-----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, MTFGVTyUbvKxfyhABLXJDd0cAlAihVfQ1nDIn3TVg7FJ8wUODCNPmG1NvB6wrccQ 2V8lYQbACJvZc4T437gq5Q== 0000093384-96-000002.txt : 19960718 0000093384-96-000002.hdr.sgml : 19960718 ACCESSION NUMBER: 0000093384-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960717 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD MICROSYSTEMS CORP CENTRAL INDEX KEY: 0000093384 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] 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: 96595792 BUSINESS ADDRESS: STREET 1: 80 ARKAY DRIVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5164344600 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 May 31, 1996 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 July 12, 1996 there were 13,834,203 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)
May 31, February 29, 1996 1996 Assets Current assets: Cash and cash equivalents $ 12,841 $ 18,459 Accounts receivable, net of allowance for doubtful accounts of $1,544 and $1,369, respectively 63,591 55,976 Inventories 80,831 60,408 Deferred tax benefits 8,853 8,607 Other current assets 5,396 5,434 Total current assets 171,512 148,884 Property, plant and equipment: Land 3,832 3,832 Buildings and improvements 27,038 26,839 Machinery and equipment 114,713 109,235 145,583 139,906 Less: accumulated depreciation 83,668 79,698 Property, plant and equipment, net 61,915 60,208 Other assets 50,819 51,567 $284,246 $260,659 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 34,659 $ 30,801 Accrued expenses and other liabilities 24,195 23,884 Income taxes payable 1,803 1,096 Total current liabilities 60,657 55,781 Long-term debt 16,250 - Minority interest in subsidiary 11,376 11,376 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 13,782,000 and 13,711,000 shares, respectively 1,378 1,371 Additional paid-in capital 85,407 84,737 Retained earnings 102,134 100,217 Unrealized holding gain, net of tax 2,417 2,226 Foreign currency translation adjustment 4,627 4,951 Total shareholders' equity 195,963 193,502 $284,246 $260,659
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
Three Months Ended May 31, 1996 1995 Revenues $100,072 $72,209 Cost of goods sold 63,196 43,814 Gross profit 36,876 28,395 Operating expenses: Research and development 5,986 8,236 Selling, general and administrative 26,412 23,505 Amortization of intangible assets 1,241 1,372 33,639 33,113 Income (loss) from operations 3,237 (4,718) Other income (expense): Interest income 129 112 Interest expense (93) (228) Other income (expense), net (24) (45) 12 (161) Income (loss) before minority interest and provision for income taxes 3,249 (4,879) Minority interest in net income of subsidiary 0 41 Income (loss) before provision for income taxes 3,249 (4,920) Provision for (benefit from) income taxes 1,332 (1,919) Net income (loss) $1,917 $ (3,001) Net income (loss) per common and common equivalent share $ 0.14 $ (0.22) Weighted average common and common equivalent shares outstanding 13,806 13,460
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three Months Ended May 31, 1996 1995 Cash flows from operating activities: Cash received from customers $ 92,392 $ 102,367 Cash paid to suppliers and employees (109,218) (91,555) Interest received 127 112 Interest paid (2) (382) Income taxes paid (400) (3,349) Net cash provided by (used for) operating activities (17,101) 7,193 Cash flows from investing activities: Capital expenditures (4,647) (10,121) Long-term investment 0 (13,990) Other 1 28 Net cash used for investing activities (4,646) (24,083) Cash flows from financing activities: Proceeds from issuance of common stock 110 426 Borrowings under line of credit agreements 23,950 17,000 Repayment of borrowings under line of credit agreements (7,700) (7,000) Net cash provided by financing activities 16,360 10,426 Effect of foreign exchange rate changes on cash and cash equivalents (231) 1,060 Net decrease in cash and cash equivalents (5,618) (5,404) Cash and cash equivalents at beginning of period 18,459 29,478 Cash and cash equivalents at end of period $ 12,841 $ 24,074 Reconciliation of net income (loss) to net cash provided by (used for) operating activities: Net income (loss) $1,917 $ (3,001) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 5,447 4,319 Other adjustments, net 531 220 Changes in operating assets and liabilities: Accounts receivable (7,685) 30,159 Inventories (20,477) (15,309) Accounts payable and accrued expenses and other liabilities 3,149 (5,092) Other changes, net 17 (4,103) Net cash provided by (used for) operating activities $ (17,101) $ 7,193
