-----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, PQvgXzGu3XaKvN6ivj8fy4yHp4pjO0ZtItXRbhk/x+9Hny3qamova+tB9pmSGVkL Y/lazUdTr8U5TFunNPRLCA== 0000093384-99-000027.txt : 19991018 0000093384-99-000027.hdr.sgml : 19991018 ACCESSION NUMBER: 0000093384-99-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991014 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: SEC FILE NUMBER: 000-07422 FILM NUMBER: 99728372 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, 1999 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: 516-435-6000 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 ________ As of October 14, 1999 there were 15,680,114 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, 1999 1999 Assets Current assets: Cash and cash equivalents .......................... $ 62,718 $ 68,071 Short-term investments ............................. 8,000 2,000 Accounts receivable, net of allowance for doubtful accounts of $1,132 and $1,111, respectively ...... 19,861 22,608 Inventories ........................................ 19,681 13,785 Deferred tax benefits .............................. 6,989 8,154 Other current assets ............................... 10,742 9,142 --------- --------- Total current assets ............................... 127,991 123,760 ========= ========= Property, plant and equipment: Land ............................................... 3,832 3,832 Buildings and improvements ......................... 30,651 29,846 Machinery and equipment ............................ 65,929 63,890 --------- --------- 100,412 97,568 Less: accumulated depreciation .................... 66,573 62,916 --------- --------- Property, plant and equipment, net ................. 33,839 34,652 --------- --------- Other assets ......................................... 43,699 38,219 Net assets of discontinued operation ................. - 5,336 --------- --------- $ 205,529 $ 201,967 ========= ========= Liabilities and Shareholders' Equity Current liabilities: Accounts payable ................................... $ 11,672 $ 8,873 Accrued expenses and other liabilities ............. 12,336 14,453 Current portion of obligations under capital leases. 888 852 --------- --------- Total current liabilities .......................... 24,896 24,178 --------- --------- Obligations under capital leases ..................... 2,564 3,017 Other liabilities .................................... 5,091 4,799 Minority interest in subsidiary ...................... 11,539 11,539 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 16,160,000 and 16,045,000 shares, respectively ............................. 1,616 1,605 Additional paid-in capital ......................... 109,416 108,665 Retained earnings .................................. 48,387 47,454 Treasury stock, 521,000 shares, at cost ............ (2,957) (2,957) Accumulated other comprehensive income ............. 4,977 3,667 --------- --------- Total shareholders' equity .......................... 161,439 158,434 --------- --------- $ 205,529 $ 201,967 ========= ========= See Notes to Consolidated Financial Statements.
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, -------------------- -------------------- 1999 1998 1999 1998 Revenues .............................................. $ 38,268 $ 37,865 $ 73,697 $ 73,149 Cost of goods sold .................................... 23,430 23,918 45,221 46,186 -------- -------- -------- -------- Gross profit .......................................... 14,838 13,947 28,476 26,963 -------- -------- -------- -------- Operating expenses: Research and development ............................ 5,871 4,280 11,561 7,946 Selling, general and administrative ................. 8,342 7,030 16,593 13,690 -------- -------- -------- -------- 14,213 11,310 28,154 21,636 -------- -------- -------- -------- Income from operations ................................ 625 2,637 322 5,327 -------- -------- -------- -------- Other income (expense): Interest income ..................................... 731 600 1,377 1,191 Interest expense .................................... (73) (59) (150) (121) Other expense ....................................... (46) (43) (49) (78) -------- -------- -------- -------- 612 498 1,178 992 -------- -------- -------- -------- Income before provision for income taxes and minority interest ............................... 1,237 3,135 1,500 6,319 Provision for income taxes ............................ 480 1,141 567 2,311 Minority interest in net income (loss) of subsidiary .. (1) 22 - 18 -------- -------- -------- -------- Income from continuing operations ..................... 758 1,972 933 3,990 -------- -------- -------- -------- Loss from discontinued operation, (net of income taxes of ($769) and ($1,653), respectively) ......... - (1,367) - (2,939) -------- -------- -------- -------- Net income ............................................ $ 758 $ 605 $ 933 $ 1,051 ======== ======== ======== ======== Basis and diluted net income per share: Income from continuing operations ................... $ 0.05 $ 0.12 $ 0.06 $ 0.25 Loss from discontinued operation .................... - (0.08) - (0.18) -------- -------- -------- -------- Basic and diluted net income per share ................ $ 0.05 $ 0.04 $ 0.06 $ 0.07 ======== ======== ======== ======== Weighted average common shares outstanding Basic 15,626 15,978 15,598 15,961 Diluted 15,680 16,031 15,639 16,021 See Notes to Consolidated Financial Statements.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended August 31, ------------------------ 1999 1998 ---- ---- Cash flows from operating activities: Cash received from customers ..................................... $ 76,716 $ 66,305 Cash paid to suppliers and employees ............................. (69,840) (65,842) Interest received ................................................ 