10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended August 31, 2011

OR

o 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 Incorporation or Organization)	(I.R.S. Employer Identification No.)
80 Arkay Drive, Hauppauge, New York	11788-3728
(Address of Principal Executive Offices)	(Zip Code)

(631) 435-6000

(Registrant’s Telephone Number, Including Area Code)

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 T No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer T
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No T

As of August 31, 2011 there were 22,808,871 shares of the registrant’s common stock outstanding.

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of August 31, 2011 and February 28, 2011	1
	Condensed Consolidated Statements of Operations for the Three-Month and Six-Month Periods Ended August 31, 2011 and 2010	2
	Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended August 31, 2011 and 2010	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Removed and Reserved	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signature		38
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.LAB	XBRL Taxonomy Label Linkbase Document
101.PRE	XBRL Taxonomy Presentation Linkbase Document

PART I

Item 1. — Financial Statements

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	August 31, 2011			February 28, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	144,417		$	170,387
Accounts receivable, net		63,819			64,714
Inventories		49,872			47,232
Deferred income taxes, net		15,062			31,156
Other current assets		16,504			8,047
Total current assets		289,674			321,536
Property, plant and equipment, net		66,920			67,382
Goodwill		118,215			77,273
Intangible assets, net		37,284			31,745
Long-term investments, net		28,199			29,490
Investments in equity securities		2,042			2,042
Deferred income taxes, net		6,454			6,074
Other assets		4,060			3,550
TOTAL ASSETS	$	552,848		$	539,092
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	27,227		$	27,171
Deferred income from distribution		18,868			16,167
Accrued expenses and other liabilities		59,538			72,459
Total current liabilities		105,633			115,797
Deferred income taxes		5,836			4,519
Other liabilities		23,788			21,869
Commitments and contingencies
Shareholders’ equity:
Preferred stock		-			-
Common stock		2,778			2,749
Additional paid-in capital		369,239			359,790
Retained earnings		145,360			127,291
Treasury stock, at cost		(111,893	)		(101,411	)
Accumulated other comprehensive income		12,107			8,488
Total shareholders’ equity		417,591			396,907
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY	$	552,848		$	539,092

See Accompanying Notes to Condensed Consolidated Financial Statements

1

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended August 31,						Six Months Ended August 31,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
Sales and revenues	$	112,581		$	104,084		$	216,076		$	201,243
Costs of goods sold		52,237			45,426			99,947			90,790
Gross profit on sales and revenues		60,344			58,658			116,129			110,453
Operating expenses:
Research and development		22,632			19,763			47,159			43,582
Selling, general and administrative		16,234			16,045			39,463			41,399
Restructuring charges		356			47			699			868
Revaluation of contingent consideration		(398	)		457			(381	)		457
Income from operations		21,520			22,346			29,189			24,147
Interest income		69			174			187			318
Interest expense		(39	)		(66	)		(76	)		(95	)
Other (expense) income, net		(99	)		(181	)		43			(336	)
Income before income taxes		21,451			22,273			29,343			24,034
Provision for income taxes		9,560			9,371			11,274			10,505
Net income	$	11,891		$	12,902		$	18,069		$	13,529
Net income per share:
Basic	$	0.52		$	0.57		$	0.78		$	0.60
Diluted	$	0.51		$	0.57		$	0.77		$	0.59
Weighted average common shares outstanding:
Basic		23,065			22,606			23,047			22,540
Diluted		23,493			22,756			23,516			22,772

See Accompanying Notes to Condensed Consolidated Financial Statements

2

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended August 31,
	2011			2010
	(Unaudited)
Cash flows provided by operating activities:
Net income	$	18,069		$	13,529
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,793			11,871
Foreign exchange loss		18			255
Excess tax benefits from stock-based compensation		(137	)		(68	)
Stock-based compensation		(6,029	)		2,953
Deferred income taxes		16,527			(520	)
Losses on sales of property, plant and equipment		-			18
Deferred income from distribution		2,701			7,156
Non cash restructuring charges		73			-
Provision for sales returns and allowances		139			296
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable		1,864			(14,373	)
Inventories		(1,318	)		(1,373	)
Accounts payable, accrued expenses and other liabilities		(7,126	)		1,603
Accrued restructuring charges		(1,946	)		(877	)
Income taxes receivable and payable		(9,943	)		3,591
Other changes, net		1,102			462
Net cash provided by operating activities		28,787			24,523
Cash flows from investing activities:
Capital expenditures		(5,711	)		(6,501	)
Acquisition of business, net of cash acquired (BridgeCo)		(40,968	)		-
Acquisition of business, net of cash acquired (STS)		-			(22,000	)
Loans receivable form related party		-			(1,625	)
Purchases of short-term and long-term investments		-			(14,900	)
Sales and maturities of short-term and long-term investments		1,275			55,925
Net cash (used in) provided by investing activities		(45,404	)		10,899
Cash flows from financing activities:
Excess tax benefits from stock-based compensation		137			68
Proceeds from issuance of common stock		3,205			4,141
Purchases of treasury stock		(10,482	)		(25	)
Repayments of obligations under supplier financing arrangements		(3,245	)		(2,338	)
Net cash (used in) provided by financing activities		(10,385	)		1,846
Effect of foreign exchange rate changes on cash and cash equivalents		1,032			(563	)
Net (decrease) increase in cash and cash equivalents		(25,970	)		36,705
Cash and cash equivalents at beginning of period		170,387			109,141
Cash and cash equivalents at end of period	$	144,417		$	145,846