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Interim Financial Statements 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 month period ended May 31, 1996. 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 29, 1996. 2. Inventories Inventories are valued at the lower of first-in, first-ot or market and consist of the following (in thousands): May 31, 1996 Feb. 29, 1996 Raw Materials $13,489 $ 9,556 Work in Process 46,444 34,622 Finished Goods 20,898 16,230 $80,831 $60,408 3. Long-term Debt During the first quarter of fiscal 1997, the Company obtained waivers respecting the failure to meet one financial covenant under its $25.0 million line of credit agreement. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table presents the Company's Consolidated Statements of Income, as percentages of revenues, for the three month periods ended May 31, 1996 and 1995: 3 Months 1996 1995 Revenues 100.0 % 100.0 % Cost of goods sold 63.2 60.7 Gross profit 36.8 39.3 Research and development 6.0 11.4 Selling, general and administrative 26.4 32.5 Amortization of intangible assets 1.2 1.9 Total operating expenses 33.6 45.8 Income (loss) from operations 3.2 (6.5) Other income (expense), net 0.0 (0.2) Income (loss) before minority interest and taxes 3.2 (6.7) Minority interest in net income of subsidiary 0.0 0.1 Income (loss) before provision for income taxes 3.2 (6.8) Provision for (benefit from) income taxes 1.3 (2.6) Net income (loss) 1.9 % (4.2) % Results of Operations by Industry Segment The following table presents the Company's revenues and operating income by industry segment for the three month periods ended May 31, 1996 and 1995 (in millions): Three months ended May 31, 1996 1995 Component products Integrated circuit revenues $50.1 $27.6 Foundry device revenues 5.9 2.4 Total component products revenue $56.0 $30.0 Operating income 12.1 8.5 % of revenues 21.7 % 28.4% System products Adapter revenues $30.7 $31.4 Hub and switch revenues 8.8 7.6 Total system product revenues $39.5 $39.0 Operating loss (3.4) (9.6) % of revenues (8.6)% (24.6)% Toyo Microsystems Corporation Revenues $4.5 $3.2 Operating income 0.0 0.2 % of revenues (0.3)% 4.9% General, corporate and other Operating loss ($5.5) ($3.8) Standard Microsystems Corporation conducts its operations primarily through the Component Products Division and the System Products Division. The Component Products Division designs, produces and markets very-large-scale- integrated circuits, mainly for control of various personal computer functions and specialized semiconductor-related products that are produced in SMC's own foundry. The System Products Division designs, produces and markets products that connect personal computers to, and allow communications over, local area networks (LANs). The Company's subsidiary, Toyo Microsystems Corporation (TMC), sells component and system products in the Japanese market. Revenue transfers between industry segments are excluded from the above figures. The majority of these transfers consist of component and system products shipped to TMC for resale in Japan. Revenues The Company's revenues rose 39% to $100.1 million in the first quarter of fiscal 1997 from $72.2 million in the first quarter of fiscal 1996. Component products' revenues, which rose 87% in the first quarter over the year earlier period, increased to 56.0% of consolidated revenues from 41.6% a year earlier. System products' revenues, which rose 1% in the first quarter over the year earlier period, declined to 39.5% of consolidated revenues from 54.0% a year earlier. TMC's revenues, which rose 41% in the first quarter over the year earlier period, increased to 4.5% from 4.4% of revenues. The growth of component products revenues continues to be led by increased shipments of personal computer input/output (PC I/O) integrated circuits and a device used in inkjet printer cartridges that is produced in SMC's own wafer foundry. Shipments were aided by a relaxation in an industry-wide shortage of manufacturing capacity, that had restrained shipments of integrated circuits during most of fiscal 1996. During the fourth quarter of fiscal 1996, SMC received initial production wafers from two suppliers under specific prgrams discussed in the Wafer Purchase Agreements section of this discussion. The Comapny also received initial wafers from other suppliers, requiring no specific investment. All of these sources of integrated circuit wafer capacity contributed to an increase in first quarter component products revenues over levels of the first quarter of fiscal 1996. System products' higher revenue relected an increase in hub and LAN switch revenues, partially offset by a decline in network interface card (adapter) revenues, principally reflecting lower unit shipments and average selling prices despite a shift in product mix toward newer products with higher selling prices than those they are displacing. Hub and LAN switch revenues increased despite the January 1996 sale of the Enterprise Networks Business Unit (ENBU) to Cabletron Systems, Inc. It's revenues were approximately $3 million in the first quarter of fiscal 1996. TMC's growth came principally from increased PC I/O device sales. The following table presents the Company's revenues by geographic area as percentages of total revenues to unaffiliated customers. All but Japan (TMC), within the category Revenues outside the United States, are considered export revenues shipped from U.S. operations. Three months ended May 31, 1996 1995 United States 42.8% 40.2% Asia and Pacific Rim 37.3 25.4 Europe 11.7 23.5 Canada 2.0 3.6 Other 1.7 2.9 Export revenues 52.7 55.4 Japan (TMC) 4.5 4.4 Revenues outside the United States 57.2 59.8 Total revenues 100.0% 100.0% United States revenues increased 48% in the first quarter of fiscal 1997 to 42.8% of