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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended February 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7422
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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)
(631) 435-6000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each Exchange on
None which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Preferred Stock Purchase Rights
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(Title of Class)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
As of May 24, 2000, 15,838,967 shares of the registrant's common stock
were outstanding and the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $184,493,000.
Documents Incorporated By Reference
The documents incorporated by reference into this Form 10-K and the Parts
hereof into which such documents are incorporated are listed below:
Document Part
Those portions of the registrant's 2000 annual report to shareholders
(the Annual Report") which are specifically identified herein as
incorporated by reference into this Form 10-K. II
Those portions of the registrant's proxy statement for the registrant's
2000 Annual Meeting (the "Proxy Statement") which are specifically
identified herein as incorporated by reference into this Form 10-K. III
<PAGE>
Standard Microsystems Corporation
Form 10-K
For the Fiscal Year Ended February 29, 2000
TABLE OF CONTENTS
PART I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
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Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
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Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
<PAGE>
Items 1, 3, 7 and 7A of this Form 10-K contain forward-looking statements
concerning various aspects of the Company's business, including its strategy,
product development efforts, and litigation. These statements involve numerous
risks and uncertainties including those discussed throughout this document.
For a further explanation and details of some of these risks please refer to
"Other Factors That May Affect Future Operating Results" under Item 1.
PART I
ITEM 1. BUSINESS.
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GENERAL DESCRIPTION OF THE BUSINESS
Standard Microsystems Corporation (the Company, the Registrant, or SMSC) is a
Delaware corporation, organized in 1971. As used herein, the terms Company,
Registrant and SMSC include the Company's subsidiaries except where the context
otherwise requires.
SMSC is a worldwide supplier of leading-edge MOS/VLSI integrated circuits for
the personal computer industry and the broader embedded systems marketplace,
specializing in areas requiring technologically demanding logic control and
connectivity. The company's products provide solutions in Personal Computer
Input/Output (PC I/O), Systems Logic, Connectivity, Local Area Networking and
Embedded Control Systems. The Company sells its products to a worldwide
customer base, which includes most of the world's leading personal computer
manufacturers. The Company's I/O circuits reside on the motherboards of
personal computer products made by Compaq, Dell, Fujitsu, Gateway,
Hewlett-Packard, IBM, Intel, NEC, Sony, Toshiba and most other leading
manufacturers.
SMSC is headquartered in Hauppauge, New York, and has operations in North
America, Taiwan, Europe and Japan. The Company operates five major engineering
and marketing facilities, located in California, Massachusetts, New York, Texas
and Japan. These offices are staffed with highly skilled IC design and product
engineers, and semiconductor marketing and sales specialists.
PRINCIPAL PRODUCTS OF THE COMPANY
The Company products can be grouped into several families - Personal Computer
Input/Output Controllers, Systems Logic Chipsets, Connectivity Products, Local
Area Networking Products, and Embedded Systems Products.
In recent years, the majority of the Company's revenues have been derived from
supplying I/O circuits to the PC marketplace. The Company's PC I/O integrated
circuits accounted for approximately 80% of total revenues in both fiscal 2000
and fiscal 1999. No other product family accounted for more than 10% of the
Company's consolidated revenues during the last two fiscal years. In fiscal
2001, the Company is introducing a line of System Controller Hubs based upon
its I/O technology and is pursuing broader product offerings, particularly for
USB connectivity. The Company is also now in the process of developing a line
of Systems Logic Chipsets.
INPUT/OUTPUT (I/O) CONTROLLERS
------------------------------
Input/Output (I/O) technology is required in every PC, and other related
applications, to perform various input/output functions. Basic I/O functions
historically included floppy disk control, keyboard control and BIOS, and
parallel and serial port control. As PC designs expanded, the role of the I/O
controller increased to include other functions like infrared support, system
management and power management. However, less emphasis is now being placed on
legacy peripheral interfaces and I/O devices such as those traditionally
offered by SMSC and its competitors. Disparate interfaces and their wide
variations in connections, signaling and protocols are being replaced by more
generalized interfaces such as Universal Serial Bus (USB). This evolution is
providing SMSC with an opportunity to redefine its legacy I/O peripheral
controller device as a System Controller Hub (SCH), creating new opportunities
to supply products complementary to those defined by new PC chipset
architectures. SCH products will provide functional value, including keyboard
controllers, system management microcontrollers and hardware monitoring
features, as well as USB hub services and Flash memory.
SMSC has developed several families of full-featured I/O controllers, including
Super I/O, Enhanced I/O, Notebook I/O and Ultra I/O devices. Super I/O
devices, as well as devices in the other families, supply all basic I/O
functions - serial port(s), parallel port control, and floppy disk control
(FDC), all in a single integrated circuit. Enhanced I/O products offer
increased functionality in smaller packages. Notebook I/O devices are
tailored to meet the needs of mobile PC applications. Ultra I/O devices,
typically offered in larger packages, accommodate more functionality like
keyboard control, real time clock (RTC), and Plug-and-Play technology.
<PAGE>
The particular features of I/O parts are dictated by the PC designer's
requirements and vary based on target markets as well as the need to maintain
compatibility with other components of the PC design. These features may
include unique configurations of general-purpose input/output pins, infrared
support, game port, real time clock, hardware monitoring, and power management.
