-----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, FxTJDKVLovwiUr0HweHu6LEt9XPRyszCBnndbwhexKopMAzbHHxsTyfGaO7kdK9k LUfaBlev4WIUKfnEColqbg== 0000093384-97-000020.txt : 19971015 0000093384-97-000020.hdr.sgml : 19971015 ACCESSION NUMBER: 0000093384-97-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971014 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: SEC FILE NUMBER: 000-07422 FILM NUMBER: 97694828 BUSINESS ADDRESS: STREET 1: 80 ARKAY DRIVE CITY: HAUPPAUGE STATE: NY ZIP: 11934 BUSINESS PHONE: 5164342904 MAIL ADDRESS: STREET 1: 80 ARKAY DR CITY: HAUPPAUGE STATE: NY ZIP: 11934 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, 1997 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 14, 1997 there were 15,553,531 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, 1997 1997 Assets Current assets: Cash and cash equivalents $ 10,465 $ 8,382 Accounts receivable, net of allowance for doubtful accounts of $1,056 and $881, respectively 20,181 16,371 Inventories 24,589 31,460 Deferred tax benefits 3,462 5,412 Other current assets 13,421 10,781 ---------- ---------- Total current assets 72,118 72,406 ---------- ---------- Property, plant and equipment: Land 3,832 3,832 Buildings and improvements 29,264 28,870 Machinery and equipment 92,627 93,500 ---------- ---------- 125,723 126,202 Less: accumulated depreciation 78,031 74,171 ---------- ---------- Property, plant and equipment, net 47,692 52,031 ---------- ---------- Other assets 29,066 29,024 Net assets of discontinued operations 62,961 65,807 ---------- ---------- $ 211,837 $ 219,268 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Short-term borrowings $ 4,900 $ - Accounts payable 9,584 15,042 Accrued expenses and other liabilities 11,255 9,319 Income taxes payable 14 129 ---------- ---------- Total current liabilities 25,753 24,490 ---------- ---------- Long-term debt - 7,000 Other liabilities 4,579 4,584 Minority interest in subsidiary 11,436 11,397 Shareholders' equity: Preferred stock, $.10 par value- Authorized 1,000,000 shares, none outstanding - - Common stock, $.10 par value- Authorized 30,000,000 shares, outstanding 15,517,000 and 13,876,000 shares, respectively 1,552 1,388 Additional paid-in capital 102,497 87,095 Retained earnings 61,501 78,920 Unrealized gain on investment, net of tax 1,243 953 Foreign currency translation adjustment 3,276 3,441 ---------- ---------- Total shareholders' equity 170,069 171,797 ---------- ---------- $ 211,837 $ 219,268 ========== ========== Interim figures are subject to independent year-end audit.
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, ------------------------- ------------------------- 1997 1996 1997 1996 Revenues $ 41,184 $ 53,687 $ 75,987 $ 114,228 Cost of goods sold 30,431 41,019 58,220 80,274 ---------- ---------- ---------- ---------- Gross profit 10,753 12,668 17,767 33,954 ---------- ---------- ---------- ---------- Operating expenses: Research and development 3,284 2,572 6,501 5,129 Selling, general and administrative 8,619 10,809 17,780 22,270 ---------- ---------- ---------- ---------- 11,903 13,381 24,281 27,399 ---------- ---------- ---------- ---------- Income (loss) from operations (1,150) (713) (6,514) 6,555 ---------- ---------- ---------- ---------- Other income (expense): Interest income 100 137 230 265 Interest expense (72) (243) (161) (336) Litigation settlement (2,000) - (2,000) - Other income (expense), net 16 191 128 167 ---------- ---------- ---------- ---------- (1,956) 85 (1,803) 96 ---------- ---------- ---------- ---------- Income (loss) before minority interest and provision for income taxes (3,106) (628) (8,317) 6,651 Minority interest in net income of subsidiary 33 - 39 - ---------- ---------- ---------- ---------- Income (loss) before provision for income taxes (3,139) (628) (8,356) 6,651 Provision for (benefit from) income taxes (1,070) (258) (2,948) 2,727 ---------- ---------- ---------- ---------- Income (loss) from continuing operations (2,069) (370) (5,408) 3,924 ---------- ---------- ---------- ----------- Income (loss) from discontinued operations,(net of income taxes of ($3,709), $357, ($6,432) and ($1,296), respectively (7,170) 512 (12,011) (1,866) ---------- ---------- ---------- ---------- Net income (loss) $ (9,239) $ 142 $ (17,419) $ 2,058 ========== ========== ========== ========== Income (loss) per common and common equivalent share: Income (loss) from continuing operations $ (0.14) $ (0.03) $ (0.35) $ 0.28 Income (loss) from discontinued operations (0.46) 0.04 (0.79) (0.13) ---------- ---------- ---------- ---------- Net income (loss) per common and common equivalent share $ (0.60) $ 0.01 $ (1.14) $ 0.15 ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding 15,490 13,864 15,245 13,836 Interim figures are subject to independent year-end audit.