revenues from 40.2% a year earlier. The increase was led by shipments of components products, principally PC I/O and foundry products. System products' first quarter fiscal 1997, domestic revenues rose as year earlier results had been impeded by the liquidation of excess distributor inventories. International revenues were 57.2% of the Company's revenues in the first quarter of fiscal 1997, compared with 59.8% in the year earlier period. Asian and Pacific Rim revenues grew over 100% largely because component products' domestic branded customers increased the proportion of PC s produced in offshore factories and demand grew from a major Asian-based PC producer. European revenues fell 35%, chiefly reflecting a decline in system products' revenues from its major international market. This decline reflected the absence of the divested ENBU product line. Gross Profit The gross profit margin declined to 36.8% for the first quarter of fiscal 1997 from 39.3% for the first quarter of fiscal 1996. Factors contributing to the 2.5 percentage points gross margin decline were: - Lower average selling prices for network interface cards, switching and hub products, only partially offset by a reduction in production costs - Lower margins of PC I/O integrated circuits, in which higher costs more than offset higher average selling prices for the newest generation of devices - Lower margins from greater competition for foundry products Operating Expenses Research and development expenses declined to $6.0 million, or 6.0% of revenues, in the first quarter of fiscal 1997 from $8.2 million, or 11.4% of revenues, in the year earlier period. The decline reflected elimination of the divested ENBU's expenditures, partially offset by higher R&D spending for component products and the remaining networking products business. Selling, general and administrative expenses increased 12% to $26.4 million, or 26.4% or revenues, in the first quarter of fiscal 1997, compared to $23.5 million, or 32.5% or revenues, in the year earlier period. The higher spending resulted chiefly from increases in: (I) selling and marketing costs in support of higher revenues and (ii) costs related to an upgrade to a new client/server information system. A 10% decrease in amortization of intangible assets in the first quarter of fiscal 1997 from the year earlier period reflected an accelerated write-off of certain assets during fiscal 1996, reducing the rate of quarterly amortization in succeeding periods. Operating Profits In the first quarter of fiscal 1997, the Comapny reported an operating profit of $3.2 million, or 3.2% of revenues, which compared to an operating loss of $4.7 million, or 6.5% of revenues, a year earlier. The major contributors to the increase were the elimination of losses from the divested ENBU and higher component products revenues. These benefits more than offset lower gross profit margins and higher information systems costs. Other Income and Expenses In the first quarter of fiscal 1997, interest expense and other income (expense) improved by $0.15 million over the year-earlier period, associated principally with lower interest charges from lower average loan balances during the period. Income Taxes In the first quarter of fiscal 1997, income taxes were provided at the Company's expected effective rate for fiscal 1997 of 41.0%. An income tax benefit of 39.0% for the first quarter of fiscal 1996 reflected the benefit of an election, made in the fourth quarter of fiscal 1995, under section 197 of the Internal Revenue Code, allowing the deductibility of goodwill associated with an October 1991 business acquisition. Wafer Purchase Agreements During fiscal 1996, the Company purchased $16.0 million of wafer fabrication equipment for installation in a semiconductor plant owned by Lucent Technologies' (formerly AT & T Corp.) Microelectronics Business Unit in Madrid, Spain. The agreement, under which the equipment was purchased, allocates sub-micron wafer production capacity to the Company for five years beginning in March 1996. In fiscal 1996, SMC purchased a minority equity interest in Singapore-based Chartered Semiconductor Pte Ltd. for $19.9 million which is included within other assets on the accompanying balance sheet. Under this agreement, Chartered allocates sub-micron wafer production capacity to the Company for ten years. This arrangement and the Lucent agreement are intended to provide a portion of the Company's long-term production requirements for integrated circuits. Liquidity and Capital Resources The Company's working capital increased to $110.9 million at May 31, 1996, from $93.1 million at the end of fiscal 1996. The increase in working capital was primarily from increases of $20.4 million in inventories and $7.6 million in accounts receivable partially offset by decreases of $5.6 million in cash and cash equivalents and an increase of $4.9 million in current liabilities. For reasons described below, the decrease in cash and cash equivalents to $12.8 million primarily relected financing capital expenditures of $4.6 million and the increase in inventories and accounts receivable, partially offset by an increase in long term debt of $16.3 million. During the