-----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, HpQSSkbsBAwEwGodeuT2KEUSq0JwoMwB8Oqbu55eESJcZZW0EskCJkrbjghb0oTI njD7L6IYSeS4o76XQANhEg== 0000093384-04-000015.txt : 20040702 0000093384-04-000015.hdr.sgml : 20040702 20040702142700 ACCESSION NUMBER: 0000093384-04-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040531 FILED AS OF DATE: 20040702 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD MICROSYSTEMS CORP CENTRAL INDEX KEY: 0000093384 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] 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: 04899231 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 f10q_1qtr-2005.txt UNITED STATES 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, 2004 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: 631-435-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes _X_ No ____ As of May 31, 2004, there were 18,417,890 shares of the registrant's common stock outstanding. Standard Microsystems Corporation Form 10-Q For the Quarter Ended May 31, 2004 Table of Contents Part I Financial Information Item 1 Financial Statements (unaudited): Condensed Consolidated Balance Sheets as of May 31, 2004 and February 29, 2004 Condensed Consolidated Statements of Operations for the Three Months Ended May 31, 2004 and 2003 Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 31, 2004 and 2003 Notes to Condensed Consolidated Financial Statements Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3 Quantitative and Qualitative Disclosures About Market Risk Item 4 Controls and Procedures Part II Other Information Item 1 Legal Proceedings Item 6 Exhibits and Reports on Form 8-K Signature PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (In thousands) May 31, February 29, 2004 2004 ---- ---- Assets Current assets: Cash and cash equivalents $ 130,855 $ 135,161 Short-term investments 27,260 23,136 Accounts receivable, net 29,821 21,946 Inventories 23,199 23,162 Deferred income taxes 14,748 15,064 Other current assets 8,946 8,549 - ------------------------------------------------------------------------------- Total current assets 234,829 227,018 - ------------------------------------------------------------------------------- Property, plant and equipment, net 23,295 23,430 Long-term investments 11,600 15,600 Goodwill 29,595 29,595 Intangible assets, net 4,380 4,697 Deferred income taxes 6,276 6,493 Other assets 3,169 3,192 - ------------------------------------------------------------------------------- $ 313,144 $ 310,025 =============================================================================== Liabilities and shareholders' equity Current liabilities: Accounts payable $ 12,661 $ 14,679 Deferred income on shipments to distributors 11,912 7,972 Accrued expenses, income taxes and other liabilities 11,654 13,168 - ------------------------------------------------------------------------------- Total current liabilities 36,227 35,819 - ------------------------------------------------------------------------------- Other liabilities 11,488 12,104 Shareholders' equity: Preferred stock - - Common stock 2,024 2,019 Additional paid-in capital 182,993 181,830 Retained earnings 101,922 99,010 Treasury stock, at cost (23,454) (23,454) Deferred stock-based compensation (2,658) (1,962) Accumulated other comprehensive income 4,602 4,659 - ------------------------------------------------------------------------------- Total shareholders' equity 265,429 262,102 - ------------------------------------------------------------------------------- $ 313,144 $ 310,025 =============================================================================== See Notes to Condensed Consolidated Financial Statements. STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three Months Ended ---------------------------------- May 31, ---------------------------------- 2004 2003 ---- ---- Sales and revenues: Product sales $ 50,352 $ 42,488 Intellectual property revenues 2,701 233 - -------------------------------------------------------------------------------- 53,053 42,721 Cost of goods sold 26,385 22,059 - -------------------------------------------------------------------------------- Gross profit 26,668 20,662 Operating expenses (income): Research and development 10,862 9,101 Selling, general and administrative 11,852 9,513 Amortization of intangible assets 317 360 Gains on real estate transactions - (1,444) - -------------------------------------------------------------------------------- Income from operations 3,637 3,132 Interest income 466 443 Other expense, net (32) (736) - -------------------------------------------------------------------------------- Income before provision for income taxes and minority interest 4,071 2,839 Provision for income taxes 1,159 895 Minority interest in net income of subsidiary - 61 - -------------------------------------------------------------------------------- Income from continuing operations 2,912 1,883 Loss from discontinued operations (net of income tax benefits of $92) - (164) - -------------------------------------------------------------------------------- Net income 2,912 1,719 ================================================================================ Basic net income per share: Income from continuing operations $ 0.16 $ 0.11 Loss from discontinued operations - (0.01) - -------------------------------------------------------------------------------- Basic net income per share 0.16 0.10 ================================================================================ Diluted net income per share: Income from continuing operations $ 0.15 $ 0.11 Loss from discontinued operations - (0.01) - -------------------------------------------------------------------------------- Diluted net income per share 0.15 0.10 ================================================================================ Weighted average common shares outstanding: Basic 18,246 16,793 Diluted 19,790 17,331 The sum of the income (loss) per share amounts may not total due to rounding. See Notes to Condensed Consolidated Financial Statements. STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended May 31, ------------------------------------- 2004 2003 --------------- --------------- Cash flows from operating activities: Cash received from customers and licensees $ 50,938 $ 44,274 Cash paid to suppliers and employees (52,240) (42,623) Interest received 421 427 Interest paid (39) (24) Income taxes paid (44) (125) - --------------------------------------------------------------------------------------------------- Net cash provided by (used for) operating activities (964) 1,929 - --------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (2,902) (1,602) Sales of property, plant and equipment - 7,071 