1,361 1,282 Interest paid .................................................... (150) (121) Income taxes paid ................................................ (1,152) (54) -------- -------- Net cash provided by operating activities ........................ 6,935 1,570 -------- -------- Cash flows from investing activities: Capital expenditures ............................................. (4,025) (2,648) Sales of machinery and equipment ................................. 408 12 Purchases of short-term investments .............................. (6,000) (3,002) Sales of short-term investments .................................. - 8,606 Other ............................................................ 7 (740) -------- -------- Net cash provided by (used for) investing activities ............. (9,610) 2,228 -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock ........................... 295 288 Repayments of obligations under capital leases ................... (417) (271) -------- -------- Net cash provided by (used for) financing activities ............. (122) 17 -------- -------- Effect of foreign exchange rate changes on cash and cash equivalents 576 (544) -------- -------- Net cash provided by (used for) discontinued operations ............ (3,132) 10,275 -------- -------- Net increase (decrease) in cash and cash equivalents ............... (5,353) 13,546 Cash and cash equivalents at beginning of period ................... 68,071 47,155 -------- -------- Cash and cash equivalents at end of period ......................... $ 62,718 $ 60,701 ======== ======== Reconciliation of income from continuing operations to net cash provided by operating activities: Income from continuing operations .................................. $ 933 $ 3,990 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization .................................. 4,902 6,085 Other adjustments, net ......................................... 471 355 Changes in operating assets and liabilities: Accounts receivable ............................................ 2,921 (6,805) Inventories .................................................... (5,735) (6,578) Accounts payable and accrued expenses and other liabilities .... 4,553 4,032 Other changes, net ............................................. (1,110) 491 -------- -------- Net cash provided by operating activities .......................... $ 6,935 $ 1,570 ======== ======== See Notes to Consolidated Financial Statements.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited 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, 1999. 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, 1999. Certain items shown have been reclassified to conform with the fiscal 2000 presentation. 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, 1999 Feb. 28, 1999 -------------------------------------------------------- Raw Materials $ 667 $ 475 Work in Process 12,964 9,310 Finished Goods 6,050 4,000 ------- ------- $19,681 $13,785 ======= ======= 3. Net Income Per Share Basic net income per share is based upon the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average common shares outstanding during the period plus the dilutive effect of shares issuable through stock options and warrants. The shares used in calculating basic and diluted net income per share are reconciled as follows (in thousands):
Three Months Ended Six Months Ended August 31, August 31, ------------------ ----------------- 1999 1998 1999 1998 Average shares outstanding for basic net income per share .............. 15,626 15,978 15,598 15,961 Dilutive effect of stock options .......... 54 53 41 60 ------ ------ ------ ------ Average shares outstanding for diluted net income per share ............ 15,680 16,031 15,639 16,021 ====== ====== ====== ======
4. 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 a long-term equity investment. The components of the Company's comprehensive income (loss) for the three and six month periods ended August 31, 1999 and 1998 were as follows (in thousands):
Three Months Ended Six Months Ended August 31, August 31, ------------------ ------------------- 1999 1998 1999 1998 Net income ................................ $ 758 $ 605 $ 933 $ 1,051 Other comprehensive income (loss): Currency translation adjustment ......... 268 28 962 (953) Unrealized gain (loss) on investment .... 1,286 (387) 348 (459) ------ ------ ------ ------ Total comprehensive income (loss) ......... $2,312 $ 246 $2,243 $ (361) ====== ====== ====== =======
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Standard Microsystems Corporation (the "Company") is a worldwide supplier of metal-oxide-semiconductor/very-large-scale-integrated (MOS/VLSI) circuits for the personal computer (PC) and related industries. The Company's integrated circuits are developed and sold for applications in PC input/output (I/O), PC connectivity, Local Area Networking (LAN), PC systems logic, and embedded networking. Standard Microsystems Corporation operates in one industry segment in which it designs, develops and markets integrated circuits for the personal computer and related industries. REVENUES For the three and six month periods ended August 31,1999, revenues were $38.3 million and $73.7 million, respectively, compared to revenues of $37.9 million and $73.1 million for the corresponding year-earlier periods. The Company has experienced significant increases in the unit volume shipments year-over-year. For the three and six month periods ended August 31, 1999 the Company shipped 12.8 million units and 23.0 million units, respectively, compared