The attributes of a specific part are intended to make it more specifically
suitable for targeted applications like commercial or consumer PCs, PC servers,
and PC motherboards for the merchant motherboard or embedded markets. The
Company's I/O products are designed to allow a circuit board to accommodate any
one of the devices within any specific product group. This allows customers to
easily upgrade to higher-performance products as their end market changes,
retaining investments in board design, firmware development, and overall
testing and reliability procedures. Devices in this category are featured
specifically for use in targeted application areas such as commercial PCs,
consumer PCs, as well as merchant market motherboards.
SYSTEMS LOGIC CHIPSETS
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The Company has been aggressively working on developing a line of Systems Logic
Chipsets, which it anticipates will begin shipping in production volumes during
the latter part of fiscal 2001.
Chipsets are advanced integrated circuits used within a personal computer or
similar application to control the flow of information between the
microprocessor, memory modules, graphics controllers and peripheral devices.
A chipset is typically comprised of two primary devices - a memory controller
(sometimes referred to as the North Bridge) and an I/O controller (sometimes
referred to as the South Bridge). The North Bridge, which connects directly to
a CPU, provides control of the memory, often integrates a graphics controller
or graphics controller interface, and bridges the CPU to the I/O controller,
or South Bridge. The South Bridge creates any required internal I/O bus such
as the Industry Standard Architecture (ISA) bus or Low Pin Count (LPC) bus,
the Integrated Drive Electronics (IDE) bus, and the USB bus, as well as other
functions, like power management, timers and interrupt controllers.
The Company believes that its existing I/O technology portfolio, its strong
relationships with major PC suppliers, and its significant intellectual
property rights provide a solid foundation for its chipset development
initiatives. As part of this strategy, in September 1999, the Company signed a
technology exchange agreement with Intel Corporation (Intel), the world's
leading supplier of chipsets, intended to accelerate the Company's development
of value-added chipset solutions that support Intel microprocessors in personal
computer and embedded applications. As part of this agreement, the Company
gains access to Intel's complete line of current and future memory controllers
and Firmware Hub devices. The Company's chipset products will include complete
solutions comprised of Intel's leading performance memory controllers and
SMSC's own value-added I/O controllers, and in some applications, Super I/O
devices and Intel Firmware Hub devices.
The Company's SLC90E66 South Bridge device is designed for use with Pentium II
and Pentium III-class processors. It is a multi-featured device, providing a
PCI to ISA bridge, Ultra ATA/66 PCI-IDE functions, an Open Host Controller
Interface (OHCI) USB host controller function, a real time clock, and enhanced
power management capabilities in compliance with the Advanced Configuration and
Power Interface (ACPI) specification. It is also pin-to-pin and register
compatible with the Intel PIIX4 and PIIX4E South Bridge Devices.
The Victory BX-66 Chipset consists of SMSC's SLC90E66 South Bridge, as
described above, and Intel's FW82443BX (440BX) North Bridge. The 440BX North
Bridge supports Symmetric Multiprocessing and 2x Advanced Graphics Port (AGP),
has a 100 MHz front-side bus, and offers up to 1 gigabyte of memory.
CONNECTIVITY PRODUCTS
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Connectivity products rely on communications standards utilizing Universal
Serial Bus (USB) to provide enhanced communications features for PC and PC
peripheral device applications. These standards allow a PC's capabilities to
be expanded via an external port, eliminating the need for users or
integrators to open the system chassis.
The Company's first connectivity product, the USB97C100, introduced in fiscal
1999, expanded the functionality of USB through the use of
microcontroller-based technology. Follow-on products have enhanced the
functionality of the USB97C100 to include such features as a USB hub function
and a USB Ethernet function utilizing technology originally developed and
delivered in the Company's 10BASE-T LAN products.
LOCAL AREA NETWORKING (LAN) PRODUCTS
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Local Area Networking devices enable personal computers and peripheral devices
to be connected to networks and permit communications among LAN users.
Connection to a LAN permits a user to send messages to and receive messages
from other LAN users and share common resources such as printers, disk drives,
files and programs. The Company's LAN products can provide customers with
complete Ethernet connections, from the isolation magnetics to the host bus.
SMSC offers a variety of highly-integrated single-chip Ethernet devices which
provide an architectural basis for a large variety of follow-on products.
Complete sets of software drivers for Microsoft and other important network
operating systems are available for all SMSC Ethernet controllers.
<PAGE>
The LAN9000 family of devices provide 10 Megabits per second (Mbps) Ethernet
communication and offer such features as PCMCIA compatibility, Magic Packet and
Full Duplex capabilities, and support for multifunction (LAN and Modem)
applications for portable networking solutions. (PCMCIA, short for Personal
Computer Memory Card International Association, is the organization which has
established the standards for small, credit card-sized devices typically used
in portable computers.)
The Company's FEAST(TM) family includes 10/100 Mbps Fast Ethernet devices for
non-PCI bus architectures. These devices support 10BASE-T and coaxial 10 Mbps
Ethernet networks as well as the 100 Mbps 100BASE-TX and 100BASE-T4 protocols,
and use the Media Independent Interface (MII), taking advantage of Fast
Ethernet's improved speed and performance.
SMSC also provides 10/100 Mbps physical layer solutions on a single chip. The
LAN83C180 device integrates a 10/100 Ethernet Transceiver with a full MII
Interface. The LAN83C183 device is a 10/100 Fast Ethernet transceiver
operating at 3.3 volts. These circuits include features like Auto Negotiate,
Half and Full Duplex, transceiver filters, and low power mode, and are
specifically matched to SMSC Ethernet controllers.