See Accompanying Notes to Condensed Consolidated Financial Statements

3

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related disclosures of Standard Microsystems Corporation and subsidiaries (“SMSC” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”), reflecting all adjustments (consisting only of normal, recurring adjustments) which in management’s opinion are necessary to present fairly the Company’s financial position as of August 31, 2011, results of operations for the three and six-month periods ended August 31, 2011 and 2010 and cash flows for the six-month periods ended August 31, 2011 and 2010 (collectively, including accompanying notes and disclosures, the “Interim Financial Statements”). The February 28, 2011 balance sheet information has been derived from audited financial statements, but does not include all information or disclosures required by U.S. GAAP.

The preparation of financial statements in conformity with U.S. GAAP 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 Company’s financial statements.

These Interim Financial Statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended February 28, 2011 included in the Company’s Annual Report on Form 10-K, as filed on April 19, 2011 with the SEC (the “Fiscal 2011 Form 10-K”).

Results of operations for interim periods are not necessarily indicative of results to be expected for the full fiscal year or any future periods.

2. Recent Accounting Standards

 In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011 - 05, “Presentation of Comprehensive Income” (“ASU 2011 - 05”), which provides guidance regarding the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The updated guidance is effective on a retrospective basis for SMSC beginning in the first quarter of fiscal year 2013. The adoption of this guidance will not have a material impact on our consolidated financial statements.

 In May 2011, the FASB issued Accounting Standards Update 2011 - 04, “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011 - 04”), which provides additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for SMSC beginning in the first quarter of fiscal year 2013. The adoption of this guidance will not have a material impact on our consolidated financial statements.

In December 2010, the FASB issued Accounting Standards Update 2010 - 29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010 - 29”), which specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The new disclosures required by ASU 2010 – 29 were adopted by SMSC beginning in the first quarter of fiscal 2012. The adoption of ASU 2010 - 29 did not have a material effect on our consolidated financial statements.

4

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3. Fair Value of Financial Instruments

The Company’s financial instruments are measured and recorded at fair value. The Company’s non-financial instruments (including: goodwill, intangible assets, property, plant and equipment) are measured at fair value when initially recorded for purchase accounting allocation and when an impairment charge is recognized. Contingent consideration on acquisitions is measured at fair value at each reporting period. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, management considers the principal or most advantageous market in which the Company would transact, and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.

The following table details the fair value measurements within the three levels of fair value hierarchy under US GAAP of the Company’s financial assets and liabilities, including investments, cash surrender value of life insurance policies, contingent consideration and cash equivalents at August 31, 2011:

	Total Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Assets:
Auction rate securities	$	28,199	$	-	$	-	$	28,199
Money market funds		39,467		39,467		-		-
Other assets-cash surrender value		1,674		-		1,674		-
Total Assets	$	69,340	$	39,467	$	1,674	$	28,199
Liabilities:
Contingent consideration	$	9,825	$	-	$	-	$	9,825
Total Liabilities	$	9,825	$	-	$	-	$	9,825

The following table details the fair value measurements within the three levels of fair value hierarchy of the Company’s financial assets, including investments, cash surrender value of life insurance policies and cash equivalents at February 28, 2011:

	Total Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Assets:
Auction rate securities	$	29,490	$	-	$	-	$	29,490
Money market funds		134,007		134,007		-		-
Other assets-cash surrender value		1,666		-		1,666		-
Total Assets	$	165,163	$	134,007	$	1,666	$	29,490
Liabilities:
Contingent consideration	$	2,778	$	-	$	-	$	2,778
Total Liabilities	$	2,778	$	-	$	-	$	2,778

At February 28, 2011 and August 31, 2011, the Company grouped money market funds using a Level 1 valuation because market prices were readily available. Level 2 financial assets and liabilities represent the fair value of cash surrender value of life insurance.

The assets grouped for Level 3 valuation included auction rate securities consisting of AAA rated securities mainly collateralized by student loans guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program (“FFELP”), as well as auction rate preferred securities ($6.1 million at par) which are AAA rated and part of a closed end fund that must maintain an asset ratio of 2 to 1. Level 3 liabilities consist of contingent consideration on acquisitions. See Note 15 — Commitments and Contingencies, for further discussion on contingent consideration arrangements, including fair value disclosures.

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STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

When a determination is made to classify a financial instrument within Level 3, the determination is based upon the lack of significance of the observable parameters to the overall fair value measurement. However, the fair value determination for Level 3 financial instruments may consider some observable market inputs.

