-----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, KADh5v8c2hjpjsHyYQdFVEYtTMj2W6N/MKWNIMsS++CLIJZMwIkeK+3csIBG4ADt dADekVbERG/oqr/UXiLpRw== 0000093384-96-000001.txt : 19960118 0000093384-96-000001.hdr.sgml : 19960118 ACCESSION NUMBER: 0000093384-96-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960117 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: 96505044 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 NOVEMBER 30, 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 January 12, 1996 there were 13,233,867 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)
November 30, February 28, 1995 1995 Assets Current assets: Cash and cash equivalents $ 12,594 $ 29,478 Accounts receivable, net of allowance for doubtful accounts of $1,498 and $1,102, respectively 50,456 75,826 Inventories 50,151 45,789 Deferred tax benefits 10,929 5,392 Other current assets 5,889 6,291 Total current assets 130,019 162,776 Property, plant and equipment: Land 3,832 3,832 Buildings and improvements 27,722 26,901 Machinery and equipment 105,017 77,639 136,571 108,372 Less: accumulated depreciation 80,616 73,464 Property, plant and equipment, net 55,955 34,908 Intangible assets 19,663 26,479 Long-term investment 13,990 - Deferred tax benefits 2,904 1,795 Other assets 4,287 2,620 $226,818 $228,578 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 17,712 $ 24,193 Accrued expenses and other liabilities 17,739 15,527 Income taxes payable 174 3,701 Total current liabilities 35,625 43,421 Long-term debt 18,000 - Minority interest in subsidiary 11,327 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 13,416,000 and 13,222,000 shares, respectively 1,342 1,322 Additional paid-in capital 79,467 77,319 Retained earnings 73,813 88,616 Unrealized holding gain, net of tax 1,929 718 Foreign currency translation adjustment 5,315 6,008 Total shareholders' equity 161,866 173,983 $226,818 $228,578
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
Three Months Ended Nine Months Ended November 30, November 30, 1995 1994 1995 1994 Revenues $ 90,570 $104,771 $248,213 $276,756 Cost of goods sold 52,914 59,538 159,339 156,190 Gross profit 37,656 45,233 88,874 120,566 Operating expenses: Research and development 7,749 7,235 23,937 20,597 Selling, general and administrative 27,468 24,815 79,659 64,928 Amortization of intangible assets 1,572 1,372 6,816 4,116 36,789 33,422 110,412 89,641 Income (loss) from operations 867 11,811 (21,538) 30,925 Other income (expense): Interest income 74 244 299 685 Interest expense (325) (340) (778) (1,055) Other income (expense), net (23) (249) (141) (729) (274) (345) (620) (1,099) Income (loss) before minority interest and provision for income taxes 593 11,466 (22,158) 29,826 Minority interest in net income of subsidiary 76 78 153 172 Income (loss) before provision for income taxes 517 11,388 (22,311) 29,654 Provision for (benefit from) income taxes 214 4,567 (7,508) 11,891 Net income (loss) $ 303 $ 6,821 $(14,803) $17,763 Net income (loss) per common and common equivalent share $ 0.02 $ 0.51 $ (1.11) $ 1.34 Weighted average common and common equivalent shares outstanding 13,519 13,315 13,325 13,225
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine Months Ended November 30, 1995 1994 Cash flows from operating activities: Cash received from customers $ 273,037 $ 268,564 Cash paid to suppliers and employees (262,355) (238,154) Interest received 290 823 Interest paid (957) (938) Income taxes paid (3,470) (11,640) Net cash provided by (used for) operating activities 6,545 18,655 Cash flows from investing activities: Capital expenditures (28,231) (7,779) Long-term investment (13,990) - Other 44 36 Net cash used for investing activities (42,177) (7,743) Cash flows from financing activities: Proceeds from issuance of common stock 1,168 1,241 Principal payments of long-term debt - (3,250) Borrowings under line of credit agreement 32,000 834 Repayments of borrowings under line of credit agreements (14,000) - Net cash provided by (used for) financing activities 19,168 (1,175) Effect of foreign exchange rate changes on cash and cash equivalents (420) 502 Net increase (decrease) in cash and cash equivalents (16,884) 10,239 Cash and cash equivalents at beginning of period 29,478 32,115 Cash and cash equivalents at end of period $ 12,594 $ 42,354 Reconciliation of net income (loss) to net cash provided by (used for) operating activities: Net income (loss) $(14,803) $ 17,763 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 14,988 11,108 Minority interest in net income of subsidiary 153 172 Other adjustments, net 815 1,094 Changes in operating assets and liabilities: Accounts receivable 24,696 (8,043) Inventories (4,458) (6,889) Accounts payable and accrued expenses and other liabilities (4,577) 3,133 Other changes, net (10,269) 317 Net cash provided by operating activities $ 6,545 $ 18,655