EMBEDDED NETWORKING DEVICES
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The Company offers a complete line of ARCNET-based Embedded Networking Devices
that provide solutions in industrial and embedded machine-to-machine
communication applications. They are used in such diverse applications as
passenger elevator systems, locomotives, ATM machines, HVAC control systems,
factory automation, point-of-sale systems and a wide variety of other
applications where reliability of communications between machines is of
paramount importance. While Ethernet has become the dominant LAN protocol
in office networking, the ARCNET protocol offers many characteristics which
make it ideal for industrial and embedded networking environments, including
its high reliability and fault tolerance, and its adaptability to a wide
variety of cabling media and configurations.
COMPETITION
The principal methods SMSC uses to compete include the introduction of
innovative new products, added features, price, performance, servicing
customers, availability of product and reducing manufacturing costs.
SERVICE AND SUPPORT
The Company strives to make the design-in of its products as easy as possible
for its customers. To facilitate this, SMSC offers a wide variety of support
tools, including evaluation boards, sample BIOS, diagnostics programs, sample
schematics and PCB layout files, driver programs, data sheets, industry
standard specifications and other documentation. These tools are readily
available from the Company's sales offices and sales representatives. SMSC's
home page on the world wide web (http://www.smsc.com) provides customers with
immediate access to its latest product information. In addition, SMSC
maintains an electronic bulletin board so that registered customers can
download software updates as needed.
In addition to these tools, SMSC serves its customers with a worldwide network
of Field Application Engineers. These engineers provide the latest information
on SMSC's products and are available to answer customer questions and resolve
technical issues. The Field Application Engineers are backed up by Factory
Application Engineers, who work with both the customer's and SMSC's factory
design and product engineers to develop the requisite support tools, as well as
facilitate the smooth introduction of new products.
RESEARCH AND DEVELOPMENT
The Company believes that the continued investment in research and development
(R&D) is critical to maintaining and improving its competitive position. The
industry in which it competes is noted for rapid technological and product
changes and its intense price competition.
SMSC's research and development activities are primarily directed towards the
design of new integrated circuits, the development of new software design tools
and blocks of logic, as well as ongoing cost reductions and performance
improvements in existing products.
During the fiscal year ended February 29, 2000, the Company spent $24.4 million
on R&D activities. This compares with $17.4 million and $14.3 million during
fiscal 1999 and fiscal 1998, respectively. The increases in both periods
reflect increased engineering staff, increases in R&D testing and validation
spending and equipment as well as other development costs. The Company's R&D
efforts in fiscal 2000 included significant investments in chipset development
programs.
<PAGE>
MANUFACTURING
The Company does not directly manufacture its silicon wafers. SMSC's wafers
are produced using various semiconductor foundry wafer fabrication service
providers. This strategy allows the Company to focus its resources on product
design and development, marketing and quality assurance. It also reduces fixed
costs and capital requirements, and allows the Company access to advanced
manufacturing capabilities. The Company's primary wafer suppliers are
Chartered Semiconductor Manufacturing, Ltd. in Singapore, Taiwan Semiconductor
Manufacturing Company, Ltd. (TSMC) in Taiwan, and Lucent Technologies, Inc. in
Madrid, Spain. The Company may negotiate additional foundry contracts and
establish other sources of wafer supply for its products as such arrangements
become economically useful or technically necessary.
Processed silicon wafers are shipped to various assembly suppliers, most of
which are located in the Pacific Rim region, where good die are separated into
individual chips that are then encapsulated into plastic packages. As is the
case with the Company's wafer supply requirements, the Company employs a number
of independent suppliers for assembly purposes. This enables the Company to
take advantage of the subcontractor's high volume manufacturing, related cost
savings, speed and supply flexibility. It also provides the Company with
timely access to cost-effective advanced process and package technologies.
The Company purchases most of its assembly services from Advanced Semiconductor
Engineering, ST Assembly Test Services, Ltd., Siliconware Precision Industries
Co., Ltd., and Amkor Technology, Inc.
Following assembly, each of the packaged units receives final testing, marking
and inspection prior to shipment to customers. A significant portion of SMSC's
final testing requirements are performed at the Company's own state-of-the-art
testing operation in Hauppauge, New York. Final testing services of
independent test suppliers are also utilized as necessary, most of which
occurs in the Pacific Rim region.
INTELLECTUAL PROPERTY
The Company believes that intellectual property is a valuable asset that has
been, and will continue to be, important to the Company's success. The Company
has received numerous United States patents relating to its technologies and
additional patent applications are pending. It is the Company's policy to
protect these assets through reasonable means. To protect these assets, the
Company relies upon nondisclosure agreements, contractual provisions, and
patent and copyright laws.
The Company has patent cross-licensing agreements with more than thirty
companies, including such semiconductor manufacturers as IBM, Intel, NEC and
Texas Instruments. Almost all of these cross-licensing agreements give SMSC
the right to use, royalty-free, the patented intellectual property of the other
companies. In situations where SMSC needs to acquire strategic intellectual
property not covered by cross-licenses, the Company enters into purchase
agreements with the companies that own the required intellectual property.
SALES AND DISTRIBUTION
The Company maintains a worldwide selling organization that includes a direct
sales force, independent manufacturers' representatives, and electronic
component distributors (distributors).
During fiscal 2000, the Company reorganized its sales and marketing resources
to support two separate product families, Embedded Products and Personal
Computer (PC) Products, to better focus on the growth opportunities in each
business.