The following tables reflect the activity for the Company’s major classes of assets and liabilities measured at fair value using Level 3 inputs (in thousands):

Assets:	Three Months Ended 8/31/2011			Six Months Ended 8/31/2011
Balance at beginning of period	$	28,786		$	29,490
Transfers out to Level 2 (Auction Rate Securities with market inputs)		-			(550	)
Sales of Level 3 investments		(550	)		(725	)
Total losses:
Unrealized losses included in accumulated other comprehensive income		(37	)		(16	)
Balance as of August 31, 2011	$	28,199		$	28,199

Liabilities:	Three Months Ended 8/31/2011			Six Months Ended 8/31/2011
Balance at beginning of period	$	10,205		$	2,778
Level 3 liabilities acquired		-			8,800
Level 3 liabilities settled		-			(1,390	)
Total (gains) and losses:
Included in earnings (unrealized)		(398	)		(381	)
Unrealized losses included in accumulated other comprehensive income		18			18
Balance as of August 31, 2011	$	9,825		$	9,825

The following tables summarize the composition of the Company’s investments (in thousands):

								Classification on Balance Sheet
August 31, 2011	Cost		Gross Unrealized Losses			Aggregate Fair value		Cash and Cash Equivalents		Long-Term Investments
Auction rate securities	$	30,125	$	(1,926	)	$	28,199	$	-	$	28,199
Money market funds		39,467		-			39,467		39,467		-
	$	69,592	$	(1,926	)	$	67,666	$	39,467	$	28,199

								Classification on Balance Sheet
February 28, 2011	Cost		Gross Unrealized Losses			Aggregate Fair value		Cash and Cash Equivalents		Long-Term Investments
Auction rate securities	$	31,400	$	(1,910	)	$	29,490	$	-	$	29,490
Money market funds		134,007		-			134,007		134,007		-
	$	165,407	$	(1,910	)	$	163,497	$	134,007	$	29,490

The Company classifies all marketable debt and equity securities with remaining contractual maturities of greater than one year as long-term investments. As of August 31, 2011 the Company held approximately $28.2 million of investments in auction rate securities (net of $1.9 million in gross unrealized losses) with maturities ranging from 10 years to 30 years, all classified as available-for-sale. Auction rate securities are long-term variable rate bonds tied to short-term interest rates that were, until February 2008, reset through a “Dutch auction” process. As of August 31, 2011, all of the Company’s auction rate securities were “AAA” rated by one or more of the major credit rating agencies.

Historically, the carrying value (par value) of the auction rate securities approximated fair market value due to the frequent resetting of variable interest rates. Beginning in February 2008, however, the auctions for auction rate securities began to fail and were largely unsuccessful. As a result, the interest rates on the investments reset to the maximum rate per the applicable investment offering statements. The types of auction rate securities generally held by the Company have historically traded at par and are callable at par at the option of the issuer.

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STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The par (invested principal) value of the auction rate securities associated with these failed auctions will not be accessible to the Company until a successful auction occurs, a buyer is found outside of the auction process, the securities are called or the underlying securities have matured. In light of these liquidity constraints, the Company performed a valuation analysis to determine the estimated fair value of these investments. The fair value of these investments was based on a trinomial discount model. This model considers the probability of three potential occurrences for each auction event through the maturity date of the security. The three potential outcomes for each auction are (i) successful auction/early redemption, (ii) failed auction and (iii) issuer default. Inputs in determining the probabilities of the potential outcomes include, but are not limited to, the security’s collateral, credit rating, insurance, issuer’s financial standing, contractual restrictions on disposition and the liquidity in the market. The fair value of each security was then determined by summing the present value of the probability weighted future principal and interest payments determined by the model. The discount rate was determined using a proxy based upon the current market rates for successful auctions within the AAA rated auction rate securities market. The expected term was based on management’s estimate of future liquidity. The illiquidity discount was based on the levels of federal insurance or FFELP backing for each security as well as considering similar preferred stock securities ratings and asset backed ratio requirements for each security.

As a result, as of August 31, 2011, the Company recorded an estimated cumulative unrealized loss of $1.9 million (net of tax) related to the temporary impairment of the auction rate securities, which was included in accumulated other comprehensive income within shareholders’ equity. The Company deemed the loss to be temporary because the Company does not plan to sell any of the auction rate securities prior to maturity at an amount below the original purchase value and, at this time, does not deem it probable that it will receive less than 100% of the principal and accrued interest from the issuer. Further, the auction rate securities held by the Company are AAA rated, and the Company considers the credit risk to be negligible. The Company continues to liquidate investments in auction rate securities as opportunities arise. In the six-month period ended August 31, 2011, $1.3 million in auction rate securities were liquidated at par in connection with issuer calls.

The Company does not believe it will be necessary to access these investments to support current working capital requirements. However, the Company may be required to record additional unrealized losses in accumulated other comprehensive income or through income in future periods based on then current facts and circumstances. Specifically, if the credit rating of the security issuers deteriorates, or if active markets for such securities are not reestablished, the Company may be required to adjust the carrying value of these investments through impairment charges recorded in the consolidated statements of operations, and any such impairment adjustments may be material.

4. Comprehensive Income (Loss)

The Company’s other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries whose functional currency is other than the U.S. dollar (“USD”) and unrealized gains and losses on investments classified as available-for-sale.