Sales of long-term investments 4,000 1,199 Purchases of short-term investments (7,130) (9,022) Sales of short-term investments 3,006 12,794 Other 5 (9) - --------------------------------------------------------------------------------------------------- Net cash provided by (used for) investing activities (3,021) 10,431 - --------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of common stock 210 31 Repayments of obligations under capital leases and notes payable (506) (438) - --------------------------------------------------------------------------------------------------- Net cash used for financing activities (296) (407) - --------------------------------------------------------------------------------------------------- Effect of foreign exchange rate changes on cash and cash equivalents (25) 85 Cash used for discontinued operation - (256) - --------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (4,306) 11,782 Cash and cash equivalents at beginning of period 135,161 90,025 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 130,855 $ 101,807 =================================================================================================== Reconciliation of income from continuing operations to net cash provided by (used for) operating activities: Income from continuing operations $ 2,912 $ 1,883 Adjustments to reconcile income from continuing operations to net cash provided by (used for) operating activities: Depreciation and amortization 2,942 2,750 Tax benefits from employee stock plans 49 3 Gains from sales of investments and property, net - (696) Other adjustments, net (5) (67) Changes in operating assets and liabilities: Accounts receivable (7,960) (1,739) Inventories (48) (2,711) Accounts payable, deferred income, accrued expenses and other liabilities 451 2,994 Current and deferred income taxes 1,067 621 Other changes, net (372) (1,109) - --------------------------------------------------------------------------------------------------- Net cash provided by (used for) operating activities $ (964) $ 1,929 ===================================================================================================
See Notes to Condensed Consolidated Financial Statements. STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial information of Standard Microsystems Corporation and subsidiaries, referred to herein as "SMSC" or "the Company", has been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission, and reflects all adjustments, consisting only of normal recurring adjustments, which in management's opinion are necessary to state fairly the Company's financial position, results of operations and cash flows for all periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of sales and revenues and expenses during the reporting period. Actual results may differ from those estimates, and such differences may be material to the financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended February 29, 2004 included in the Company's annual report on Form 10-K, as filed on May 14, 2004 with the Securities and Exchange Commission (SEC). The results of operations for the three months ended May 31, 2004 are not necessarily indicative of the results to be expected for any future periods. 2. Stock-Based Compensation The Company has in effect several stock-based compensation plans under which incentive stock options, non-qualified stock options and restricted stock awards are granted to employees and directors. All stock options are granted with exercise prices equal to the fair value of the underlying shares on the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and accordingly recognizes no compensation expense for the stock option grants. Additional pro forma disclosures as required under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," are detailed below. For purposes of pro forma disclosures, the estimated fair market value of the Company's options is amortized as an expense over the options' vesting periods. The fair value of each option grant, as defined by SFAS No. 123, is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model, as well as other currently accepted option valuation models, was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, that significantly differ from the Company's stock option awards. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of employee stock options. For purposes of pro forma disclosures, the estimated fair market value of the Company's options is amortized as an expense over the options' vesting periods. Had compensation expense been recorded under the provisions of SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been the pro forma amounts indicated below (in thousands, except per share data):
Three Months Ended May 31, --------------------------- 2004 2003 --------------------------- Net income - as reported $ 2,912 $ 1,719 Add: Stock-based compensation expense included in net income, net of taxes - as reported 141 204 Deduct: Stock-based compensation expense determined using the fair value method for all awards, net of taxes (2,421) (2,436) ---------------------------------------------------------------------------------------- Net income (loss) - pro forma $ 632 $ (513) ======================================================================================== Basic net income per share - as reported $ 0.16 $ 0.10 ======================================================================================== Diluted net income per share - as reported $ 0.15 $ 0.10 ======================================================================================== Basic net income (loss) per share - pro forma $ 0.03 $ (0.03) ======================================================================================== Diluted net income (loss) per share - pro forma $ 0.03 $ (0.03) ========================================================================================