The markets for Embedded Products are characterized by smaller orders, longer
design cycles, higher margins and longer product life cycles, and are sold to a
wide customer base, primarily through distributors. Approximately 20% of the
Company's fiscal 2000 revenues were provided by sales of Embedded Products.
PC Products are marketed primarily to companies who design and manufacture PC
motherboards and PC systems. Most of these companies are large PC suppliers,
including Compaq, Dell, Gateway, Hewlett-Packard, IBM and Intel, or their
subcontractors. PC Products are also sold through distributors, providing
access to a broad base of smaller PC motherboard suppliers. PC Products are
characterized by rapidly changing technologies, short product design cycles,
intense price competition and short product life cycles.
The Company sells its products into the Japanese marketplace through its
majority-owned subsidiary, Toyo Microsystems Corporation.
In accordance with industry practices, distributors have certain rights of
return and price protection privileges on unsold product until the distributor
sells the product. Distributor contracts may be terminated by written notice
by either party. The contracts specify the terms for the return of
inventories. Returns of product pursuant to termination of these agreements
have not been material.
<PAGE>
The Company generates a significant portion of its revenues from international
sales. While demand for the Company's products is primarily driven by the
worldwide demand for personal computers, peripheral devices, and embedded
applications, Asia and the Pacific Rim is currently the most significant
international market for the Company's products, primarily reflecting the high
concentration of the world's personal computer and personal computer
motherboard manufacturing activity in this region.
The table below summarizes sales by geographic region for fiscal 2000 (dollars
in thousands):
For the year ended February 29, 2000 Amount Percent
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Asia and Pacific Rim ....................... $ 99,013 64.6 %
North America .............................. 33,371 21.8 %
Europe ..................................... 20,383 13.3 %
Rest of World .............................. 480 0.3 %
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$153,247 100.0 %
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BACKLOG AND CUSTOMERS
The Company's business, and to a large extent much of the semiconductor
industry, is characterized by short-term order and shipment schedules, rather
than volume purchase contracts. The Company schedules production based upon a
forecast of demand for its products. Sales are made primarily pursuant to
purchase orders generally requiring delivery within one month, and at times,
several months. Typical of industry practice, the Company's backlog may be
canceled or rescheduled by the customer on short notice without significant
penalty. As a result, the Company's backlog may not be indicative of actual
sales and therefore should not be used as a measure of future revenue.
During fiscal 2000 one customer accounted for 14.5% of the Company's revenue
and in fiscal 1999 one customer accounted for 11.8% of the Company's revenues.
In fiscal 1998, no customer accounted for more then 10% of the Company's
revenues.
EMPLOYEES
At February 29, 2000, the Company employed 419 individuals, including 82 in
sales, marketing and customer support, 123 in manufacturing and manufacturing
support, 129 in research and product development and 85 in administrative
activities.
The Company's future success depends in large part on the continued service of
key technical and management personnel and on its ability to continue to
attract and retain qualified employees, particularly those highly skilled
design, product and test engineers involved in manufacturing existing products
and the development of new products. The competition for such personnel is
intense.
The Company has never had a work stoppage. No employees are represented by a
labor organization and the Company considers its employee relations to be good.
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Before deciding to invest in the Company, or to maintain or increase your
investment, you should carefully consider the risks described below, in
addition to the other information contained in this report and in the Company's
other reports filed with the SEC, including our reports on Forms 10-Q and 8-K.
The risks and uncertainties described below are not the only ones facing the
Company. Additional risks and uncertainties not presently known or that are
currently deemed immaterial may also affect the Company's operations. If any
of these risks actually occur, our financial condition or results of operations
may be adversely affected.
The Semiconductor Industry - The Company competes in the semiconductor
industry, which has historically been characterized by intense competition,
rapid technological change, cyclical market patterns, price erosion and periods
of mismatched supply and demand. The semiconductor industry has experienced
significant economic downturns at various times in the past, characterized by
diminished product demand and accelerated erosion of selling prices. In
addition, many of the Company's competitors in the semiconductor industry are
larger and have significantly greater financial and other resources than the
Company.
The Personal Computer Industry - Sales of many of the Company's products
depend largely on sales of personal computers and peripheral devices.
Reductions in the rate of growth of the PC market could adversely affect the
Company's operating results. In addition, as a component supplier to PC
manufacturers, the Company often experiences greater demand fluctuation than
its customers themselves experience. Also, some of the Company's products are
used in PCs for the consumer market, which, in recent years, has tended to be
more volatile than other segments of the PC marketplace.
<PAGE>
Product Development and Technological Change - The Company's prospects are
highly dependent upon the successful development and timely introduction of new
products at competitive prices and performance levels, with acceptable margins.
The success of new products depends on various factors, including timely
completion of product development programs, market acceptance of the Company's
and its customers' new products, securing sufficient foundry capacity for
volume manufacturing of wafers, achieving acceptable wafer fabrication yields
by the Company's independent foundries and the Company's ability to offer new
products at competitive prices. In order to succeed in having the Company's
products incorporated into new products being designed by its customers, the
Company must anticipate market trends and meet performance, quality and
functionality requirements of such customers and must successfully develop and
manufacture products that adhere to these requirements. In addition, the
Company must meet the timing and price requirements of its customers and must
make such products available in sufficient quantities. There can be no
assurance that the Company will be able to identify market trends or new
product opportunities, develop and market new products, achieve design wins or
respond effectively to new technological changes or product announcements by
others.