The components of the Company’s comprehensive income were as follows (in thousands):

	Three Months Ended August 31					Six Months Ended August 31
	2011			2010		2011			2010
Net income	$	11,891		$	12,902	$	18,069		$	13,529
Other comprehensive income:
Change in foreign currency translation adjustments		1,101			2,855		3,635			(792	)
Change in unrealized loss on securities		(3	)		639		(16	)		1,160
Total comprehensive income	$	12,989		$	16,396	$	21,688		$	13,897

The components of the Company’s accumulated other comprehensive income were as follows (in thousands):

	August 31, 2011			February 28, 2011
Unrealized losses on investments, net of tax	$	(1,880	)	$	(1,864	)
Foreign currency translation		14,402			10,767
Minimum pension liability adjustment, net of tax		(415	)		(415	)
Accumulated other comprehensive income	$	12,107		$	8,488

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STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5. 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 sum of the weighted-average number of common shares outstanding during the period, plus the dilutive effect of 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 August 31				Six Months Ended August 31
	2011		2010		2011		2010
Weighted average shares outstanding for basic net income per share		23,065		22,606		23,047		22,540
Dilutive effect of stock options and restricted stock units		428		150		469		232
Weighted average shares outstanding for diluted net income per share		23,493		22,756		23,516		22,772

Options covering approximately 1.8 million and 1.5 million shares for the three month periods ended August 31, 2011 and 2010, and approximately 1.6 million and 1.6 million shares for the six month periods ended August 31, 2011 and 2010, respectively, were excluded from the computation of average shares outstanding for diluted net income per share because their effects were antidilutive.

6. Business Combinations

BridgeCo

On May 19, 2011 SMSC completed the acquisition of BridgeCo, Inc. (“BridgeCo”), a leader in wireless networked audio technologies. BridgeCo's JukeBlox(TM) technology connects tablets, smartphones, PCs, Macs and other consumer electronics products by enabling consumers to access their local or cloud-based music library from any device and from any room in the home. Its JukeBlox software platform, with integrated WiFi® support, enables music streaming to virtually all home audio equipment including home theater systems, A/V receivers, radios, wireless speakers and portable music player docking stations. BridgeCo's technology has been adopted by some of the largest consumer electronics brands in the world including Pioneer, Philips, Denon, Marantz, JBL, B&W and Harmon/Kardon.

The majority of BridgeCo’s assets are located in the United States. BridgeCo also has operations in India and Japan. The functional currency of BridgeCo’s operations in the United States is the U.S. dollar (“USD”), in India, the Indian Rupee and in Japan, the Japanese Yen.

SMSC made an initial investment of $41.0 million in cash (net of cash acquired). The terms of the purchase agreement provide for potential earnout payments of up to $5.0 million in 2012 and up to $22.5 million in 2013 to former BridgeCo shareholders, dependent on BridgeCo reaching certain revenue goals in calendar years 2011 and 2012.

In addition, an employee incentive bonus plan was established as part of the merger agreement in which a portion of the earnout payment due to shareholders was apportioned to employees contingent upon continuous future employment as of the specified payout dates established by the plan. This portion of the earnout was not included as part of the contingent consideration liability but is being charged to earnings over the required service period as earned.

The fair value of the contingent consideration at acquisition of $8.8 million was estimated by applying the income approach. That measure was based on significant inputs that are unobservable in the market, and are therefore level 3 inputs. Key assumptions included a discount rate of 19% and a probability-adjusted level of forecasted quarterly revenues.

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STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the components of the purchase price at fair value (in thousands):

BridgeCo

Cash acquired	$	(374	)
Cash consideration paid		41,342
Liability for contingent consideration		8,800
Total consideration	$	49,768

The following table summarizes the allocation of the purchase price at fair value (in thousands):

Receivables	$	601
Inventories		950
Other current assets		629
Property, plant and equipment		442
Customer relationships		1,900
Trade name		70
Technology		7,400
Goodwill (all non-deductible for tax purposes)		40,173
Deferred tax assets		438
Other non current assets		257
Non-interest bearing liabilities		(2,402	)
Deferred tax liabilities		(690	)
Net assets	$	49,768

The results of BridgeCo’s operations subsequent to May 19, 2011 have been included in the Company’s consolidated results of operations. In the three-month and six-month periods ended August 31, 2011, BridgeCo contributed $8.7 million and $9.5 million in revenue, respectively.

The following unaudited pro forma financial information presents the combined operating results of SMSC and BridgeCo as if the acquisition had occurred as of the beginning of the comparative prior annual reporting period only. In the three month period ended August 31, 2011 there were no pro forma adjustments as the BridgeCo results were included in the SMSC results for the entire period. Pro forma data is subject to various assumptions and estimates, and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.

Pro forma financial information is presented in the following table (in thousands):

	Three Months Ended August 31,				Six Months Ended August 31,
	2011		2010		2011		2010
	(Unaudited)				(Unaudited)
Sales and revenues	$	112,581	$	105,697	$	219,073	$	203,944
Net income	$	11,891	$	10,951	$	15,790	$	10,204

9

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Symwave

On November 12, 2010 SMSC completed the acquisition of Symwave, Inc. (“Symwave”), a global fabless semiconductor company supplying high-performance analog/mixed-signal connectivity solutions utilizing proprietary technology, IP and silicon design capabilities. Symwave was headquartered in Laguna Niguel, California, with design centers in San Diego, California and Shenzhen, China. Symwave had approximately 90 employees, of which over 60 were in Asia. The functional currency of Symwave’s operations in the United States is the U.S. dollar (“USD”) and in China is the Chinese Yuan Renminbi (“CNY”).