3. Balance Sheet Data Inventories are valued at the lower of first-in, first-out cost or market and consist of the following (in thousands): May 31, 2004 Feb. 29, 2004 ------------------------------------------------------------------------- Raw materials $ 836 $ 910 Work in process 14,514 13,202 Finished goods 7,849 9,050 ------------------------------------------------------------------------- $ 23,199 $ 23,162 ========================================================================= Property, plant and equipment consist of the following (in thousands): May 31, 2004 Feb. 29, 2004 ------------------------------------------------------------------------- Land $ 1,570 $ 1,570 Buildings and improvements 21,042 20,842 Machinery and equipment 92,146 90,195 ------------------------------------------------------------------------ 114,758 112,607 Less: accumulated depreciation 91,463 89,177 ------------------------------------------------------------------------ $ 23,295 $ 23,430 ======================================================================== 4. Net Income Per Share Basic net income per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of unvested restricted stock awards and shares issuable through stock options. The shares used in calculating basic and diluted net income per share for the Condensed Consolidated Statements of Operations included within this report are reconciled as follows (in thousands): Three Months Ended May 31, ---------------------------- 2004 2003 ------------- -------------- Average shares outstanding for basic net income per share 18,246 16,793 Dilutive effect of stock options and unvested restricted stock awards 1,544 538 ------------------------------------------------------------------------- Average shares outstanding for diluted net income per share 19,790 17,331 ========================================================================= Stock options covering 0.2 million and 2.9 million shares for the three-month periods ended May 31, 2004 and 2003, respectively, were excluded from the computation of average shares outstanding for diluted net income per share because their effects were anti-dilutive. 5. Comprehensive Income The Company's other comprehensive income consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, and unrealized gains and losses on equity investments classified as available-for-sale. The components of the Company's comprehensive income for the three months ended May 31, 2004 and 2003 were as follows (in thousands): Three Months Ended May 31, -------------------------- 2004 2003 ---------- ---------- Net income $ 2,912 $ 1,719 Other comprehensive income: Change in foreign currency translation adjustment (53) 38 Change in unrealized gain (loss) on marketable equity securities, net of taxes (4) 14 Reclassification adjustment for loss on marketable equity security included in net income, net of taxes - 665 --------------------------------------------------------------------------- Total comprehensive income $ 2,855 $ 2,436 =========================================================================== During the three months ended May 31, 2003, the Company sold its remaining equity investment in Chartered Semiconductor Manufacturing, Ltd. This investment was classified as available-for-sale, and temporary changes in its market value, net of income taxes, were included within the Company's Other comprehensive income, and were presented cumulatively as an unrealized gain or loss, net of income taxes, within Accumulated other comprehensive income on the Company's Consolidated Balance Sheets. The amount presented as a reclassification adjustment in the preceding table represents the amount previously reported within Other comprehensive income as an unrealized loss on this investment, net of income taxes, through the applicable reporting dates. 6. Agreements with Intel Corporation In 1987, the Company and Intel Corporation (Intel) entered into an agreement providing for, among other things, a broad, worldwide, non-exclusive patent cross-license, covering manufacturing processes and products, thereby providing each company access to the other's current and future patent portfolios. In September 2003, the Company and Intel announced that they had enhanced their intellectual property and business relationship. The companies agreed to collaborate on certain future Input/Output (I/O) and sensor products, and Intel agreed to use the Company's devices on certain current and future generations of Intel products. In addition, the Company agreed to limit its rights, under its 1987 patent cross-license with Intel, to manufacture and sell Northbridge products and Intel Architecture Microprocessors on behalf of third parties. The companies also terminated an Investor Rights Agreement between them, which had been entered into in connection with Intel's 1997 acquisition of 1,543,000 shares of the Company's common stock. Under this agreement, Intel had certain information, corporate governance and other rights with respect to the activities of the Company. In respect of this relationship, Intel will pay to the Company an aggregate amount of $75 million, of which $20 million and $2.5 million was paid and recognized as Intellectual property revenue in the third and fourth quarters of fiscal 2004, respectively, and $2.5 million was paid and recognized as Intellectual property revenue in the first quarter of fiscal 2005. Of the remaining amount, $5 million will be paid during the balance of calendar year 2004, $10 million will be paid in calendar year 2005, $11 million will be paid in calendar year 2006, and $12 million will be paid in each of calendar years 2007 and 2008. Such amounts are payable in equal quarterly installments within each calendar year, and are subject to possible reduction, in a manner and to an extent to be agreed by the parties, based upon the companies' collaboration and sales, facilitated by Intel, of certain future new products of the Company. 7. Business Restructuring In December 2001, the Company announced a restructuring plan for its exit from the PC chipset business. The Company's reserve related to this restructuring declined from $1.0 million at February 29, 2004 to $0.9 million at May 31, 2004, reflecting payments against previously reserved non-cancelable lease obligations, which will continue through their respective lease terms through August 2008. 8. Discontinued Operations The Company had been involved in an arbitration proceeding with Accton Technology Corporation (Accton) and SMC Networks, Inc. (Networks), relating to claims associated with the October 1997 purchase of a majority interest in Networks by Accton from SMSC. This divestiture was accounted for as a discontinued operation, and accordingly, costs associated with this action, net of income taxes, were reported within Loss from discontinued operations on the Consolidated Statements of Operations. These costs totaled $0.2 million for the three months ended May 31, 2003, after applicable income tax benefits. This action was settled during the fourth quarter of fiscal 2004. 9. Goodwill and Intangible Assets The Company's June 2002 acquisition of Tucson, Arizona-based Gain Technology Corporation included the acquisition of $7.1 million of finite-lived intangible assets and $29.6 million of goodwill, after adjustments. In accordance with the provisions of SFAS No. 142, this goodwill is not amortized, but is tested for impairment in value annually, as well as when an event or circumstance occurs indicating a possible impairment in its value. All finite-lived intangible assets are being amortized on a straight-line basis over their estimated useful lives. Existing technologies were assigned an estimated useful life of six years. Customer contracts were assigned useful lives of between one and ten years (with a weighted average life of approximately seven years), and non-compete agreements were assigned useful lives of two years. The weighted average useful life of all intangible assets is approximately six years. As of May 31, 2004 and February 29, 2004, the Company's finite-lived intangible assets consisted of the following (in thousands):