The Company's future growth will depend, among other things, upon its ability
to continue to expand its product line. The Company's future product plans
include introducing a line of chipsets, offering products for applications that
are presently served by other suppliers. Some of these suppliers have
well-established market positions and products that have already been proven to
be technologically and economically competitive. There can be no assurance
that the Company will be successful in displacing these suppliers in the
targeted applications. Moreover, functionality currently performed by the
Company's standalone input/output integrated circuits is increasingly being
integrated into chipsets. This may displace many of the Company's existing
products in the applications that they presently serve.
Price Erosion - The semiconductor industry is characterized by intense
competition. Historically, average selling prices in the semiconductor
industry generally, and for the Company's products in particular, have declined
significantly over the life of each product. While the Company expects to
reduce the average selling prices of its products over time as it achieves
manufacturing cost reductions, competitive pressures may require the reduction
of selling prices more quickly than such cost reductions can be achieved. If
not offset by reductions in manufacturing costs or by a shift in the mix of
products sold toward higher-margin products, declines in the average selling
prices could reduce gross margins.
Reliance Upon Subcontract Manufacturing - The vast majority of the Company's
products are manufactured and assembled 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, the availability of advanced process
technologies, changes in manufacturing yields and potential cost fluctuations.
Forecasts of Product Demand - The Company generally must order inventory to
be built by its foundries and subcontract manufacturers well in advance of
product shipments. Production is often based upon either internal or
customer-supplied forecasts of demand, which can be highly unpredictable and
subject to substantial fluctuations. Because of the volatility in the
Company's markets, there is risk that the Company may forecast incorrectly and
produce excess or insufficient inventories. This inventory risk is increased
by the trend for customers to place orders with shorter lead times.
Strategic Relationships with Customers - The Company's future success depends
in significant part on strategic relationships with certain of its customers.
If these relationships are not maintained, or if these customers develop their
own solutions or adopt a competitor's solutions, the Company's operating
results could be adversely affected.
In the past, the Company has relied on its strategic relationships with certain
customers who are technology leaders in its target markets. The Company
intends to pursue and continue to form these strategic relationships in the
future. These relationships often require the Company to develop new products
that typically involve significant technological challenges. The customers
frequently place considerable pressure on the Company to meet their tight
development schedules. Accordingly, the Company may have to devote a
substantial portion of its resources to these strategic relationships, which
could detract from or delay completion of other important development projects.
Shipments to Distributors - A significant portion of the Company's fiscal
2000 revenues were made through distributors, the largest of which are located
in the Far East. The Company's distributors generally offer products of
several different suppliers, including products that may be competitive with
the Company's products. Accordingly, there is risk that these distributors may
give higher priority to products of other suppliers, thus reducing their
efforts to sell the Company's products. In addition, the Company's agreements
with its distributors are generally terminable at the distributor's option. No
assurance can be given that future sales by distributors will continue at
current levels or that the Company will be able to retain its current
distributors on acceptable terms. A reduction in sales efforts by one or more
of the Company's current distributors or a termination of any distributor's
relationship with the Company could have an adverse effect on the Company's
operating results.
<PAGE>
Business Concentration in Asia - 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 the supply and cost of the Company's products,
including currency exchange rate fluctuations, economic and trade policies and
the political environment within Asian communities. The Pacific Rim region is
also subject to the risk of earthquakes, and in September 1999, a major
earthquake caused widespread damage and business interruptions in Taiwan. A
significant portion of the world's personal computer component and circuit
board manufacturing, as well as personal computer assembly, occurs in Taiwan,
and many of the Company's suppliers and customers are based in, or do
significant business in, Taiwan. While the September 1999 earthquake did not
materially adversely affect the Company's business, future earthquakes or other
natural disasters in this region could adversely effect the Company's operating
results.
Protection of Intellectual Property - The Company has historically devoted
significant resources to research and development activities and believes that
the intellectual property derived from such research and development is a
valuable asset that has been, and will continue to be, important to the
Company's success. The Company relies upon nondisclosure agreements,
contractual provisions and patent and copyright laws to protect its proprietary
rights. No assurance can be given that the steps taken by the Company will
adequately protect its proprietary rights. During its history, the Company has
executed patent cross-licensing agreements with many of the world's largest
semiconductor suppliers, under which the Company receives and conveys various
intellectual property rights. Many of these agreements are still effective.
The Company could be adversely effected should circumstances arise which cause
certain of these agreements to terminate prematurely.
Customer Concentration - 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 of the
Company's products and the overall financial condition of the customer.
Dependence on Key Personnel - The success of the Company is dependent in
large part on the continued service of its key management, engineering,
marketing, sales and support employees. Competition for qualified personnel
is intense in the semiconductor industry, and the loss of current key
employees, or the inability of the Company to attract other qualified
personnel, could hinder the Company's product development and ability to
manufacture, market and sell its products.
Investments in Other Companies - The Company maintains several equity
investments in both publicly and privately held companies which operate in the
semiconductor or personal computer industries, resulting from strategic
business relationships or other investment opportunities which were deemed
beneficial to the Company. These companies are subject to many of the same
risks and uncertainties faced by the Company. Investments in publicly held
companies are reported at market value on the accompanying Consolidated Balance
Sheets and are subject to normal open market valuation risk. Investments in
privately held companies are reported at cost, and are reviewed regularly for
events and circumstances that may affect their current and future value.