SMSC made an initial $5.2 million equity investment in Symwave in fiscal 2010, resulting in an equity stake of approximately 14% and in fiscal 2011 provided $3.1 million in bridge financing to Symwave. At acquisition, the initial equity investment was revalued to $2.0 million and an impairment loss of $3.2 million was recorded within income from operations. The terms of the purchase agreement provide for quarterly cash payments to former Symwave shareholders upon achievement of certain revenue and gross profit margin goals. As a result, no cash was paid at acquisition and SMSC recorded a $3.1 million liability for contingent consideration. The fair value of the initial equity investment of $2.0 million was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, and are therefore level 3 inputs. Key assumptions include a discount rate of 15 percent and a probability-adjusted level of quarterly revenues and gross profit margins.

Symwave

The following table summarizes the components of the purchase price at fair value (in thousands):

Fair value of initial investment in Symwave	$	2,030
Assumption of liability for overdue accounts payable		4,062
Assumption of liability for notes payable		3,212
Liability for contingent consideration		3,094
	$	12,398

The following table summarizes the allocation of the purchase price at fair value (in thousands):

Cash and cash equivalents	$	1,517
Inventories		3,441
Accounts receivable		3,338
Other current assets		343
Fixed assets		1,989
Customer relationships		290
Trade name		150
Technology		3,600
Goodwill (all non-deductible for tax purposes)		1,690
Deferred tax assets		1,486
Accounts payable and accrued liabilities		(5,446	)
	$	12,398

The results of Symwave’s operations subsequent to November 12, 2010 have been included in the Company’s consolidated results of operations. In the three and six month periods ended August 31, 2011, Symwave contributed $0.7 million and $2.1 million in revenue, respectively.

During the fourth quarter of fiscal 2011 the Company initiated a plan to reduce costs and investments, including reducing investment in the former Symwave business (see Note 13 — Restructuring).

The following unaudited pro forma financial information presents the combined operating results of SMSC and Symwave as if the acquisition had occurred as of the beginning of the comparable prior annual reporting period only. In the three and six month periods ended August 31, 2011 there were no pro forma adjustments as the Symwave results were included in the SMSC results for the entire period. Pro forma data is subject to various assumptions and estimates, and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.

Pro forma financial information is presented in the following table (in thousands):

	Three Months Ended August 31				Six Months Ended August 31
	2011		2010		2011		2010
	(Unaudited)				(Unaudited)
Sales and revenues	$	112,581	$	105,996	$	216,076	$	203,960
Net income	$	11,891	$	11,979	$	18,069	$	11,685

10

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. Investments

Long-term investments consist of AAA rated auction rate securities (most of which are backed by the U.S. Federal or state and municipal government guarantees) held as available-for-sale investments. As of November 30, 2007 and prior period-end dates, investments in auction rate securities were classified as short-term in nature. In the fourth quarter of fiscal 2008, such investments became subject to adverse market conditions, and the liquidity typically associated with the financial markets for such instruments became restricted as auctions began to fail. Given the circumstances, these securities were subsequently classified as long-term (or short-term if stated maturity dates were within one year of the reported balance sheet date), reflecting the restrictions on liquidity and the Company’s intent to hold until maturity (or until such time as the principal investment could be recovered through other means, such as issuer calls and redemptions). See Note 3 — Fair Value for further discussion on related issues and matters, including fair valuation.

On November 23, 2010, the Company invested $2.0 million in EqcoLogic, N.V. (“EqcoLogic”), a privately held Belgian corporation based in Brussels, Belgium. SMSC holds approximately 18.0% of the total outstanding equity of EqcoLogic on a fully diluted basis. The purchase of the equity shares has been accounted for as a cost-basis investment and is included in the Investments in equity securities caption on the Company’s condensed consolidated balance sheet.

8. Goodwill and Intangible Assets

Changes in the carrying amount of goodwill by reporting unit consists of the following (in thousands):

	Analog/Mixed Signal			Wireless Audio		AIS			Total
Gross balance, 2/28/11	$	33,393		$	24,531	$	71,649		$	129,573
Accumulated impairment losses		-			-		(52,300	)		(52,300	)
Balance, 2/28/11		33,393			24,531		19,349			77,273
Adjustments		193			-		-			193
Goodwill acquired		-			40,173		-			40,173
Foreign exchange rate impact		(27	)		361		242			576
Gross balance, 8/31/11		33,559			65,065		71,891			170,515
Accumulated impairment		-			-		(52,300	)		(52,300	)
Balance, 8/31/11	$	33,559		$	65,065	$	19,591		$	118,215

On May 19, 2011 SMSC completed the acquisition of BridgeCo, a leader in wireless networked audio technologies. Goodwill related to this acquisition is included within the wireless audio reporting unit.