May 31, 2004 February 29, 2004 ------------------------------------------------------------------------------------------ Accumulated Accumulated Cost Amortization Cost Amortization ------------------------------------------------------------------------------------------ Existing technologies $ 6,179 $ 2,060 $ 6,179 $ 1,802 Customer contracts 326 65 326 57 Non-compete agreements 410 410 410 359 ------------------------------------------------------------------------------------------ $ 6,915 $ 2,535 $ 6,915 $ 2,218 ==========================================================================================
Estimated future intangible asset amortization expense for the remainder of fiscal 2005 and thereafter, is as follows (in thousands): Period Amount ------------------------------------------------- Remainder of fiscal 2005 $ 797 Fiscal 2006 1,062 Fiscal 2007 1,062 Fiscal 2008 1,062 Fiscal 2009 290 Fiscal 2010 and thereafter 107 ================================================= 10. Real Estate Transactions During the quarter ended May 31, 2003, the Company sold certain portions of its Hauppauge, New York real estate holdings, for aggregate proceeds of $7.0 million, net of transaction costs. These transactions resulted in an aggregate gain of $1.7 million, $1.4 million of which related to property in which the Company has no continued interest and was recognized within the Company's fiscal 2004 first quarter operating results, and $0.3 million of which related to property that the Company has leased back from the purchaser and was therefore deferred. This deferred gain is being recognized within the Company's operating results as a reduction in rent expense on a straight-line basis over a 30-month period beginning in June 2003, consistent with the term of the lease. The Company's remaining rent obligation over the term of this lease is approximately $0.5 million. 11. Retirement Plans The Company maintains an unfunded Supplemental Executive Retirement Plan to provide senior management with retirement, disability and death benefits. The Company's subsidiary, SMSC Japan, also maintains an unfunded retirement plan, which provides its employees and directors with separation benefits, consistent with customary practices in Japan. Benefits under these defined benefit plans are based upon various service and compensation factors. The Company is the beneficiary of life insurance policies that have been purchased as a method of partially financing benefits under the Supplemental Executive Retirement Plan. The following table sets forth the components of the consolidated net periodic pension expense for the three months ended May 31, 2004 and 2003, respectively (in thousands): Three Months Ended May 31, -------------------------- 2004 2003 ------------------------------------------------------------------------- Service cost - benefits earned $ 72 $ 66 Interest cost on projected benefit obligations 106 102 Net amortization and deferral 72 68 ------------------------------------------------------------------------- Net periodic pension expense $ 250 $ 236 ========================================================================= 12. Litigation In June 2003, SMSC was named as a defendant in a patent infringement lawsuit filed by Analog Devices, Inc. (ADI) in the United States District Court for the District of Massachusetts (Analog Devices, Inc. v. Standard Microsystems Corporation, Case Number 03 CIV 11216). The Complaint, as amended, alleges that some of the Company's products infringe one or more of three of ADI's patents, and seeks injunctive relief and unspecified damages. In September 2003, the Company filed an Answer in the lawsuit, denying ADI's allegations and raising affirmative defenses and counterclaims. The Company is vigorously defending the lawsuit and collecting evidence to support its defenses to infringement and its allegations of patent invalidity and unenforceability. Although it is premature to assess the outcome of the litigation, the Company believes that the allegations against it are without merit. 13. Recent Accounting Pronouncements In December 2003, the Financial Accounting Standards Board (FASB) revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The revised SFAS No. 132 requires additional disclosures about plan assets, benefit obligations, cash flows, benefit costs and other relevant information related to pensions and other postretirement benefits. It also requires certain disclosures related to pensions and other postretirement benefits to be included in quarterly filings, which are included within Note 11 to the Condensed Consolidated Financial Statements included within this report. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's Condensed Consolidated Financial Statements and notes thereto contained in this report. Portions of this report may contain forward-looking statements about expected future events and financial and operating results that involve risks and uncertainties. These include the timely development and market acceptance of new products; the impact of competitive products and pricing; the effect of changing economic conditions in domestic and international markets; changes in customer order patterns, including loss of key customers, order cancellations or reduced bookings; and excess or obsolete inventory and variations in inventory valuation, among others. Words such as "believe," "expect," "anticipate" and similar expressions identify forward-looking statements. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations and may not reflect the potential impact of any future acquisitions, mergers or divestitures. SMSC competes in the semiconductor industry, which has historically been characterized by intense competition, rapid technological change, cyclical market patterns, price erosion and periods of mismatched supply and demand. In addition, sales of many of the Company's products depend largely on sales of personal computers (PCs) and peripheral devices, and reductions in the rate of growth of the PC and peripheral device markets could adversely affect its operating results. SMSC conducts business outside the United States and is subject to tariff and import regulations and currency fluctuations, which may have an effect on its business. All forward-looking statements speak only as of the date hereof and are based upon the information available to SMSC at this time. Such information is subject to change, and the Company may not inform, or be required to inform, investors of such changes. These and other risks and uncertainties, including potential liability resulting from pending or future litigation, are detailed from time to time in the Company's reports filed with the SEC. Investors are advised to read the Company's Annual Report on Form 10-K and quarterly reports on Form 10-Q filed with the SEC, particularly those sections entitled "Other Factors That May Affect Future Operating Results," for a more complete discussion of these and other risks and uncertainties. Overview -------- Description of Business SMSC provides semiconductor systems solutions for high-speed communication and computing applications. Through the integration of its leading-edge digital, mixed-signal and analog design capabilities and software expertise, SMSC delivers complete solutions that monitor and manage computing systems and connect peripherals to computers and to one another. The Company addresses computing, communications and consumer electronics markets through world-leading positions in Input/Output and non-PCI Ethernet products, innovations in USB2.0 and other high-speed serial solutions, and integrated networking products employed in a broad range of applications. SMSC is a fabless semiconductor supplier, whose products are manufactured by world-class third-party semiconductor foundries and assemblers. To ensure the highest product quality, the Company conducts a significant portion of its final testing requirements in the Company's own state-of-the-art testing operation. The Company is based in Hauppauge, New York with operations in North America, Taiwan, Japan, Korea, China and Europe. SMSC operates engineering design centers in New York, Arizona and Texas. New Brand Identity and Corporate Image On April 26, 2004, SMSC was honored to open the Nasdaq stock market and concurrently unveiled a new global brand identity, including a new logo, tagline - "Success by Design," and website design at its www.smsc.com homepage. Through its communication initiatives, the Company is placing renewed emphasis on building awareness of its market leadership position and capabilities to serve its customers. The new "Success by Design" tagline underscores the Company's mission of being an essential ingredient that fuels its customers' success. This tagline highlights SMSC's culture, which is deliberate in the manner in which it seeks to ensure success for its customers and stakeholders. Critical Accounting Policies and Estimates ------------------------------------------ This discussion and analysis of the Company's financial condition and results of operations is based upon the unaudited condensed consolidated financial statements included in this report, which have been prepared in accordance with accounting principles for interim financial statements generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of sales and revenues and expenses during the reporting period. The Company believes that the critical accounting policies and estimates listed below are important to the portrayal of the Company's financial condition and operating results, and require critical management judgments and estimates about matters that are inherently uncertain. Although management believes that its judgments and estimates are appropriate and reasonable, actual future results may differ from these estimates, and to the extent that such differences are material, future reported operating results may be affected. o Revenue recognition o Inventory valuation o Determination of the allowance for doubtful accounts receivable o Valuation of long-lived assets o Accounting for deferred income tax assets o Legal contingencies Further information regarding these policies appears within the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's annual report on Form 10-K for the fiscal year ended February 29, 2004 filed with the SEC on May 14, 2004. During the three-month period ended May 31, 2004, there were no significant changes to any critical accounting policies or to the related estimates and judgments involved in applying these policies. Results of Operations --------------------- Sales and Revenues Sales and revenues for the three months ended May 31, 2004 were $53.1 million, consisting of $50.4 million of product sales and $2.7 million of intellectual property revenues, compared to sales and revenues of $42.7 million for the prior-year quarter, consisting of $42.5 million of products sales and $0.2 million of intellectual property revenues. The increase in product sales of $7.9 million, or 18.6%, reflects increased demand for both PC I/O and non-PC I/O products. Sales of PC I/O products increased from $27.8 million in the prior-year quarter to $30.2 million in the current-year quarter, reflecting the impact of new design-wins and increased worldwide demand for PCs. Sales of non-PC I/O products, which include networking and connectivity products, increased from $14.7 million in the prior-year quarter to $20.2 million in the current-year quarter, reflecting the impact of new design-wins, broader product offerings, and the Company's ongoing focus on aggressively identifying and pursuing market opportunities in its non-PC I/O product lines. Sales of non-PC I/O products grew to 40% of total product sales in the current-year quarter, compared to 35% in the prior-year quarter. Product sales from customers outside of North America accounted for approximately 88% and 90% of the Company's product sales for the three-month periods ended May 31, 2004 and 2003, respectively, the largest potion of which was to the Asia and Pacific Rim region. The Company expects that international shipments, particularly to the Asia and Pacific Rim region, will continue to represent a significant portion of its product sales. Intellectual property revenues for the three months ended May 31, 2004 were $2.7 million, compared to $0.2 million for the prior-year period. Intellectual property revenues for the current-year period include a $2.5 million payment from Intel Corporation, as more fully described within Note 6 to the Condensed Consolidated Financial Statements. Gross Profit Gross profit for the three months ended May 31, 2004 was $26.7 million, or 50.3% of sales and revenues, compared to $20.7 million, or 48.4% of sales and revenues, for the three months ended May 31, 2003. Excluding intellectual