Volatility of Stock Price - The market price of the Company's common stock
can fluctuate significantly on the basis of such factors as the Company's or
its competitors' announcements of new products, quarterly fluctuations in the
Company's financial results or in the financial results of other semiconductor
companies, changes in the expectations of market analysts or investors, or
general conditions in the semiconductor industry or in the financial markets.
In addition, stock markets in general have recently experienced extreme price
and volume volatility. This volatility has often had a significant impact on
the stock prices of high technology companies, at times for reasons that appear
unrelated.
Environmental Regulation - Environmental regulations and standards are
established worldwide to control, discharges, emissions, and solid wastes from
manufacturing processes. Within the United States, federal, state and local
agencies establish these regulations. Outside of the United States individual
countries and local governments establish their own individual standards. The
Company believes that its activities conform to present environmental
regulations and the effects of this compliance has not had a material effect on
the Company's capital expenditures, operating results, or competitive position.
While to date the Company has not experienced any material adverse impact from
environmental issues, no assurances can be given as to the impact of future
environmental compliance requirements. Should environmental regulations be
amended or an unforeseen circumstance occur, it could subject the Company to
fines, require the Company to acquire expensive remediation equipment or to
incur other expenses to comply with environmental regulations.
-------------------------------------------------------------------------------
SMSC is a trademark and Standard Microsystems is a registered trademark of
Standard Microsystems Corporation. Product names and company names are the
trademarks of their respective holders.
<PAGE>
ITEM 2. PROPERTIES.
------- -----------
The Company owns five facilities, totaling approximately 249,000 square feet of
plant and office space, located on approximately 28 acres in Hauppauge, New
York, where research, development, product testing, warehousing, shipping,
marketing, selling and administrative functions are conducted.
In addition, the Company maintains offices in leased facilities in San Jose,
California; Westborough, Massachusetts; Austin, Texas; Munich, Germany; Tokyo,
Japan and Taipei, Taiwan.
As of February 29, 2000, the Company owned machinery and equipment, property
and leasehold improvements with an original cost of $103.7 million and
accumulated depreciation and amortization of $69.6 million.
The Company leases two of its buildings and related improvements to outside
parties under noncancelable operating leases, including one such lease executed
in March 2000. The leases are scheduled to expire in May 2004 and May 2010,
respectively.
ITEM 3. LEGAL PROCEEDINGS.
------- ------------------
The Company is subject to various lawsuits and claims in the ordinary course of
business. While the outcome of these matters cannot be determined, management
believes that the ultimate resolution of these matters will not have a material
effect on the Company's operations or financial position.
In fiscal 1998, the Company sold an 80.1% interest in SMC Networks, Inc., a
then-newly formed subsidiary comprised of its former local area networking
division, to an affiliate of Taiwan-based Accton Technology Corporation
(Accton) for approximately $40.2 million cash, $2.0 million of which was placed
into an escrow account.
In December 1998, Accton notified the Company and the escrow agent of Accton's
intention to seek indemnification and damages from the Company in excess of $10
million by reason of alleged misrepresentations and inadequate disclosures
relating to the transaction and other alleged breaches of covenants and
representations in the related agreements. Based upon those allegations, the
escrow account was not released to the Company as scheduled in January 1999.
In January 1999, the Company filed an action in the Supreme Court of New York
(the Action) against Accton, SMC Networks, Inc. and other parties, seeking the
release of the escrow account to the Company on the grounds that Accton's
allegations are without merit, and seeking payment of approximately $1.6
million owed to the Company by SMC Networks, Inc. In November 1999, the Court
issued an order staying the Action and directed the parties to arbitration
under the arbitration provisions of the original transaction agreements. The
Company has filed an appeal from the order. Moreover, because many of the
claims made by Accton against the Company are non-arbitrable, the Company has
filed a motion requesting that the Court stay arbitration of those claims.
The Company is confident that it negotiated and fully performed its obligations
under the Agreements with Accton in good faith. While it is not possible at
this time to assess the likelihood of any liability being established, the
Company considers these claims to be without merit. The Company will
vigorously defend itself against these allegations and expects that the
outcome will not be material to the Company.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
------- ----------------------------------------------------
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following were the executive officers of Standard Microsystems Corporation
as of April 30, 2000, their ages as of April 30, 2000, their current titles and
positions held during at least the last five years:
Steven J. Bilodeau (age 41) was appointed as the Company's President and Chief
Executive Officer in March 1999, and also assumed responsibility as Chairman of
the Board in February 2000. Prior to joining SMSC in 1999, Mr. Bilodeau held
various senior management positions during his 13 years of service with Robotic
Vision Systems Inc. (RVSI), most recently as President of RVSI's Semiconductor
Equipment Group from 1996 through 1998, and as a member of RVSI's board of
directors from 1997 through 1998.
George W. Houseweart (age 58) has served as the Company's Senior Vice President
and General Counsel since January 1999. Previously, he served as Senior Vice
President - Law and Intellectual Property from 1997 to 1999 and as Vice
President - Law and Intellectual Property from 1994 to 1997. Mr. Houseweart
has been an officer of the Company since 1988.
Andrew M. Caggia (age 51) was appointed as the Company's Senior Vice President
and Chief Financial Officer in February 2000. He previously served as Senior
Vice President and Chief Financial Officer of General Semiconductor, Inc., from
July 1997 through February 2000. Prior to that he served as Senior Vice
President of Finance at General Instrument Corporation's Power Semiconductor
Division since September 1990.
