-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IiTI3861VZBCAwmgKAH/2dkYlzhV3gigK8dx7hxr60v+aKrvOKY6QRI/BoiiESBp dCbpS5uYONjTMupG1rfOyg== 0000093384-95-000001.txt : 19951019 0000093384-95-000001.hdr.sgml : 19951019 ACCESSION NUMBER: 0000093384-95-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951018 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD MICROSYSTEMS CORP CENTRAL INDEX KEY: 0000093384 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 112234952 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07422 FILM NUMBER: 95581367 BUSINESS ADDRESS: STREET 1: 80 ARKAY DRIVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5164656000 MAIL ADDRESS: STREET 1: 80 ARKAY DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-Q 1 STANDARD MICROSYSTEMS CORP. 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended August 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-7422 STANDARD MICROSYSTEMS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 11-2234952 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 80 ARKAY DRIVE, HAUPPAUGE, NEW YORK 11788 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 516-273-3100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ____X____ No ________ As of October 13, 1995 there were 13,367,409 shares of the registrant's common stock outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
August 31, February 28, 1995 1995 Assets Current assets: Cash and cash equivalents $ 11,934 $ 29,478 Accounts receivable, net of allowance for doubtful accounts of $1,316 and $1,102, respectively 47,324 75,826 Inventories 52,132 45,789 Deferred tax benefits 11,391 5,392 Other current assets 4,494 6,291 Total current assets 127,275 162,776 Property, plant and equipment: Land 3,832 3,832 Buildings and improvements 27,256 26,901 Machinery and equipment 99,817 77,639 130,905 108,372 Less: accumulated depreciation 78,116 73,464 Property, plant and equipment, net 52,789 34,908 Intangible assets 21,235 26,479 Long-term investment 13,990 - Deferred tax benefits 2,809 1,795 Other assets 3,416 2,620 $221,514 $228,578 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 18,915 $ 24,193 Accrued expenses and other liabilities 14,408 15,527 Income taxes payable 188 3,701 Total current liabilities 33,511 43,421 Long-term debt 16,000 - Minority interest in subsidiary 11,250 11,174 Shareholders' equity: Preferred stock, $.10 par value- Authorized 1,000,000 shares, none outstanding - - Common stock, $.10 par value- Authorized 30,000,000 shares, outstanding 13,359,000 and 13,222,000 shares, respectively 1,336 1,322 Additional paid-in capital 78,700 77,319 Retained earnings 73,510 88,616 Unrealized holding gain, net of tax 1,404 718 Foreign currency translation adjustment 5,803 6,008 Total shareholders' equity 160,753 173,983 $221,514 $228,578
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
Three Months Ended Six Months Ended August 31, August 31, 1995 1994 1995 1994 Revenues $ 85,434 $91,964 $157,643 $171,985 Cost of goods sold 62,611 51,986 106,425 96,652 Gross profit 22,823 39,978 51,218 75,333 Operating expenses: Research and development 7,952 6,869 16,188 13,362 Selling, general and administrative 28,686 21,967 52,191 40,113 Amortization of intangible assets 3,872 1,372 5,244 2,744 40,510 30,208 73,623 56,219 Income (loss) from operations (17,687) 9,770 (22,405) 19,114 Other income (expense): Interest income 112 207 224 441 Interest expense (225) (359) (453) (715) Other income (expense), net (73) (242) (118) (480) (186) (394) (347) 754 Income (loss) before minority interest and provision for income taxes (17,873) 9,376 (22,752) 18,360 Minority interest in net income of subsidiary 36 55 76 94 Income (loss) before provision for income taxes (17,909) 9,321 (22,828) 18,266 Provision for (benefit from) income taxes (5,804) 3,738 (7,722) 7,325 Net income (loss) $(12,105) $ 5,583 $(15,106) $ 10,941 Net income (loss) per common and common equivalent share $ (0.91) $ 0.42 $ (1.14) $ 0.83 Weighted average common and common equivalent shares outstanding 13,331 13,188 13,298 13,172
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended August 31, 1995 1994 Cash flows from operating activities: Cash received from customers $ 185,755 $ 171,692 Cash paid to suppliers and employees (182,492) (158,703) Interest received 219 585 Interest paid (599) (625) Income taxes paid (3,453) (6,520) Net cash provided by (used for) operating activities (570) 6,429 Cash flows from investing activities: Capital expenditures (19,717) (5,025) Long-term investment (13,990) - Other 17 36 Net cash used for investing activities (33,690) (4,989) Cash flows from financing activities: Proceeds from issuance of common stock 806 534 Principal payments of long-term debt - (1,500) Net borrowings under line of credit agreements 16,000 538 Net cash provided by (used for) financing activities 16,806 (428) Effect of foreign exchange rate changes on cash and cash equivalents (90) 464 Net increase (decrease) in cash and cash equivalents (17,544) 1,476 Cash and cash equivalents at beginning of period 29,478 32,115 Cash and cash equivalents at end of period $ 11,934 $ 33,591 Reconciliation of net income (loss) to net cash provided by (used for) operating activities: Net income (loss) $(15,106) $ 10,941 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 10,621 7,473 Minority interest in net income of subsidiary 76 94 Other adjustments, net 416 707 Changes in operating assets and liabilities: Accounts receivable 28,148 (153) Inventories (6,364) (6,496) Accounts payable and accrued expenses and other liabilities (9,502) (6,995) Other changes, net (8,859) 858 Net cash provided by operating activities $ (570) $ 6,429