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended ------------------------ August 31, ------------------------ 1997 1996 ---- ---- Cash flows from operating activities: Cash received from customers $ 72,226 $ 104,271 Cash paid to suppliers and employees (73,439) (117,634) Interest received 209 260 Interest paid (155) (453) Income taxes received 2,406 1,604 ---------- ---------- Net cash provided by (used for) operating activities 1,247 (11,952) ---------- ---------- Cash flows from investing activities: Capital expenditures (2,812) (6,096) Other 45 288 ---------- --------- Net cash used for investing activities (2,767) (5,808) ---------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 15,008 346 Borrowings under line of credit agreements 29,160 23,950 Repayments of borrowings under line of credit agreements (31,260) (15,950) ---------- --------- Net cash provided by financing activities 12,908 8,346 ---------- --------- Effect of foreign exchange rate changes on cash and cash equivalents (140) (266) ---------- --------- Net cash provided by (used for) discontinued operations (9,165) 2,833 ---------- --------- Net increase (decrease) in cash and cash equivalents 2,083 (6,847) Cash and cash equivalents at beginning of period 8,382 18,459 ---------- --------- Cash and cash equivalents at end of period $ 10,465 $ 11,612 ========== ========== Reconciliation of net income (loss) to net cash provided by (used for) operating activities: Net income (loss) $ (17,419) $ 2,058 Add: net loss from discontinued operations 12,011 1,866 ---------- ---------- Income (loss) from continuing operations (5,408) 3,924 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 6,376 6,004 Other adjustments, net 460 631 Changes in operating assets and liabilities: Accounts receivable (4,017) (9,961) Inventories 6,861 (7,323) Accounts payable and accrued expenses and other liabilities (2,319) (4,503) Other changes, net (706) (724) ---------- -------- Net cash provided by (used for) operating activities $ 1,247 $ (11,952) ========== =========== Interim figures are subject to independent year-end audit.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation 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, 1997. 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, 1997. 2. Inventories Inventories are valued at the lower of first-in, first-out cost or market and consist of the following (in thousands): Aug. 31, 1997 Feb. 28, 1997 Raw Materials $ 1,570 $ 1,788 Work in Process 19,042 23,619 Finished Goods 3,977 6,053 ---------- ---------- $ 24,589 $ 31,460 ========== ========== 3. Discontinued Operations In October 1997, the Company reorganized its System Products Division into a new corporation, SMC Networks, Inc., and sold an 80.1% interest in the new corporation to Accton Technology Corporation of Hsinchu, Taiwan (Accton) for approximately $40.2 million in cash. The Company will retain a 19.9% interest in the new business, which supplies adapter cards, hubs and switches for local area networks. This investment will be carried by the Company at cost. As a result of this transaction, the Company expects to report a pre-tax gain of approximately $2 million, after related costs, in the third quarter ended November 30, 1997. Approximately $2.0 million of the sale proceeds have been placed into an escrow account until January 2, 1999, as security for the Company's indemnity obligations in this transaction. The Company will also be providing certain administrative support services for the new business, including finance and information services, at fair value, until such time as either party elects to terminate such services, with notice as defined in the related agreement. As a result of this transaction, the net assets, operating results and cash flows of the System Products Division have been classified as a discontinued operation in the accompanying consolidated financial statements. Standard Microsystems Corporation's operations will now consist almost entirely of its Component Products Division, which supplies integrated circuits for the personal computer industry. Summarized financial information for the discontinued operation is as follows (in millions): Three Months Ended Six Months Ended August 31, August 31, 1997 1996 1997 1996 -------------- ---------------- Revenues $ 30.3 $45.5 $ 60.0 $ 85.0 Income (loss) before income taxes (10.9) 0.9 (18.4) (3.2) Net income (loss) (7.2) 0.5 (12.0) (1.9) August 31, February 28, 1997 1997 ----------------------- Current assets $ 53.5 $57.7 Total assets 72.8 80.6 Current liabilities 9.8 14.8 Net assets 63.0 65.8 4. Commitments and Contingencies In September 1997, the Company signed an agreement to settle a class action lawsuit