property revenues, gross profit was $24.0 million, or 47.6% of product sales, for the quarter ended May 31, 2004, compared to $20.4 million, or 48.1% of product sales, for quarter ended May 31, 2003. Gross profit dollars from product sales, excluding the impact of intellectual property revenues, increased by $3.5 million, or 17.3%, compared to the year-earlier quarter. The slight decline in gross profit margin percentage on product sales in the current-year period results from a product mix in the prior year quarter that was skewed towards several high-margin products. The Company's gross profit margin, excluding intellectual property revenues, increased from 45.1% in the fourth quarter of fiscal 2004 to the current quarter's 47.6%. Newly introduced products generally command higher average selling prices, which typically decline over product life cycles, due to competitive pressures and other factors. In order to offset declines in average selling prices, the Company continually works to incorporate additional functionality and value to its products, and to reduce the costs of its products, through product and manufacturing design changes, yield improvements, manufacturing efficiencies and lower costs negotiated with subcontract manufacturers. Research and Development Expenses R&D expenses were $10.9 million, or 20.5% of sales and revenues, for the three months ended May 31, 2004, compared to $9.1 million, or 21.3% of sales and revenues, for the three months ended May 31, 2003. This dollar increase reflects the impact of engineering staff additions, investments in advanced semiconductor design tools, higher costs associated with development programs in advanced semiconductor technologies, and higher costs for contract design services. Selling, General and Administrative Expenses Selling, general and administrative expenses were $11.9 million, or 22.3% of sales and revenues, for the three months ended May 31, 2004, compared to $9.5 million, or also 22.3% of sales and revenues, for the three months ended May 31 2003. The dollar increase reflects the impact of additional staff added to expand the Company's sales and marketing capabilities, associated recruitment and relocation costs, as well as incremental selling costs, primarily sales commissions and incentives, associated with higher product sales in the current year's first quarter. During the three months ended May 31, 2004 the Company incurred higher professional fees associated with litigation than the prior-year period, and also incurred additional costs associated with its April 2004 launch and promotion of its new global brand identity and corporate image campaign. Amortization of Intangible Assets The Company recorded amortization expenses of $0.3 million and $0.4 million for the three months ended May 31, 2004 and 2003, respectively, for intangible assets associated with the June 2002 acquisition of Gain. Gains on Real Estate Transactions During the quarter ended May 31, 2003, the Company sold certain portions of its Hauppauge, New York real estate holdings, for aggregate proceeds of $7.0 million, net of transaction costs. These transactions resulted in an aggregate gain of $1.7 million, $1.4 million of which related to property in which the Company has no continued interest and was recognized within the Company's fiscal 2004 first quarter operating results, and $0.3 million of which related to property that the Company has leased back from the purchaser and was therefore deferred. This deferred gain is being recognized within the Company's operating results as a reduction in rent expense on a straight-line basis over a 30-month period beginning in June 2003, consistent with the term of the lease. The Company's remaining rent obligation over the term of this lease is approximately $0.5 million. Other Income and Expense During the quarter ended May 31, 2003, the Company sold its remaining equity investment in Chartered Semiconductor Manufacturing, Ltd., realizing losses of $0.7 million, which are included within Other expense, net, for that period. Provision For Income Taxes The Company's effective income tax rate primarily reflects statutory Federal and state income tax rates, adjusted for the impact of tax-exempt interest income and anticipated income tax credits. The Company's $1.2 million provision for income taxes for the three months ended May 31, 2004 reflects an expected fiscal 2005 effective tax rate of 28.5%. The $0.9 million provision for income taxes for the three months ended May 31, 2003 resulted in an effective tax rate of 31.5% for that period. As of May 31, 2003, the Company's expected its effective tax rate to be approximately 30.0% for fiscal 2004, excluding the tax effect on unusual and infrequently occurring transactions, which are recorded in the period in which the transactions occur. Operating results for the first quarter of fiscal 2004 included unusual and infrequently occurring real estate and equity security sale transactions that, net, provided $0.7 million of pre-tax income. Taxes on those transactions were provided for at the Company's approximate 36.0% incremental income tax rate, the result of which was an overall effective income tax rate of 31.5% in the first quarter of fiscal 2004. The reduction in the Company's expected effective income tax rate for fiscal 2005, compared to expectations at May 31, 2003 for fiscal 2004, reflects higher anticipated income tax credits in fiscal 2005. Discontinued Operations The Company had been involved in an arbitration proceeding with Accton Technology Corporation (Accton) and SMC Networks, Inc. (Networks), relating to claims associated with the October 1997 purchase of a majority interest in Networks by Accton from SMSC. The divestiture was accounted for as a discontinued operation, and accordingly, costs associated with this action, net of income taxes, were reported within Loss from discontinued operations on the Consolidated Statements of Operations. These costs totaled $0.2 million for the three months ended May 31, 2003, after applicable income tax benefits. This action was settled during the fourth quarter of fiscal 2004. Liquidity and Capital Resources ------------------------------- The Company currently finances its operations through a combination of existing resources and cash generated by operations. The Company's cash, cash equivalents and liquid investments (including marketable securities with maturities in excess of one year) were $169.7 million as of May 31, 2004, compared to $173.9 million at February 29, 2004, a decrease of $4.2 million. The Company's operating activities consumed $1.0 million of cash during the first quarter of fiscal 2005, due in part to a banking holiday on the final day of