Eric M. Nowling (age 43) has served as the Company's Vice President, Controller
and Chief Accounting Officer since February 2000. Prior to that, he served as
the Company's Vice President - Finance and Chief Financial Officer from
September 1997 through February 2000; as Vice President and Controller (and
acting Chief Financial Officer) from February 1997 to September 1997; and as
Vice President and Controller from 1995 to 1997. Mr. Nowling has been an
officer of the Company since 1995.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
------- --------------------------------------------------------------
The information captioned "Market Price" and the last two paragraphs appearing
in the Company's 2000 Annual Report to Shareholders (the "2000 Annual Report")
under the heading "Quarterly Financial Data" are incorporated herein by this
reference. Except as specifically set forth herein and elsewhere in this Form
10-K, no information appearing in the 2000 Annual Report is incorporated by
reference into this report nor is the 2000 Annual Report deemed to be filed, as
part of this report or otherwise, pursuant to the Securities Exchange Act of
1934.
ITEM 6. SELECTED FINANCIAL DATA.
------- ------------------------
The information appearing in the 2000 Annual Report under the caption "Selected
Financial Data" is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
------- ------------------------------------------------------------
The information appearing in the 2000 Annual Report under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
-------- -----------------------------------------------------------
The information appearing in the 2000 Annual Report under the caption
"Financial Market Risks" is incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
------- --------------------------------------------
The financial statements, notes thereto, Report of Independent Public
Accountants thereon and quarterly financial data appearing in the 2000 Annual
Report are incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
------- ------------------------------------------------------------
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
-------- ----------------------------------------------------
The information appearing in the Company's Proxy Statement related to the 2000
Annual Meeting of Stockholders (the "2000 Proxy Statement") under the caption
"Election of Directors" is incorporated herein by this reference, and reference
is made to the information appearing under the heading "Executive Officers of
the Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
-------- -----------------------
The information appearing in the 2000 Proxy Statement under the caption
"Executive Compensation" is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
-------- ---------------------------------------------------------------
The information appearing in the 2000 Proxy Statement under the captions
"Election of Directors" and "Voting Securities of Certain Beneficial Owners and
Management" is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-------- -----------------------------------------------
The information appearing in the 2000 Proxy Statement under the caption
"Certain Relationships and Related Transactions" is incorporated herein by this
reference.
<PAGE>
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
-------- -----------------------------------------------------------------
(a) 1. Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries have been incorporated by reference from the 2000 Annual Report
pursuant to Part II, Item 8:
Consolidated Statements of Operations for the three years ended
February 29, 2000
Consolidated Balance Sheets as of February 29, 2000 and February 28, 1999
Consolidated Statements of Shareholders' Equity for the three years ended
February 29, 2000
Consolidated Statements of Cash Flows for the three years ended
February 29, 2000
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
Schedules are omitted because of the absence of conditions requiring them or
because the required information is shown on the consolidated financial
statements or the notes thereto.
3. Exhibits
Exhibits, which are listed on the Exhibit Index, are filed as part of this
report and such Exhibit Index is incorporated by reference. Exhibits 10.1
through 10.19 listed on the accompanying Exhibit Index identify management
contracts or compensatory plans or arrangements required to be filed as
exhibits to this report, and such listing is incorporated herein by reference.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the last quarter of the period covered
by this report.
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of Section 13 or 15 (d) 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)
By /s/ ANDREW M. CAGGIA
--------------------
Andrew M. Caggia
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
Signature and Title Date
------------------- ----
/s/ STEVEN J. BILODEAU May 26, 2000
----------------------
Steven J. Bilodeau,
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ ERIC M. NOWLING May 26, 2000
-------------------
Eric M. Nowling,
Vice President - Controller and
Chief Accounting Officer
(Principal Accounting Officer)
/s/ ROBERT M. BRILL May 26, 2000
-------------------
Robert M. Brill
Director
/s/ PETER F. DICKS May 26, 2000
------------------
Peter F. Dicks
Director
/s/ KATHLEEN B. EARLEY May 26, 2000
----------------------
Kathleen B. Earley
Director
/s/ IVAN T. FRISCH May 26, 2000
------------------
Ivan T. Frisch
Director
<PAGE>
EXHIBIT INDEX
Incorporated By Reference To: Exhibit No. Exhibit
Exhibit 3 (a) [2] 3.1 Restated Certificate of
Incorporation.
Exhibit 3 (b) [10] 3.2 By-Laws, as amended.
Exhibit 1 [11] 4.1 Rights Agreement dated January
7,1998, with ChaseMellon
Shareholder Services L.L.C., as
Rights Agent.
Exhibit 10.1[5] 10.1 Employment Agreement with Paul
Richman, dated March 1, 1995.
Exhibit 10.2 [6] 10.2 Amendment to Employment
Agreement with Paul Richman
dated July 10, 1995.
Exhibit 10.3 [13] 10.3 Amendment Number Two to
Employment Agreement with Paul
Richman dated January 19,1998.
Exhibit 10.5 [14] 10.4 Employment Agreement with Steven
J. Bilodeau dated March 18,
1999.
* 10.5 Employment Agreement with Andrew
M. Caggia dated January 7, 2000.
Registrant's Proxy Statement dated 10.6 1991 Restricted Stock Bonus
June 21, 1991, Exhibit A Plan.