first quarter of fiscal 1997, days sales outstanding (DSOs) increased to 57 days from 54 in the fourth quarter of fiscal 1996, but remained level with the first quarter of fiscal 1996. The increased DSOs and receivables in the first quarter of fiscal 1997 reflected a greater percentage of sales occurring toward the end of the quarter when compared to the preceding period. Cost of goods sold divided by inventory declined to 3.1 times, annualized, for the first quarter of fiscal 1997 from 4.0 times for the fourth quarter of fiscal 1996 but increased from 2.9 times for the year earlier period. The quarter-to-quarter decline in inventory turnover primarily relected an increase in component products inventory. This increase principally relected the fulfillment of commitments to acquire semiconductor wafers. These commitments were concluded when wafers were difficult to obtain. Because processed wafers have become more available, SMC received ample supplies during the first quarter. The Company expects to reduce this inventory over the balance of fiscal 1997. During the first quarter of fiscal 1997, the decrease in inventory turns resulted in the Company's noncompliance with a financial covenant under its $25.0 million line of credit agreement. In connection therewith, the Company obtained waivers from its banks respecting the failure to meet this covenant. The most significant capital expenditures in the first quarter were $2.1 million for production equipment to be used in SMC's own wafer foundry and $1.3 million for upgrading the Company's information system. The Company believes that its present working capital position, combined with forecasted cash flow and available borrowing capacity, will be sufficient to meet cash requirements for the next twelve months. Cash flow anticipated from operations, supplemented by borrowings under the revolving credit line, as necessary, is anticipated to be used chiefly to fund capital expenditures during the remainder of fiscal 1997. Capital expenditures expected in fiscal 1997 include upgrading the Company's information system and purchasing various foundry production, design and test equipment. Factors That May Affect Future Results Except for the historical information contained in this quarterly report, certain matters discussed herein are forward - looking statements that involve risks and uncertianties. The forward-looking statements contained herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. A number of variables could affect the Company's future operating results, including worldwide demand for personal computers and numerous competitive factors. The Company's most important customers for component products are personal computer producers, and a slowdown in the rate of growth in demand for PC s could affect the Company's growth and intensify competition. The inability to obtain adequate integrated circuit wafers could allow competitors who process wafers internally to gain market share relative to the Company. These competitors may also, more aggressively, reduce product prices. The Company's adapters are inserted in newly sold and previously installed PC s, so that the sales growth of PC s influences sales of adapters. Improvements in PC performance require more powerful adapters, and that has led to a shift in the mix of adapters that the Company sells towards the high speed PCI bus and Fast Ethernet adapters. The Company also sells PC cards for portable computers. Product mix, product prices and the acceptance of newly introduced products can be altered by competitors' new products, promotions and pricing. The Company's product development, sales and marketing progress is dependent on hiring and retaining employees with specific skills. The Company is also dependent on a limited number of suppliers for certain components, assemblies, software and finished products. High levels of production by PC manufacturers led to an industry-wide shortage of silicon wafer fabrication capacity in fiscal 1996 and 1995. While these shortages eased during the fourth quarter of fiscal 1996, they could occur again and lead to difficulty in securing additional manufacturing capacity, potentially curtailing revenue and profit growth over the remainder of fiscal 1997 and beyond. Alternatively, PC production could weaken, leading customers to cancel or delay orders for the Company's products. With 57% of the Company's revenues in the first quarter of fiscal 1997 shipped to customers located outside of the United States, global economic conditions and changes in foreign currecny exchange rates can influence the demand for the Company's products.Because of these and other circumstances that could affect the Company's operating results, past financial performance is not necessarily indicative of results to be expected in the future. 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: July 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 1ST QUARTER 10-Q
5 1,000 3-MOS FEB-29-1996 MAY-31-1996 12,841 0 63,591 1,544 80,831 171,512 145,583 83,668 284,246 60,657 16,250 1,378 0 0 282,868 284,246 100,072 100,072 63,196 63,196 33,639 174 93 3,249 1,917 1,917 0 0 0 1,917 0.14 0.14
-----END PRIVACY-ENHANCED MESSAGE-----