditures increased to $3.5 million during the first
three months of fiscal 1999, compared to $2.1 million for the year-earlier
quarter. Capital expenditures are expected to increase during the remainder of
fiscal 1999, with further expenditures planned for semiconductor test equipment
and manufacturing equipment.
The Company maintains a $25 million line of credit with several banks, which
expires in July 1998, and permits the Company to borrow funds on a revolving
basis, primarily to finance working capital needs. The Company intends to
renegotiate this credit line, or pursue other financing arrangements, prior to
such expiration. There have been no borrowings since October 1997 under this
credit agreement.
The Company believes that its cash, cash equivalents and short-term
investments, cash flows from operations and its borrowing capacity, will be
sufficient to finance the Company's operating and capital requirements for the
next twelve months.
Other Factors That May Affect Future Operating 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's operating results are subject to general economic conditions and
a variety of risks characteristic of the semiconductor and personal computer
industries, including cyclical market patterns, price erosion, product
development risks, technological change, business conditions and concentrations
in Asia, reliance upon foundries and subcontractors, and forecasts of product
demand, any of which could cause the Company's operating results to differ
materially from past results. For a discussion of such risks, see
"Management's Discussion and Analysis" in Item 7 of the Company's Annual Report
on Form 10-K filed for the fiscal year ending February 28, 1998.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
The persons named on the form of proxy to be mailed in connection with the
solicitation of proxies on behalf of the registrant's board of directors for
the registrant's annual stockholders meeting will vote in their own discretion
on any matter as to which the registrant shall not have received notice by
April 17, 1999.
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 10, 1998 /S/ Eric M. Nowling
---------------------------------
(Signature)
Eric M. Nowling
Vice President - Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> MAY-31-1998
<CASH> 51,292
<SECURITIES> 4,000
<RECEIVABLES> 24,598
<ALLOWANCES> 1,021
<INVENTORY> 20,893
<CURRENT-ASSETS> 113,446
<PP&E> 135,294
<DEPRECIATION> 87,983
<TOTAL-ASSETS> 215,076
<CURRENT-LIABILITIES> 24,442
<BONDS> 0
0
0
<COMMON> 1,597
<OTHER-SE> 170,666
<TOTAL-LIABILITY-AND-EQUITY> 215,076
<SALES> 37,595
<TOTAL-REVENUES> 37,595
<CGS> 26,211
<TOTAL-COSTS> 26,211
<OTHER-EXPENSES> 11,151
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> 730
<INCOME-TAX> 285
<INCOME-CONTINUING> 445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 445
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