Registrant's Proxy Statement dated 10.7 Director Stock Option Plan.
May 29, 1990, Exhibit A
Registrant's Proxy Statement dated 10.8 1994 Director Stock Option Plan.
May 31, 1995, Exhibit A
Exhibit 10 (m) [3] 10.9 Resolutions adopted February 18,
1992, amending Director Stock
Option Plan, 1991 Restricted
Stock Bonus Plan and 1989
Stock Option Plan.
Registrant's Proxy Statement dated 10.10 Amendment adopted July 14, 1998,
June 1, 1998, Page 11. amending the Director Stock
Option Plan.
Exhibit 10.14 [5] 10.11 Retirement Plan for Directors.
Registrant's Proxy Statement dated 10.12 1993 Stock Option Plan for
May 25, 1993, Exhibit A Officers and Key Employees.
Exhibit 10(x) [4] 10.13 Executive Retirement Plan.
Registrant's Proxy Statement dated 10.14 1994 Stock Option Plan for
May 26, 1994, Exhibit A Officers and Key Employees.
Exhibit 10.18 [5] 10.15 Resolutions adopted October 31,
1994, amending the Retirement
Plan for Directors and the
Executive Retirement Plan.
Exhibit 10.19 [5] 10.16 Resolutions adopted January 3,
1995, amending the 1994, 1993
and 1989 Stock Option Plans and
the 1991 Restricted Stock Plan.
[12] 10.17 1996 Restricted Stock Bonus
Plan.
Registrant's Proxy Statement dated 10.18 1998 Stock Option Plan for
June 1, 1998, Exhibit A Officers and Key Employees.
Registrant's Proxy Statement dated 10.19 1999 Stock Option Plan for
July 13, 1999, Exhibit A Officers and Key Employees.
Exhibit 10.2 [1] 10.20 Patent and Trade Secrets
Agreement dated March 12, 1983,
with Paul Richman.
Exhibit 10.30 [6] 10.21 Agreement for Purchase and Sale
of Assets among SMSC, EFAR
Microsystems, Inc., and the Key
Officers identified therein dated
February 26, 1996.
Item 7, Exhibit 1 [7] 10.23 Common Stock and Warrant Purchase
Agreement, among SMSC and
Intel Corporation, dated
March 18, 1997.
Item 7, Exhibit 3 [7] 10.24 Investor Rights Agreement, among
SMSC and Intel Corporation, dated
March 18, 1997.
Exhibit 1 [8] 10.25 Share Purchase Agreement, among
SMSC and Intel Corporation,
dated March 17, 2000.
Exhibit 10.1 [9] 10.26 Stock Purchase Agreement, dated
September 30, 1997, among Accton
Technology Corporation, Global
Business Investments (B.V.I.)
Corp., Standard Microsystems
Corporation, the Seller
Subsidiaries, and AJJA Inc.
Exhibit 10.2 [9] 10.27 Stockholders Agreement, dated
October 7, 1997, among Standard
Microsystems Corporation, Accton
Technology Corporation, Global
Business Investments (B.V.I.)
Corp., and AJJA Inc.
Exhibit 10.4 [9] 10.28 Intellectual Property License
Agreement, dated October 7, 1997,
between Standard Microsystems
Corporation and AJJA Inc.
Exhibit 10.1 [15] 10.29 Asset Purchase Agreement dated
May 27, 1999 between Inertia
Optical Technology Applications,
Inc. and Standard Microsystems
Corporation.
Exhibit 10.2 [15] 10.30 Stockholders Agreement dated
June 1, 1999, between Inertia
Optical Technology Applications,
Inc. (IOTA), Standard
Microsystems Corporation and
other stockholders of IOTA.
Exhibit 10.3 [15] 10.31 Transition Services Agreement
dated June 1, 1999, between
Inertia Optical Technology
Applications, Inc. and Standard
Microsystems Corporation.
* 13 Portions of Annual Report to
Shareholders for year ended
February 29, 2000, incorporated
by reference.
* 18 Letter from Arthur Andersen LLP
regarding change in accounting
principle.
* 21 Subsidiaries of the Registrant
* 23 Consent of Arthur Andersen LLP
* 27 Financial Data Schedule
* Filed herewith.
[1] Registrant's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1983.
[2] Registrant's Annual Report on Form 10-K for fiscal year ended
February 28, 1991.
[3] Registrant's Annual Report on Form 10-K for fiscal year ended
February 29, 1992.
[4] Registrant's Annual Report on Form 10-K for fiscal year ended
February 28, 1994.
[5] Registrant's Annual Report on Form 10-K for fiscal year ended
February 28, 1995.
[6] Registrant's Annual Report on Form 10-K for fiscal year ended
February 29, 1996.
[7] Schedule 13D filed by Intel Corporation, dated March 27, 1997.
[8] Schedule 13D/A filed by Intel Corporation, dated March 22, 2000.
[9] Registrant's Current Report on Form 8-K dated October 7, 1997.
[10] Registrant's Annual Report on Form 10-K for fiscal year ended
February 28, 1997.
[11] Registrant's Registration Statement on Form 8-A dated January 15, 1998.
[12] Registrant's Board of Directors resolution dated November 26, 1996,
authorizing the Registrant to grant awards of up to 350,000 shares of
common stock to employees, similar to those awards provided by the 1991
Restricted Stock Bonus Plan.
[13] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1998.
[14] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1999.
[15] Registrant's Current Report on Form 8-K dated June 14, 1999.