initiated in 1995. In June 1995, several actions were filed against the Company and certain of its officers and directors. These complaints were consolidated into a class action on behalf of the purchasers of Standard Microsystems' common stock between September 19, 1994, and June 2, 1995. The consolidated complaint asserted claims under federal securities laws and alleged that the price of the Company's commons stock had been artificially inflated during the class action period by false and misleading statements and the failure to disclose certain information. The Company, its officers and its directors strongly denied, and continue to deny, all of these allegations. On September 10, 1997, the Company and counsel for the class action plaintiffs signed an agreement to settle the consolidated action in its entirety. Although Standard Microsystems believes that the claims asserted in the class action were without merit, the Company believes that it was in the best interest of its shareholders to settle the case due to the continuing costs of defense, the distraction of management's attention and the uncertainties inherent in any litigation. As a result of this settlement, the Company recorded a net pre-tax charge of $2.0 million in its second quarter ended August 31, 1997. Several steps remain before this settlement can become effective. Before notice can be sent to the class, the settlement must be approved by the Federal judge who was assigned this case. If the court does not approve the settlement, or if certain other circumstances as set forth in a notice to class members occur, the proposed settlement may not become effective. In May 1997, Cabletron Systems, Inc. and Cabletron Systems Acquisition, Inc. (together, Cabletron) commenced legal action in the Superior Court for the Commonwealth of Massachusetts, against the Company claiming violation of the non-competition clause included in the January 1996 Asset Purchase Agreement among the Company and Cabletron. The action seeks an injunction and unspecified damages. Cabletron's motion for preliminary injunctive relief was denied in May 1997. The Company firmly believes that this claim is without merit and intends to vigorously defend against it. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Discontinued Operations In October 1997, the Company reorganized its System Products Division into a new corporation, SMC Networks, Inc., and sold an 80.1% interest in the new corporation to Accton Technology Corporation of Hinschu, Taiwan (Accton) for approximately $40.2 million in cash. The Company will retain a 19.9% interest in the new business, which supplies adapter cards, hubs and switches for local area networks. This investment will be carried by the Company at cost. As a result of this transaction, the Company expects to report a pre-tax gain of approximately $2 million, after related costs, in the third quarter ended November 30, 1997. Approximately $2.0 million of the sale proceeds have been placed into an escrow account until January 1999, as security for the Company's indemnification obligations in this transaction. The Company will also be providing certain administrative support services for the new business, including finance and information systems services, at fair value, until such time as either party elects to terminate such services, with notice to the other party as defined in the related agreement. As a result of this transaction, the net assets, operating results and cash flows of the Company's System Products Division have been classified as a discontinued operation within the accompanying consolidated financial statements. Standard Microsystems Corporation's operations will now consist almost entirely of its Component Products Division, which supplies integrated circuits for the personal computer industry. As part of the agreement for this transaction, SMC Networks, Inc. will obtain exclusive right to use the "SMC" trade name and logo. Standard Microsystems Corporation will adopt the trade name "SMSC", which also serves as the Company's NASDAQ stock ticker symbol. Continuing Operations The Company will now conduct its operations primarily through its Component Products Division, which designs, produces and markets very-large-scale-integrated circuits, mainly for control of various personal computer functions. The Division also operates a wafer foundry which supplies specialized semiconductor-related products. The following table presents the Company's Consolidated Statements of Income, through income (loss) from continuing operations, as percentages of revenues, for the three and six month periods ended August 31, 1997 and 1996 : Three Months Ended Six Months Ended August 31, August 31, ------------------- ----------------- 1997 