to 9.4 million units and 17.5 million units for the prior year periods. The revenue associated with this increased unit volume was partially offset by declining average selling prices, particularly for input/output (I/O) products. GROSS PROFIT The Company's gross profit percentage for the second quarter of fiscal 2000 increased to 38.8%, compared to 36.8% reported for the second quarter of fiscal 1999, and was 38.6% for the six month period ended August 31, 1999 compared to 36.9% for the year earlier six month period. These improvements can be attributed to the Company's continuing efforts to reduce product costs through aggressive manufacturing cost reduction programs, and the migration to new higher margined products. OPERATING EXPENSES Research and development expenses (R&D) increased to $5.9 million in the second quarter of fiscal 2000, compared to $4.3 million in the second quarter of fiscal 1999. For the six month period ended August 31, 1999, research and development expenses increased to $11.6 million from $7.9 million for the year earlier period. The Company's increased R&D spending reflects new product initiatives and increased spending in new test designs and validations. In developing new test designs, the Company is committed to increasing testing efficiencies, which lowers the cost to manufacture a product. Through its R&D efforts, the Company has been able to introduce new products, and maintain or increase its gross margins despite decreasing average selling prices. The Company's future product plans include expanding its product line into microprocessor chipsets, and some of the Company's expanded R&D investments reflect this strategy. For the three and six month periods ended August 31, 1999, selling, general and administrative expenses increased to $8.3 and $16.6 million, respectively, from $7.0 and $13.7 million for the year-earlier periods. These increases are primarily associated with the elimination of certain administrative cost subsidies received by the Company related to the Company's 1997 sale of its former local area networking business. OTHER INCOME AND EXPENSE Other income and expense increased to $0.6 million in the second quarter of fiscal 2000 from $0.5 million for the year-earlier period, and for the six month period ended August 31, 1999, increased to $1.2 million from $1.0 million in the year earlier period. These increases are predominately due to interest income received on higher average balances of cash and cash equivalents available for investment during the current year, and an investment portfolio mix change to taxable securities from tax-exempt securities. INCOME TAXES For the three and six month periods ended August 31, 1999, income tax provisions have been provided at effective tax rates of 38.8% and 37.8%, respectively, compared to tax provisions recorded at effective rates of 36.4% and 36.6% for the corresponding year-earlier periods. The Company's effective income tax rate primarily reflects statutory tax rates, income tax credits, and the impact of certain non-deductible expenses and tax-exempt income. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and short-term investments increased to $70.7 million at August 31, 1999, compared to $70.1 million at February 28, 1999, an increase of $0.6 million. Working capital increased to $103.1 million as of August 31, 1999, from $99.6 million at February 28, 1999, an increase of $3.5 million. The Company's principle source of liquidity was its operating activities, providing $6.9 million of cash for the six month period ended August 31, 1999. The Company used $4.0 million for capital expenditures, which were predominantly in the areas of research and development and to increase production testing capacity. In June 1999, the Company completed the sale of a majority interest in its Foundry Business Unit, which had been experiencing operating losses in recent years. This business unit, classified as a discontinued operation, consumed $3.1 million in cash for the six month period ended August 31, 1999, representing losses of the operation prior to its sale, and related expenses. Inventory increased to $19.7 million as of August 31, 1999 compared to $13.8 million at February 28, 1999. This increase reflects the Company's expectations for increasing shipments in the third quarter, which traditionally has been a strong quarter in the personal computer industry, as well as new product introductions expected to occur during the third and fourth quarters of fiscal 2000. The Company's previous $10 million revolving line of credit expired in July 1999. There had been no borrowings under this credit line since October 1997. The expiration of this line of credit will save the Company approximately $70,000 in annual costs. The Company has in the past acquired or invested in complementary businesses and technologies, and has licensed the right to use intellectual property. The Company has also used equity investments in, prepayments to, or deposits with foundries to secure wafer-manufacturing capacity. The Company will consider similar arrangements in the future if the needs or opportunities arise. The Company believes that existing cash, cash equivalents, and short-term investments, together with cash from operations will be sufficient to meet its cash requirements for the foreseeable future. OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING 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's operating results are subject to general economic conditions and a variety of risks characteristic of the semiconductor and personal computer industries, including cyclical market patterns, price erosion, product development risks, technological