the first quarter, which delayed approximately $2.7 million of accounts receivable collections from being credited to the Company's accounts until June 1. Operating activities for the first quarter of fiscal 2004 generated $1.9 million of cash. The Company's inventories were $23.2 million at May 31, 2004, level with inventories at February 29, 2004. Inventories at the Company's distributors increased during the quarter, as evidenced by the increase in Deferred income on shipments to distributors from $8.0 million at February 29, 2004 to $11.9 million at May 31, 2004. This increase in distributor inventories reflects higher anticipated product demand during the second quarter. Accounts receivable increased from $21.9 million at February 29, 2004 to $29.8 million at May 31, 2004, an increase of $7.9 million. This increase reflects the combination of the one-day delay in cash collections discussed two paragraphs earlier, higher product sales and a reduction in unclaimed pricing credits by distributors. SMSC accrues a liability for distributor pricing credits when the distributor earns such credits, but the issuance of the actual credit memo to the distributor is dependent upon the distributor's submission of an appropriate claim to SMSC. Delays in distributors' claims for these credits typically results in lower than expected accounts receivable balances, since the delays result in full collections for certain invoices against which the distributor is actually entitled to, but has not yet claimed, a pricing credit. Overall, the Company's accounts receivable portfolio remains almost entirely current. Capital expenditures for the three months ending May 31, 2004 were $2.9 million, and were predominantly for production test equipment. Capital expenditures for the three months ended May 31, 2003 were $4.8 million, including $4.3 million in advanced design tools, $3.2 million of which was financed on a short-term basis by the supplier with payment terms extending throughout fiscal 2004. The $3.2 million obligation was reported within Accounts payable at May 31, 2003. The Company anticipates that capital expenditures in fiscal 2005 will exceed those incurred during fiscal 2004, due in part to the Company's plan to begin construction of an addition to its primary facility in Hauppauge, New York, during fiscal 2005. The current plan is to expand the facility from its current 80,000 square feet to approximately 200,000 square feet, allowing consolidation of the Company's Hauppauge operations into a single facility during fiscal 2006. There were no material commitments for capital expenditures as of May 31, 2004. For income tax purposes, the Company has $12.4 million of federal net operating loss carryforwards that are available to offset ordinary taxable income generated in fiscal 2005 and beyond. In addition, several capital losses realized during fiscal 2004 will be carried back to offset capital gains realized in previous fiscal years, which is expected to result in claims for approximately $5.3 million of federal income tax refunds later in fiscal 2005. The Company has considered in the past, and will continue to consider, various possible transactions to secure necessary foundry manufacturing capacity, including equity investments in, prepayments to, or deposits with foundries, in exchange for guaranteed capacity or other arrangements which address the Company's manufacturing requirements. The Company may also consider utilizing cash to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. From time to time, in the ordinary course of business, the Company may evaluate potential acquisitions of or investment in such businesses, products or technologies owned by third parties. The Company expects that its cash, cash equivalents, short-term investments, cash flows from operations and its borrowing capacity will be sufficient to finance the Company's operating and capital requirements for at least the next 12 months and thereafter for the foreseeable future. Recent Accounting Pronouncements -------------------------------- In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The revised SFAS No. 132 requires additional disclosures about plan assets, benefit obligations, cash flows, benefit costs and other relevant information related to pensions and other postretirement benefits. It also requires certain disclosures related to pensions and other postretirement benefits to be included in quarterly filings, which are included within Note 11 to the Condensed Consolidated Financial Statements included within this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Financial Market Risks ---------------------- Interest Rate Risk - The Company's exposure to interest rate risk relates primarily to its investment portfolio. The primary objective of SMSC's investment portfolio management is to invest available cash while preserving principal and meeting liquidity needs. In accordance with the Company's investment policy, investments are placed with high credit-quality issuers and the amount of credit exposure to any one issuer is limited. As of May 31, 2004, the Company's $38.9 million of short-term and long-term investments consisted primarily of investments in corporate, government and municipal obligations with maturities of between three months and two years at acquisition. If market interest rates were to increase immediately and uniformly by 10 percent from levels at May 31, 2004, the Company estimates that the fair value of these short-term and long-term investments would decline by an immaterial amount. The Company generally expects to hold these investments until maturity and, therefore, would not expect operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates. Equity Price Risk - The Company has no material investments in equity securities of other companies on its Consolidated Balance Sheet as of May 31, 2004. Foreign Currency Risk - The Company has international sales and expenditures and is, therefore, subject to certain foreign currency rate exposure. The Company conducts a significant amount of its business in Asia and the Pacific Rim region. In order to reduce the risk from fluctuation in foreign exchange rates, most of the Company's product sales and all of its arrangements with its foundry, test and assembly vendors are denominated in U.S. dollars. Most transactions in the Japanese market made by the Company's majority-owned subsidiary, SMSC Japan, are denominated in Japanese yen. SMSC Japan purchases a significant amount of its products for resale from SMSC in U.S. dollars, and from time to time has entered into forward exchange contracts to hedge against currency fluctuations associated with these product purchases. No such contracts