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The interim financial statements furnished reflect all adjustments (consisting of only normal and recurring adjustments) which are, in the opinion of management, necessary to present a fair statement of the Company's financial position and results of operations for the three and six month periods ended August 31, 1995. The financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated financial statements included in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended February 28, 1995. 2. Inventories consist of the following (in thousands): Aug. 31, 1995 Feb. 28, 1995 Raw Materials $12,963 $11,547 Work in Process 21,397 16,239 Finished Goods 17,772 18,003 $52,132 $45,789 3. Unusual Charges During the second quarter of fiscal 1996, as a result of a review of operating strategies of its Systems Products Division, the Company recorded several unusual charges, as follows: - An $11.8 million charge to cost of goods sold was recorded to reduce the carrying value of certain inventory to its estimated net realizable value. The primary reasons behind this write-down were a recent unsuccessful new product introduction, lower than projected demand for several older product lines and a recent decision to reduce the variety of the Division's product offerings. - An assessment of the current market for local area networking technologies, and the Division's business prospects in those technologies, resulted in a $2.4 million write-down of intangible assets to their estimated realizable values and a decision to significantly reduce near-term development activities in under-performing technologies. The useful lives of the Company's assets now range from 2 to 10 years. - The Comapny recorded a $2.5 million charge for severance and benefit costs related to executive management changes which occurred during the second quarter of fiscal 1996. 4. Long-Term Debt The Company has obtained a waiver respecting the failure to meet a financial covenant under its revolving credit agreement, which has been amended to reduce the credit line to $25.0 million. The Company expects that its results for fiscal 1996 will not be in compliance with another financial covenant and has so advised the lenders. The Company intends to obtain an appropriate waiver and is currently renegotiating the credit agreement. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table sets forth, as percentages of revenues, the items included in the Company's Consolidated Statements of Income for the three month and six month periods ended August 31, 1995 and 1994: 3 Months 6 Months 1995 1994 1995 1994 Revenues 100.0 % 100.0 % 100.0% 100.0% Cost of goods sold 73.3 56.5 67.5 56.2 Gross profit 26.7 43.5 32.5 43.8 Operating expenses Research and development 9.3 7.5 10.3 7.8 Selling, general and administrative 33.6 23.9 33.1 23.3 Amortization of intangible assets 4.5 1.5 3.3 1.6 Total operating expenses 47.4 32.9 46.7 32.7 Income (loss) from operations (20.7) 10.6 (14.2) 11.1 Other income (expense), net (0.2) (0.4) (0.2) (0.4) Income (loss) before minority interest and taxes (20.9) 10.2 (14.4) 10.7 Minority interest in net income of subsidiary 0.1 0.1 0.1 0.1 Income (loss) before provision for income taxes (21.0) 10.1 (14.5) 10.6 Provision for (benefit from) income taxes (6.8) 4.1 (4.9) 4.3 Net income (loss) (14.2) % 6.0 % (9.6)% 6.3% Revenues and Cost of Goods Sold Revenues of $85.4 million for the three months ended August 31, 1995, were 7% lower than the $92.0 million recorded for the three months ended August 31, 1994. Revenues from system products declined 23% to $50.3 million in the second quarter of fiscal 1996 from $65.3 million in the second quarter of fiscal 1995. Component products revenue increased 32% to $35.1 million from $26.7 million. Revenues of $157.6 million for the six months ended August 31, 1995, were 8% lower than the $172.0 million recorded for the six months ended August 31, 1994. Revenues from system products declined 27% to $90.6 million in the first half of fiscal 1996 from $124.5 million in the first half of fiscal 1995. Component products revenue increased 41% to $67.0 million from $47.5 million. System products revenue delined 23% to $50.3 million for the second quarter from $59.2 million for the comparable year-earlier period. For the first half, system products revenue declined 27% to $90.6 million from $124.5 million for the comparable year-earlier period. This decline resulted chiefly from lower unit shipments and lower average selling prices of network