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 nine month periods ended November 30, 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): Nov. 30, 1995 Feb. 28, 1995 Raw Materials $14,411 $11,547 Work in Process 22,067 16,239 Finished Goods 13,673 18,003 $50,151 $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 for 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 waivers respecting the failure to meet financial covenants under its revolving credit agreement, which was amended in October 1995, to reduce the credit line to $25.0 million. 5. Sale of Business Unit On January 9, 1996, the Company signed an agreement to sell substantially all of the assets of its Enterprise Networks Business Unit, including substantially all of the assets of the Company's wholly owned subsidiary, SMC Enterprise Networks, Inc., to Cabletron Systems, Inc., of Rochester, New Hampshire, for approximately $75.0 million in cash. This transaction is expected to close on or about January 12, 1996. SMC plans to utilize the proceeds from the sale after transaction fees and taxes, to, among other things, paydown existing borrowings under line of credit agreements, obtain additional integrated circuit production for its Component Products Division, and to invest in its other System Products' business units. 6. Litigation In June 1995, several actions were filed against the Company and certain of its directors and officers. The claims purport to be class actions on behalf of the purchasers of the Company's common stock from December 20, 1994, through June 2, 1995. The complaints assert claims under federal securities laws, and allege that the Company artificially inflated the price of its common stock during the class action period by false and misleading statements and the failure to disclose certain information. The Company intends to vigorously defend against these claims. 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 nine month periods ended November 30, 1995 and 1994: 3 Months 9 Months 1995 1994 1995 1994 Revenues 100.0 % 100.0 % 100.0% 100.0% Cost of goods sold 58.4 56.8 64.2 56.4 Gross profit 41.6 43.2 35.8 43.6 Operating expenses Research and development 8.6 6.9 9.6 7.4 Selling, general and administrative 30.3 23.7 32.1 23.5 Amortization of intangible assets 1.7 1.3 2.8 1.5 Total operating expenses 40.6 31.9 44.5 32.4 Income (loss) from operations 1.0 11.3 (8.7) 11.2 Other income (expense), net (0.3) (0.4) (0.2) (0.4) Income (loss) before minority interest and taxes 0.7 10.9 (8.9) 10.8 Minority interest in net income of subsidiary 0.1 - 0.1 0.1 Income (loss) before provision for income taxes 0.6 10.9 (9.0) 10.7 Provision for (benefit from) income taxes 0.3 4.4 (3.0) 4.3 Net income (loss) 0.3 % 6.5 % (6.0)% 6.4% Revenues and Cost of Goods Sold Revenues of $90.6 million for the three months ended November 30, 1995, were 14% lower than the $104.8 million recorded for the three months ended November 30, 1994. Revenues of $248.2 million for the nine months ended November 30, 1995, were 10% lower than the $276.8 million recorded for the nine months ended November 30, 1994. System products revenue declined 25% to $53.6 million for the third quarter from $71.7 million for the comparable year-earlier period. For the first nine months, system products revenue declined 27% to $144.2 million from $196.2 million for the comparable year-earlier period. This decline resulted chiefly from lower unit shipments and 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 during the first nine months. These inventories had increased during fiscal 1995. Revenues also declined for hub and switching products, also reflecting a reduction of inventory levels at a number of major distributors. Component products revenue increased 12% to $37.0 million for the third quarter from $33.1 million for the comparable year-earlier period. For the first nine months, component products revenue increased 29% to $104.0 million from $80.6 million for the comparable year-earlier period. The Company's components foundry operation contributed significantly to this growth, with revenue improving substantially for the third quarter and first nine months from a small base in the comparable year-earlier periods. For the nine months, higher shipments of personal computer input/output integrated circuits, led the increase in component products revenue despite an industry-wide shortage of wafer fabrication capacity. The Company's gross profit margin of 41.6% for the third quarter of fiscal 1996 declined from 43.2% for the third quarter of fiscal 1995. The gross profit margin of 35.8% for the first nine months of fiscal 1996 declined from 43.6% for the first nine months of fiscal 1995. The principal reasons for the lower gross margins for the third quarter and factors contributing to lower gross margins for the first nine months were (i) reduced margins on switching and hub product revenues and (ii) lower revenues and lower average selling prices for network interface