11

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company’s intangible assets consisted of the following (in thousands):

	As of August 31, 2011				As of February 28, 2011
	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Purchased technologies	$	56,833	$	36,549	$	48,151	$	32,353
Customer relationships and contracts		21,087		12,251		18,291		10,268
Other		2,276		875		2,096		642
Total – finite-lived intangible assets		80,196		49,675		68,538		43,263
Trademarks and trade names - indefinite-lived		6,763		-		6,470		-
	$	86,959	$	49,675	$	75,008	$	43,263

Purchased technologies have been assigned estimated useful lives of between six and nine years, with a weighted-average useful life of approximately eight years. Customer relationships and contracts have been assigned useful lives of between one and fifteen years, with a weighted-average useful life of approximately seven years. Certain trade names related to the acquired businesses are amortized over a period of one year and included in other in the table above.

Total amortization expense recorded for finite-lived intangible assets using straight-line amortization was as follows (in thousands):

	Three Months Ended August 31				Six Months Ended August 31,
	2011		2010		2011		2010
Amortization expense	$	2,700	$	2,077	$	5,091	$	3,842

Estimated future finite-lived intangible asset amortization expense is as follows (in thousands):

Period	Amount
Remainder of Fiscal 2012	$	5,415
Fiscal 2013	$	9,933
Fiscal 2014	$	4,516
Fiscal 2015	$	3,976
Fiscal 2016	$	3,194
Fiscal 2017 and thereafter	$	3,487
	$	30,521

12

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. Other Balance Sheet Data

Other balance sheet data is as follows (in thousands):

	August 31, 2011			February 28, 2011
Inventories:
Raw materials	$	2,254		$	2,413
Work-in-process		12,555			14,329
Finished goods		35,063			30,490
	$	49,872		$	47,232
Property, plant and equipment:
Land	$	578		$	578
Buildings and improvements		38,901			36,164
Machinery and equipment		140,690			133,778
		180,169			170,520
Less: Accumulated depreciation and amortization		(113,249	)		(103,138	)
	$	66,920		$	67,382
Accrued expenses, income taxes and other liabilities:
Employee compensation, incentives and benefits	$	20,069		$	19,174
Stock appreciation rights		15,982			28,259
Supplier financing – current		6,465			4,934
Restructuring charges (see Note 13)		875			2,821
Accrued rent obligations		2,792			2,944
Income taxes payable		1,360			2,545
Accrued contingent consideration--current		5,700			1,445
Other accrued		6,295			10,337
	$	59,538		$	72,459
Other liabilities:
Retirement benefits	$	8,843		$	8,799
Income taxes		6,083			5,225
Supplier financing – non-current		3,939			5,406
Accrued contingent consideration--non-current		4,125			1,401
Other liabilities		798			1,038
	$	23,788		$	21,869

10. Deferred Income from Distribution

Certain of the Company’s products are sold to electronic component distributors under agreements providing for price protection and rights to return unsold merchandise. Accordingly, recognition of revenue and associated gross profit on shipments to a majority of the Company’s distributors is deferred until the distributors resell the products. At the time of shipment to distributors, the Company records a trade receivable for the selling price, relieves inventory for the carrying value of goods shipped, and records the gross margin as deferred income from distribution on the consolidated balance sheets. This deferred income represents the gross margin on the initial sale to the distributor; however, the amount of gross margin recognized in future consolidated statements of operations will typically be less than the originally recorded deferred income as a result of price allowances. Price allowances offered to distributors are recognized as reductions in product sales when incurred, which is generally at the time the distributor resells the product. Shipments made by the Company’s Japanese subsidiary to distributors in Japan are made under agreements that permit limited stock return and no price protection privileges. Revenue for shipments to distributors in Japan is recognized as title passes to such distributors upon delivery.

Deferred income on shipments to distributors consists of the following (in thousands):

	August 31, 2011			February 28, 2011
Deferred revenue	$	30,677		$	26,609
Deferred cost of goods sold		(5,722	)		(4,904	)
Provisions for sales returns		656			757
Advances to distributors for price allowances		(6,743	)		(6,295	)
	$	18,868		$	16,167

13

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11. Other Expense, Net

The components of the Company’s other expense, net consisted of the following (in thousands):

	Three Months Ended August 31						Six Months Ended August 31
	2011			2010			2011		2010
Unrealized and realized foreign currency transaction gains	$	(130	)	$	(274	)	$	11	$	(370	)
Other miscellaneous income, net		31			93			32		34
	$	(99	)	$	(181	)	$	43	$	(336	)

12. Income Taxes

The provision for income taxes for the three and six month periods ended August 31, 2011 was $9.6 million, and $11.3 million or an effective income tax rate of 44.6% on $21.5 million of profit and an effective tax rate of 38.4% on $29.3 million of income before income taxes, respectively. The tax provision for the six month period ended August 31, 2011 includes the net deferred tax benefit of $1.4 million related to a change in the effective rate for state deferred tax assets and liabilities, an impact of $0.2 million from tax exempt income, and approximately $0.2 million of accrued interest and penalties. The provision excludes the impact of certain losses in various jurisdictions that could not be benefitted. In addition, $0.9 million of qualified research and development credit has been included in the net provision for income taxes for the six months ended August 31, 2011.