were executed during either fiscal 2004 or the first quarter of fiscal 2005, and there are no obligations under any such contracts as of May 31, 2004. The Company has never received a cash dividend (repatriation of cash) from SMSC Japan. Other Factors That May Affect Future Operating Results ------------------------------------------------------ As a supplier of semiconductors, the Company competes in a challenging business environment, which is characterized by intense competition, rapid technological change and cyclical business patterns. Except for the historical information contained herein, the matters discussed in this report are forward-looking statements. The Company faces a variety of risks and uncertainties in conducting its business, some of which are out of its control, and any of which, were they to occur, could impair the Company's operating performance. For a more detailed discussion of risk factors, please refer to the Company's annual report on Form 10-K for the fiscal year ended February 29, 2004 filed with the Securities and Exchange Commission on May 14, 2004. ITEM 4. CONTROLS AND PROCEDURES The Company has carried out an evaluation under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon the Company's evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of May 31, 2004, the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports the Company files under the Exchange Act is recorded, processed, summarized and reported as and when required. There has been no change in the Company's internal control over financial reporting during the Company's fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings In June 2003, SMSC was named as a defendant in a patent infringement lawsuit filed by Analog Devices, Inc. (ADI) in the United States District Court for the District of Massachusetts (Analog Devices, Inc. v. Standard Microsystems Corporation, Case Number 03 CIV 11216). The Complaint, as amended, alleges that some of the Company's products infringe one or more of three of ADI's patents, and seeks injunctive relief and unspecified damages. In September 2003, the Company filed an Answer in the lawsuit, denying ADI's allegations and raising affirmative defenses and counterclaims. The Company is vigorously defending the lawsuit and collecting evidence to support its defenses to infringement and its allegations of patent invalidity and unenforceability. Although it is premature to assess the outcome of the litigation, the Company believes that the allegations against it are without merit. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 * - Amendment to the Plan for Deferred Compensation in Common Stock for Outside Directors, dated April 7, 2004. 31.1 - Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 - Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 - Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Indicates a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K On April 12, 2004, SMSC filed a report on Form 8-K pursuant to which it furnished a press release announcing the Company's fourth quarter fiscal 2004 operating results. 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 DATE: July 2, 2004 By: /s/ Andrew M. Caggia ----------------------------- (Signature) Andrew M. Caggia Senior Vice President - Finance (duly authorized officer) and Chief Financial Officer (principal financial officer) EX-10.1 2 exhibit_10-1.txt Exhibit 10.1 The Company's Board of Directors unanimously ratified and approved the following resolutions on April 7, 2004: Resolved, that the unanimous consent by all members of the Board of Directors by e-mails on or about February 24, 2004 to amend the Standard Microsystems Corporation Plan for Deferred Compensation in Common Stock for Outside Directors by changing the determination date of the number of phantom stock units from the 1st day of each calendar quarter to the 15th day of each calendar quarter starting with the April 2004 retainers be, and hereby is, ratified and approved, subject to the immediately following resolution further clarifying such amendment. Resolved, that Section 4(a) of the Standard Microsystems Corporation Plan for Deferred Compensation in Common Stock for Outside Directors, as amended and restated effective as of July 10, 2002, shall be, and hereby is, amended to be as follows: (a) For each fiscal quarter of service on the Board of Directors, a Participant's Account shall be credited with a number of PSUs (including any fractional PSU rounded to one decimal place) that shall equal the product obtained by multiplying (i) the percentage elected pursuant to Section 3 by (ii) the quotient obtained by dividing (X) one-quarter of such participant's Basic Retainer (prorated, however, for actual period of service during such fiscal quarter subsequent to the Participant's election to defer hereunder), by (Y) the Market Value on the fifteenth day of such fiscal quarter (or, if the fifteenth day shall not be a business day, then on the next succeeding business day). Such credit shall be effected as of the last day of such fiscal quarter, unless such Participant's membership on the Board of Directors or any committee, as the case may be, shall have terminated prior thereto, in which case such credit shall be made as of the date of such termination. EX-31.1 3 exhibit_31-1.txt Exhibit 31.1 CERTIFICATION I, Steven J. Bilodeau, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Standard Microsystems Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 2, 2004 By: /s/ Steven J. Bilodeau ---------------------------- (signature) Steven J. Bilodeau Chairman of the Board, President and Chief Executive Officer EX-31.2 4 exhibit_31-2.txt Exhibit 31.2 CERTIFICATION I, Andrew M. Caggia, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Standard Microsystems Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 2, 2004 By: /s/ Andrew M. Caggia -------------------------- (signature) Andrew M. Caggia Senior Vice President - Finance and Chief Financial Officer EX-32.1 5 exhibit_32-1.txt Exhibit 32.1 CERTIFICATIONS Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Standard Microsystems Corporation (the Company), does hereby certify, to such officer's knowledge, that: The Quarterly Report on Form 10-Q for the quarter ended May 31, 2004 of the Company fully complies, in all material respects, with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: July 2, 2004 By: /s/ Steven J. Bilodeau ---------------------------- (signature) Steven J. Bilodeau Chairman of the Board, President and Chief Executive Officer By: /s/ Andrew M. Caggia ---------------------------- (signature) Andrew M. Caggia Senior Vice President - Finance and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----