cards, partially offset by a reduction in production costs. The principal reason for the lower gross margin for the first nine months was an $11.8 million charge to cost of goods sold, in the second quarter, for the write-down of certain system products inventory to estimated net realizable value. The write-down relfected 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 similar functions. Excluding the impact of the inventory charge, the gross profit margin would have been 40.6% compared to 35.8% reported for the first nine months of fiscal 1996. Operating Expenses Research and development expenses increased 7% in the third quarter and 16% in the first nine months 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 11% in the third quarter and 23% in the first nine months of fiscal 1996 from the comparable year-earlier periods. Without severance related benefit charges of $2.5 million in the second quarter, selling, general and administrative expenses would have increased 19% in the first nine months of fiscal 1996 from the comparable year-earlier periods. Most of the increases in the third quarter and the first nine months, excluding special charges, 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 third quarter and the first nine months of fiscal 1996, from the levels of comparable year-earlier periods, reflected an accelerated write-off of certain assets. The increase in the first nine months also relected a $2.4 million write-down of previously acquired LAN technology to its estimated realizable value in the second quarter. 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 third quarter and first nine months of fiscal 1996 from the third quarter and first nine months of fiscal 1995, reflected reductions in interest rates and financing fees related to the Company's line of credit. A reduction in interest income reflected lower average cash balances. Income Taxes Income tax benefits were provided at a rate of 41.4% for the third quarter of fiscal 1996 and at 33.7% for the first nine months 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 $94.4 million at November 30, 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 November 30, 1995, represented approximately 50 days sales outstanding, compared to 63 days at November 30, 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 third or fourth quarters of fiscal 1995. Inventories increased to $50.2 million at November 30, 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 in the second quarter and adjustments to production to reflect current shipment levels. Additions to property, plant and equipment were $28.2 million during the first nine months of fiscal 1996, compared to $7.8 million during the year-earlier period. The most significant capital expenditures were $13.9 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, $5.0 million for improvement to the Company's informations systems and $2.3 million for semiconductor testing equipment. 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. The remaining $6 million is to be paid during the fourth quarter. 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 nine months of fiscal 1996, SMC used $16.9 million of cash and $18.0 million of its credit line chiefly for capital items and the investment in Chartered Semiconductor. The Company experienced reduced revenues, losses from operations and write- downs in the first half of fiscal 1996. In connection therewith, the Company obtained waivers respecting the failure to meet financial covenants under its revolving credit agreement, which was amended to reduce the credit line to $25.0 million. On January 9, 1996, SMC signed an agreement to sell substantially all of the assets of its Enterprise Networks Business Units and all of the assets of the Company's wholly owned subsidiary,SMC Enterprise Networks, Inc., to Cabletron Systems, Inc., for approximately $75 million. This transaction is expected to close on or about January 12, 1996. SMC plans to utilize the proceeds from the sale, after transaction fees and taxes to, among other things, paydown existing borrowings under line of credit agreements, obtain additional integrated circuit production for its Component Products Division and invest in its other System Products' business units. 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 6. Exhibits and Reports on Form 8-K (a) Exhibits 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: January 12, 1996 /S/ Anthony M. D'Agostino (Signature) Anthony M. D'Agostino Senior Vice President, Finance and Treasurer (Principal Financial Officer) EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 1,000 9-MOS FEB-28-1995 NOV-30-1995 12,594 0 50,456 1,498 50,151 130,019 136,571 80,616 226,818 35,625 18,000 1,342 0 0 160,524 226,818 248,213 248,213 159,339 159,339 110,412 471 778 (22,311) (7,508) (14,803) 0 0 0 (14,803) (1.11) (1.11)
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