The provision for income taxes for the three and six month periods ended August 31, 2010 was $9.4 million, and $10.5 million or an effective income tax rate of 42.1% on $22.3 million of profit and an effective tax rate of 43.7% on $24.0 million of income before income taxes, respectively. The provision excludes the impact of certain losses in various jurisdictions that could not be benefitted. In addition, as the research and development tax credit expired on December 31, 2009 there is no such tax credit included in the tax provision for the three and six month periods ended August 31, 2010.

The difference between the effective tax rates of 38.4% for the six months ended August 31, 2011 compared to effective tax rate of 43.7% for the six months ended August 31, 2010 is primarily attributable to a deferred tax benefit related to a change in the effective rate for state deferred tax assets and liabilities and a credit for research and development were recorded for the six months ended August 31, 2011 which was not available in the six months ended August 31, 2010.

The Company increased its reserves for liabilities for uncertain tax positions for the six month period ended August 31, 2011 by $0.7 million to $5.5 million for potential liabilities related to certain acquisitions. Substantially all such unrecognized tax benefits would be recorded as part of the provision for income taxes if realized in future periods. At this time, the Company does not anticipate that liabilities for uncertain tax positions will significantly increase or decrease on or prior to August 31, 2012. All liabilities for uncertain tax positions are classified as long term and included in Other liabilities in the condensed consolidated balance sheet.

The Company files U.S. federal, U.S. state, and foreign tax returns, and is generally no longer subject to tax examinations for fiscal years prior to 2008 (in the case of certain foreign tax returns, calendar year 2007).

13. Restructuring

During the second quarter of fiscal 2012 the Company reorganized certain engineering groups resulting in severance charges of $0.4 million. Costs incurred as result of this action will result in cash payments to be completed in the third quarter of fiscal 2012.

During the fourth quarter of fiscal 2011, the Company initiated a plan to reduce costs and investments in certain businesses. As a result, approximately 80 positions worldwide, including approximately 50 positions at its subsidiary in Shenzhen China, were eliminated as part of the plan to substantially reduce investment in storage solutions acquired as part of the acquisition of Symwave, Inc. (“Symwave”).

The remaining positions eliminated consist of certain administrative positions, certain positions in its subsidiary in Canada as part of its plan to converge the wireless audio products roadmap from the acquisitions of Kleer Corporation and Kleer Semiconductor Corporation (collectively, “Kleer”) and Wireless Audio IP B.V. (“STS”) and to rationalize worldwide resources working on wireless audio products, and certain engineering positions. An additional $0.3 million was incurred in the first quarter of fiscal 2012 for additional severance and termination benefits and asset impairment charges relating to this restructuring plan. Costs incurred as result of this action will result in cash payments to be completed in the third quarter of fiscal 2012.

14

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In the second quarter of fiscal 2011, the Company initiated a restructuring plan for severance and termination benefits for 9 employees of $0.1 million. An additional $0.3 million in expenses were incurred in the third and fourth quarters of fiscal 2011 relating to this plan. The Company expects the payments on these obligations to be completed in the third quarter of fiscal 2012.

In the fourth quarter of fiscal 2010, the Company initiated a restructuring plan for severance and termination benefits for 5 employees. The payments on these obligations were completed in the first quarter of fiscal 2012.

In the second quarter of fiscal 2010, the Company announced a plan to reduce its workforce by sixty-four employees in connection with the relocation of certain of its test floor activities from Hauppauge, New York to third party offshore facilities (Sigurd Microelectronics Corporation) in Taiwan. The payments on these obligations were completed in the first quarter of fiscal 2012.

In the fourth quarter of fiscal 2009, the Company announced a restructuring plan that included a supplemental voluntary retirement program and involuntary separations that would result in approximately a ten percent reduction in employee headcount and expenses worldwide. The payments on these obligations were completed in the first quarter of fiscal 2012.

The following tables summarize the activity related to the accrual for restructuring charges for the six months ended August 31, 2011 and the twelve months ended February 28, 2011 (in thousands):

	Balance as of March 1, 2011		Severance & Benefits Charges		Assets Impairment		Payments			Non-Cash Items			Balance as of August 31, 2011
Q4 Fiscal 2009 Restructuring Plan	$	2	$	-	$	-	$	(2	)	$	-		$	-
Q2 Fiscal 2010 Restructuring Plan		15		-		-		-			-			15
Q4 Fiscal 2010 Restructuring Plan		27		-		-		(27	)		-			-
Q2 Fiscal 2011 Restructuring Plan		348		-		-		(226	)		-			122
Q4 Fiscal 2011 Restructuring Plan		2,429		270		73		(2,317	)		(73	)		382
Q2 Fiscal 2012 Restructuring Plan		-		356							-			356
Total	$	2,821	$	626	$	73	$	(2,572	)	$	(73	)	$	875