1996 1997 1996 ------ ------ ------ ------ Revenues 100.0% 100.0% 100.0% 100.0% Cost of goods sold 73.9 76.4 76.6 70.3 ------- ------- ------- ------- Gross profit 26.1 23.6 23.4 29.7 ------- ------- ------- ------- Operating expenses: Research and development 8.0 4.8 8.6 4.5 Selling, general and administrative 20.9 20.1 23.4 19.5 ------- ------- ------- ------- 28.9 24.9 32.0 24.0 ------- ------- ------- ------- Income (loss) from operations (2.8) (1.3) (8.6) 5.7 ------- ------- ------- ------- Other income (expense): Interest income 0.2 0.3 0.3 0.2 Interest expense (0.2) (0.5) (0.2) (0.3) Litigation settlement (4.9) 0.0 (2.6) 0.0 Other income (expense), net 0.0 0.4 0.2 0.1 ------- ------- ------- ------- (4.7) 0.2 (2.4) 0.1 ------- ------- ------- ------- Income (loss) from continuing operations before minority interest and provision for income taxes (7.5) (1.2) (10.9) 5.8 ------- ------- ------- ------- Minority interest in net income of subsidiary 0.1 0.0 0.1 0.0 ------- ------- ------- ------- Income (loss) from continuing operations before provision for income taxes (7.6) (1.2) (11.0) 5.8 ------- ------- ------- ------- Provision for (benefit from) income taxes (2.6) (0.5) (3.9) 2.4 ------- ------- ------- ------- Income (loss) from continuing operations (5.0)% (0.7)% (7.1)% 3.4% ------- ------- ------- ------- - -------------------------------------------------------------------------------- Revenues The Company's revenues of $41.2 million for the second quarter of fiscal 1998 declined 23.3% from year-earlier revenues of $53.7 million. For the first six months of fiscal 1998, revenues of $76.0 represent a decline of 33.5% compared to $114.2 for the year-earlier six month period. This revenue decline was the result of competitive market conditions for its personal computer (PC) input/output (I/O) devices in both the first and second quarters of fiscal 1998, compared to the previous year. These competitive conditions led to aggressive pricing by several of the Company's competitors, resulting in considerable declines in average selling prices. In addition, revenues reported by the Company's foundry business unit declined from $4.7 million and $10.7 million for the three and six months ended August 31, 1996, respectively, to $2.4 and $4.0 million for the corresponding periods of fiscal 1998. Gross Profit The Company's gross profit margin for the second quarter of fiscal 1998 was 26.1%, an increase of 2.5% from 23.6% reported in for the second quarter of fiscal 1997. Gross profit margin for the six months ended August 31, 1997 was 23.4%, compared to 29.7% for the six months ended August 31, 1996, a decrease of 6.3%. The principal factor contributing to the 2.5% gross margin increase in the second quarter of fiscal 1998, compared to the second quarter of fiscal 1997, was a shift in product mix towards higher margin devices. The decline in gross margin for the six months ended August 31, 1997, as compared to the fiscal 1997 margin, resulted from sharply reduced selling prices on PC I/O devices, a decline in foundry business unit revenue and a decline in licensing revenues. Operating Expenses Research and development expenses increased 26.9% to $3.3 million in the second quarter of fiscal 1998, from $2.6 million in the year-earlier period. Such expenses for the current six month period increased by 27.5% to $6.5 million, from $5.1 million in the year-earlier period. This increase for both the current year's three and six month periods reflects an increased engineering staff compared to the year-earlier periods. Selling, general and administrative expenses declined 19.4% to $8.7 million in the second quarter of fiscal 1998, compared to $10.8 million in the year-earlier period, and declined 20.2% to $17.8 million for the current six month period, compared to $22.3 million for the comparable year-earlier period. These lower selling, general and administrative expenses reflected lower variable selling expenses associated with lower revenues and reduced staffing in corporate administrative areas, including finance and information systems. Other Income and Expense During the second quarter of fiscal 1998, the Company recorded a $2.0 million charge for the settlement of class action litigation initiated in 1995. Please see Note 4 to the Consolidated Financial Statements included herein for additional details. Income Taxes For the second quarter of fiscal 1998, the Company recorded an income tax benefit at an effective tax rate of 34.1%, compared to the 41.1% effective tax benefit rate used in the comparable period of fiscal 1997. The Company's effective income tax rate primarily reflects statutory tax rates and the impact of certain non-deductible goodwill amortization. Liquidity and Capital Resources