interface cards. A primary reason for the lower unit shipments was a reduction of inventory levels at a number of the Company's major distributors. These inventories had increased during fiscal 1995. Component products revenue increased 32% to $35.1 million for the second quarter from $20.8 million for the comparable year-earlier period. For the first half, component products revenue increased 41% to $67.0 million from $47.5 million for the comparable year-earlier period. Led by increased shipments of personal computer input/output integrated circuits, component products revenue increased despite an industry-wide shortage of wafer fabrication capacity. The Company's components foundry operation also contributed to this growth, with revenue improving substantially for the second quarter and first half from a small base in the comparable year-earlier periods. The Company's gross profit margin of 26.7% for the second quarter of fiscal 1996 declined from 43.5% for the second quarter of fiscal 1995. The gross profit margin of 32.5% for the first half of fiscal 1996 declined from 43.8% for the first half of fiscal 1995. The principal reason for the lower gross margins was an $11.8 million charge to cost of goods sold, in the seconfquarter, for the write-down of certain system products inventory to estimated net realizable value. The write-down reflected the disappointing reception of a new product and the reduction of its selling price, lower than projected demand for several older product lines that are being replaced by newer, improved products and a decision to reduce the variety of networking products that perform the same function. In addition to $11.8 million charge, lower revenues and lower average selling prices for network interface cards, partially offset by a reduction in production costs, were the principal reasons for the reduced gross profit margin in both the second quarter and first half. Excluding the impact of the inventory charge, gross profit margins would have been 40.5% for the second quarter and 40.0% for the first half of fiscal 1996. Operating Expenses Research and development expenses increased 16% in the second quarter and 21% in the first half of fiscal 1996 from the comparable year-earlier periods, reflecting increases for the development of LAN switching and hub products as well as component products. Selling, general and administrative expenses increased 31% in the second quarter and 30% in the first half of fiscal 1996 from the comparable year-earlier periods. Without severance related benefit charges of $2.5 million, selling, general and administrative expenses would have increased 19% in the second quarter and 24% in the first half of fiscal 1996 from the comparable year-earlier periods. Without special charges, most of the increases in the second quarter and the first half reflected higher selling and marketing expenses for LAN switching and hub products as well as component products. The increases in amortization of intangible assets in the second quarter and the first half of fiscal 1996, from the levels of comparable year-earlier periods, reflected a $2.4 million write-down of previously acquired LAN technology to its estimated realizable value. The charge was taken as a result of a reassessment of the Company's business prospects, and the decision to reduce development activity, for this technology. Other Income and Expenses The decline in interest expense and other income (expense) in the second quarter and first half of fiscal 1996 from the second quarter and first half of fiscal 1995, reflected reductions in average borrowings, interest rates on borrowings and financing fees. A reduction in interest income reflected lower average cash balances. Income Taxes Income taxes were provided at a rate of 32.4% for the second quarter of fiscal 1996 and at 33.8% for the first half of fiscal 1996. In both comparable year-earlier periods, income taxes were accrued at a rate of 40.1%. The effective rate for accruing tax benefits in fiscal 1996 reflects the statutory rate and non-deductible goodwill amortization. Liquidity and Capital Resources Working capital was $93.8 million at August 31, 1995, compared to $119.4 million at February 28, 1995. The reduction primarily reflected lower cash and cash equivalents and accounts receivable, partially offset by higher inventories, deferred tax benefits and lower current liabilities. Accounts receivable at August 31, 1995, represented approximately 50 days sales outstanding, compared to 64 days at August 31, 1994, and 67 days at February 28, 1995. The improvement chiefly represents a more even distribution of revenues during the quarter than in either the second or fourth quarters of fiscal 1995. Inventories increased to $47.3 million at August 31, 1995, from $45.8 million at February 28, 1995, but declined from $61.3 million at May 31, 1995. The decline from May 31, 1995, level chiely reflected the $11.8 milliion write-down of system products inventory and adjustments to production to reflect current shipment levels. Additions to property, plant and equipment were $19.7 million during