change, business conditions and concentrations in Asia, reliance upon foundries and subcontractors, and forecasts of product demand, any of which could cause the Company's operating results to differ materially from past results. For a further discussion of such risks, see "Risk Factors" in Part 2, Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" included within the Company's Annual Report on Form 10-K filed for the fiscal year ended February 28, 1999. The Company maintains several equity investments in non-public companies which operate in the semiconductor or personal computer industry, resulting from strategic business relationships or other investment opportunities, which were deemed beneficial to the Company. These companies are subject to many of the same risks and uncertainties faced by the Company. These investments, which are reported at cost on the Company's Consolidated Balance Sheet, are reviewed regularly for events and circumstances that may effect their current and future value, within the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In September 1999, a major earthquake caused widespread damage and business interruptions in Taiwan. A significant portion of the world's personal computer component and circuit board manufacturing, as well as personal computer assembly, occurs in Taiwan. Many of the Company's suppliers and customers are based in, or do significant business in, Taiwan. The Company is currently assessing the impact, if any, that this issue may have on its operations, but is unable to quantify such impact, if any, at this time. YEAR 2000 DISCUSSION Many computer programs were designed to perform data computations on the last two digits of the numerical value of a year. When computations referencing the year 2000 are performed, these programs may interpret "00" as the year 1900 and could either corrupt the date-related computations or not process them at all. As a result, many software and computer systems may need to be upgraded or replaced in order to comply with such year 2000 requirements. The Company has a comprehensive Year 2000 project designed to identify and assess the risks associated with its information systems, products, operations and suppliers that are not Year 2000 compliant, and to develop, test and implement remediation and contingency plans to mitigate these risks. The Company's Year 2000 project is addressing risks in the areas of business application software, technical infrastructure, end-user computing, engineering and development tools, supplier and service provider compliance, manufacturing tools, facilities infrastructure and the Company's products. In addition, the Company provides its customers with information on its Year 2000 project and progress made towards Year 2000 compliance. Several years ago, the Company installed certain Year 2000 compliant information systems, and has moved a substantial portion of its core business applications to this platform. The Company has installed new information systems and considers all internal information systems to be Year 2000 compliant. The Company is also assessing the impact of the Year 2000 issue on its products, and has not identified, and does not expect to identify, any material issues in that regard. Because most of the Company's information systems achieved Year 2000 compliance with the transition to a new information system several years ago, the Company has not incurred any material expenditures to specifically address Year 2000 issues. Going forward, the Company is committed to expending the resources necessary to address this issue, but at this time, does not anticipate any material expenditures for the resolution of Year 2000 issues relating to either its own information systems or its products. However, the Company could be adversely impacted by Year 2000 issues faced by significant vendors, suppliers and service organizations with which the Company conducts business. Based solely on responses received to date from these parties, the Company has no reason to believe that there will be any material adverse impact on the Company's financial condition or results of operations relating to any Year 2000 issues of such parties. However, if the responses received from these third parties are not accurate or happen to change, then there could be an unforeseen material adverse impact on the Company's financial condition and results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in the Registrant's Annual Report on Form 10-K for the year ended February 28, 1999. The nature and scope of market risks addressed therein have not materially changed. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The following matters were submitted to a vote of security holders at the registrant's annual meeting of shareholders which was held on July 13, 1999. The following were elected directors, each receiving the number of votes set opposite their respective name: Broker For Withheld Non-Votes Steven J. Bilodeau 14,389,426 381,600 -0- Peter F. Dicks 14,384,532 386,494 -0- 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 14,660,553 78,565 31,908 -0- The 1999 Stock Option Plan was approved and adopted by the following vote: Broker For Against Abstain Non-Votes 13,893,624 833,505 43,897 -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, 1999 /S/ Eric M. Nowling --------------------------------- (Signature) Eric M. Nowling Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1,000 6-MOS FEB-29-2000 AUG-31-1999 62,718 8,000 19,861 1,132 19,681 127,991 100,412 66,573 205,529 24,896 0 0 0 1,616 159,823 205,529 73,697 73,697 45,221 45,221 28,154 70 150 1,500 567 933 0 0 0 933 0.06 0.06
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