As previously discussed, the Company received $40.2 million of cash in October 1997 pursuant to the reorganization of its System Products Division and concurrent sale of an 80.1% interest in the reorganized business. $2.0 million of these proceeds have been deposited in an escrow account until January 1999. These proceeds are currently intended to provide working capital for, and help finance capital and other investment requirements of, the Company's Component Products Division. For the first six months of fiscal 1998, net cash provided by continuing operating activities was $1.2 million; investing activities used $2.8 million and cash provided by financing activities was $12.9 million; the effect of foreign exchange rate changes was a gain of $0.1 million, giving the Company a net increase in cash from continuing operations of $11.2 million. Discontinued operations used $9.2 million during the current six month period. The majority of the cash provided by investing activities in fiscal 1998 was provided pursuant to a March 1997 equity investment of $14.6 million in the Company by Intel Corporation of Santa Clara, California. The Company's working capital decreased $1.5 million to $46.4 million at August 31,1997, compared to $47.9 million as of February 28, 1997. Inventory levels declined noticeably during the period, from $31.5 million to $24.6 million, as inventory turnover improved to slightly over four times per year. Capital expenditures declined to $2.8 million during the current six month period, compared to $6.1 million in the prior year six month period. Capital expenditures are expected to increase during the second half of the current fiscal year to support an expansion of the Company's manufacturing capacity. Included within Other current assets as of August 31, 1997 is $7.5 million held in an interest-bearing escrow account. This account was established pursuant to the Company's January 1996 sale of a business unit to Cabletron Systems Inc. (Cabletron), as security for the Company's indemnification obligations in that transaction. In April 1997, Cabletron filed a claim against the escrow account, and in May 1997 filed a related lawsuit, alleging breach by the Company of the non-competition clause of related agreement. The lawsuit seeks an injunction and unspecified damages. The Company firmly believes this claim is without merit and is pursuing its claim to this escrow fund. The Company maintains a $25 million line of credit with two banks, which permits the Company to borrow funds on a revolving basis, primarily to finance working capital needs. In May 1997, the Company and its banks renegotiated the terms of the credit line, extending the agreement through July 1998. This agreement provides the banks with a general security interest in the Company's trade accounts receivable and inventory. As of August 31, 1997, borrowings under this line of credit totaling $4.9 million have been classified as short-term borrowings due to the July 1998 expiration of the current agreement. The Company intends to renegotiate this credit line, or pursue other financing arrangements, prior to such expiration. The Company believes that its current cash reserves, cash flows generated from operations and existing line of credit will be sufficient to meet its liquidity requirements for the next twelve months. Factors That May Affect Future Results Certain statements and information contained in this quarterly report, constitute "forward-looking statements" within the meaning of the Federal Securities laws. These forward-looking statements involve risks and uncertainties which may cause actual results and performance to be different from those expressed or implied in such statements. The Company competes in the personal computer semiconductor market which is characterized by intense competition, rapid changes in technology and price erosion. Many of the competitors in these markets are larger and have significantly greater financial and other resources than the Company. The Company's quarterly and annual operating results may be influenced by factors, including, among other things: worldwide demand for personal computers, the ability to introduce competitive products on a timely basis, constraints on the availability and fluctuations in the cost of subcontract manufacturing, the ability to forecast market and customer demand and new products and technologies introduced by competitors. Sales of most of the Company's products depend largely on sales of personal computers. Reductions in the rate of growth in the PC market could adversely affect the Company's operating results. In addition, as a component supplier to PC manufacturers, the Company's Component Products Division often experiences a greater magnitude