the first half of fiscal 1996, compared to $5.0 million during the year-earlier period. The most significant capital expenditures were $11.3 million pursuant to an agreement to purchase approximately $16 million of wafer manufacturing equipment for installation at an AT&T Microelectronics facility in Madrid, Spain, and $2.8 million for improvement to the Company's informations systems. In addition, a long-term investment of $14.0 was made under a $20 million commitment to purchase a minority interest in Chartered Semiconductor Pte Ltd. of Singapore. This and the AT & T invnestment are intended to provide SMC with a portion of its long-term requirements for integrated circuits, beginning near the end of fiscal 1996. During the first six months of fiscal 1996, SMC used $17.5 million of cash and $16.0 million of its credit line chiefly for capital items and the investment in Chartered Semiconductor. The Company has recently experienced reduced revenues, losses from operations and write-downs. In connection therewith, the Company obtained a waiver respecting the failure to meet a financial covenant under its revolving credit agreement, which has been amended to reduce the credit line to $25.0 million. The Company expects that its results for fiscal 1996 will not be in compliance with another financial covenant and has so advised the lenders. The Company intends to obtain appropriate waiver and is currently renegotiating the credit agreement. The Company believes that its present cash and cash equivalents position, combined with expected cash flows and borrowing capacity under a renegotiated credit line, will be sufficient to meet its working capital and capital expenditure requirements for the next twelve months. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The following matters were submitted to a vote of security holders at the Registrant's annual meeting of shareholders which was held on July 6, 1995. The following were elected directors, each receiving the number of votes set opposite his name: Broker For Withheld Non-votes Ivan T. Frisch 11,847,338 373,707 -0- Victor F. Trizzino 11,847,943 373,102 -0- Robert M. Brill 11,845,773 395,327 -0- Raymond Frankel 11,825,718 395,327 -0- Votes withheld as to all nominees 333,272 The 1994 Director Stock Option Plan was approved and adopted by the following vote: Broker For Against Abstain Non-votes 10,900,210 1,180,831 138,804 1,200 At the meeting, the selection of Arthur Andersen LLP as the Company's auditors for the current year was ratified by the following vote: Broker For Against Abstain Non-votes 10,992,460 179,807 48,778 -0- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10 - Material Contracts (a) Amendment to Executive Officer Employment Agreement Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K. None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STANDARD MICROSYSTEMS CORPORATION (Registrant) DATE: October 13, 1995 /S/ Anthony M. D'Agostino (Signature) Anthony M. D'Agostino Senior Vice President, Finance and Treasurer (Principal Financial Officer) EX-10 2 Amendment to Employment Agreement Dated March 1, 1995 between Standard Microsystems Corporation and Paul Richman The Agreement made as of the first day of March, 1995 between the undersigned, Standard Microsystems Corporation and Paul Richman (the "Agreement"), is hereby amended as follows, effective July 10, 1995: 1. The second sentence in subsection THIRD (a) shall be replaced by the following: "The base rate shall be $450,000 provided, however, that the Base Rate shall be modified as of March 1, 1996, and as of each successive March 1 to the end of the term of this Agreement, in proportion to any increase in the Consumer Price Index, as hereinafter defined, between the February levels of the two immediately preceding years." 2. The last paragraph in subsection THIRD (b) shall be replaced by the following: "Notwithstanding the preceding provisions of this subsection THIRD (b), the aggregate amount payable pursuant to this subsection THIRD (b) for the fiscal year of SMC ending February 29, 1996, and for each fiscal year of SMC thereafter, shall not exceed $450,000.00 of the Base Rate then currently in effect, whichever amount is higher." 3. The Agreement is amended only to the extent specified above. It is not intended to extend or renew any other provision of the Agreement that would not continue if this Amendment had not been effected. IN WITNESS HEREOF, SMC has caused this Agreement to be executed on its behalf by its representative, thereunto duly authorized, and Paul Richman has executed this Agreement as of July 10, 1995. STANDARD MICROSYSTEMS CORPORATION /S/ Paul Richman /S/ Herman Fialkov (Signature) (Signature) Herman Fialkov Director and Chairman, Compensation Committee EX-27 3 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1,000 6-MOS FEB-28-1995 AUG-31-1995 11,934 0 47,324 1,316 52,132 127,275 130,905 78,116 221,514 33,511 16,000 1,336 0 0 159,417 221,514 157,643 157,643 106,425 106,425 73,623 290 453 (22,828) (7,722) (15,106) 0 0 0 (15,106) (1.14) (1.14)
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