of demand fluctuation than the Division's customers themselves experience. Also, some of the Company's products are used in PCs for the consumer market, which tends to be more volatile than other segments of the PC marketplace. The Company's success is highly dependent upon its ability to develop new products, bring them to the market ahead of its competitors and induce customers to select its products for their needs. In an environment of accelerating changes in technology and short product life cycles, these factors have become increasingly challenging and important. The vast majority of the Company's products are manufactured, assembled and tested 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, availability of advanced process technologies, changes in manufacturing yields and potential cost fluctuations. The Company generally must order inventory to be built by its foundries and subcontract manufacturers well in advance of product shipments. Because the Company's markets are volatile, there is risk that the Company may forecast incorrectly and produce excess or insufficient inventories. This inventory risk is increased by the recent trend for customers to place orders with increasingly shorter lead times. 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 demand for and supply of the Company's products, including currency exchange rate fluctuations, economic and trade policies and the Asian political environment. The Company's performance is inherently dependent upon hiring and retaining employees with specific skills. The inability to hire and retain such employees could hinder the Company's product development and ability to manufacture, market and sell its products. 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 and the overall financial condition of the customer. Item 3 - Quantitative and Qualitative Disclosures About Market Risk Not applicable. PART II - OTHER INFORMATION Item 1. Legal Proceedings In September 1997, the Company signed an agreement to settle a class action lawsuit initiated in 1995. In June 1995, several actions were filed against the Company and certain of its officers and directors. These complaints were consolidated into a class action on behalf of the purchasers of Standard Microsystems' common stock between September 19, 1994, and June 2, 1995. The consolidated complaint asserted claims under federal securities laws and alleged that the price of the Company's common stock had been artificially inflated during the class action period by false and misleading statements and the failure to disclose certain information. The Company, its officers and its directors strongly denied, and continue to deny, all of these allegations. On September 10, 1997, the Company and counsel for the class action plaintiffs signed an agreement to settle the consolidated action in its entirety. Although Standard Microsystems believes that the claims asserted in the class action were without merit, the Company believes that it was in the best interest of its shareholders to settle the case due to the continuing costs of defense, the distraction of management's attention and the uncertainties inherent in any litigation. As a result of this settlement, the Company recorded a net pre-tax charge of $2.0 million in its second quarter ended August 31, 1997. Several steps remain before this settlement can become effective. Before notice can be sent to the class, the settlement must be approved by the Federal judge who was assigned this case. If the court does not approve the settlement, or if certain other circumstances as set forth in a notice to class members occur, the proposed settlement may not become effective. 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 15, 1997. The following were elected directors, each receiving the number of votes set opposite his name: Broker For Withheld Non-votes Robert M. Brill 14,311,046 17,714 -0- Paul Richman 14,235,054 93,706 -0- A stockholder proposal relating to director retirement plans was defeated by the following vote: Broker For Against Abstain Non-votes 3,389,548 5,901,000 204,814 5,119,995 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 14,453,736 110,524 51,097 -0- 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: October 14, 1997 /S/ Eric M. Nowling --------------------------------- (Signature) Eric M. Nowling Vice President and Controller (Chief Financial and Accounting Officer) EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1,000 6-MOS FEB-28-1997 AUG-31-1997 10,465 0 20,181 1,056 24,589 72,118 125,723 47,692 211,837 25,753 0 0 0 1,552 168,517 211,837 75,987 75,987 58,220 58,220 24,281 175 161 (8,356) (2,948) (5,408) (12,011) 0 0 (17,419) (1.14) (1.14)
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