	Balance as of March 1, 2010		Severance & Benefits Charges		Assets Impairment		Payments			Non-Cash Items			Balance as of February 28, 2011
Q4 Fiscal 2009 Restructuring Plan	$	210	$	-	$	-	$	(212	)	$	4		$	2
Q2 Fiscal 2010 Restructuring Plan		101		-		-		(86	)		-			15
Q4 Fiscal 2010 Restructuring Plan		780		822		-		(1,440	)		(135	)		27
Q2 Fiscal 2011 Restructuring Plan		-		348		-		-			-			348
Q4 Fiscal 2011 Restructuring Plan		-		2,489		1,044		-			(1,104	)		2,429
Total	$	1,091	$	3,659	$	1,044	$	(1,738	)	$	(1,235	)	$	2,821

14. Benefit and Incentive Plans (including Share-Based Payments)

The Company has several stock-based compensation plans in effect under which incentive stock options and non-qualified stock options (collectively “stock options”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) have been granted to employees and directors. In July 2009, the shareholders approved the 2009 Long Term Incentive Plan (the “LTIP”). The Company has ceased issuing stock options and restricted stock awards under previously established stock option and restricted stock plans, and has ceased issuing SARs, and instead is using the LTIP to issue stock options and RSUs. The Compensation Committee and management continue to evaluate means to effectively promote share ownership by employees and directors while offering industry-competitive compensation packages, including appropriate use of stock-based compensation awards.

Long Term Incentive Plan

Under the LTIP, the Compensation Committee of the Board of Directors is authorized to grant awards of stock options, restricted stock or restricted stock units, or other stock-based awards. The Committee is authorized under the LTIP to delegate its authority in certain circumstances. The purpose of this plan is to promote the interests of the Company and its shareholders by providing officers, directors and key employees with additional incentives and the opportunity, through stock ownership, to better align their interests with the Company’s and enhance their personal interest in its continued success. After amendment on July 28, 2011 the maximum number of shares that may be delivered pursuant to awards granted under the LTIP is 2,000,000 plus: (i) any shares that have been authorized but not issued pursuant to previously established plans of the Company as of June 30, 2009, up to a maximum of an additional 500,000 shares; (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of June 30, 2009 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 3,844,576 shares. The maximum number of incentive stock options that may be granted under the LTIP is 1,500,000. No participant may receive awards under the LTIP in any calendar year for more than 1,000,000 shares equivalents. As of August 31, 2011, awards amounting to 1,286,091 share equivalents are available for grant under the LTIP.

15

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Employee and Director Stock Option Plans

Under the Company’s various plans, the Compensation Committee of the Board of Directors had been authorized to grant options to purchase shares of common stock. Stock options under inducement plans were offered only to new employees, and all options were granted at prices not less than the fair market value on the date of grant. The grant date fair values of stock options are recorded as compensation expense ratably over the vesting period of each award, as adjusted for forfeitures of unvested awards. Stock options generally vest over four or five-year periods, and expire no later than ten years from the date of grant. Following shareholder approval of the LTIP, the Company ceased issuing awards under previously established stock option plans.

Stock option plan activity is summarized below (in thousands, except per share data):

	Shares			Weighted Average Exercise Price per Share		Weighted Average Contractual Term (in yrs.)		Aggregate Intrinsic Value
Options outstanding, March 1, 2011		3,075		$	22.75
Granted		222		$	24.96
Exercised		(116	)	$	18.08
Canceled, forfeited or expired		(147	)	$	29.91
Options outstanding, August 31, 2011		3,034		$	22.74		5.7	$	4,568
Options exercisable, August 31, 2011		1,980		$	22.50		4.4	$	3,443

The following table summarizes information relating to outstanding and exercisable options as of August 31, 2011 (shares in thousands):

Range of Exercise Prices		Weighted Average Remaining Lives		Options Outstanding		Weighted Average Exercise Prices		Options Exercisable		Weighted Average Exercise Prices
$	10.56 - $17.62		4.7		792	$	16.37		628	$	16.46
$	18.29 - $22.35		5.1		876	$	20.44		613	$	20.55
$	22.40 - $27.76		7.9		779	$	25.29		271	$	25.68
$	27.90 - $36.13		5.1		587	$	31.36		468	$	31.33
			5.7		3,034	$	22.74		1,980	$	22.50

The following table summarizes information relating to currently outstanding and exercisable options:

	As of August 31,
	2011		2010
Total remaining unrecognized compensation cost (in thousands)	$	7,969	$	11,790
Weighted average period over which cost is expected to be recognized (in years)		1.5		1.7

16

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The fair value of stock options granted in connection with the Company’s stock incentive plans have been estimated utilizing the following assumptions:

	Three Months Ended August 31,						Six Months Ended August 31,
	2011			2010			2011			2010
Dividend yield		-			-			-			-
Expected volatility		43	%		46	%		43 - 44	%		46-47	%
Risk-free interest rates		1.6 - 1.8	%		1.8-2.0	%		1.6 - 2.1	%		1.8-2.6	%
Expected lives (in years)		5.0			5.0			5.0			5.0

Restricted Stock Awards/Restricted Stock Units

The Company provides common stock awards to certain officers and key employees. The Company previously granted restricted stock awards, at its discretion, and as part of the Company’s management incentive plan, from the shares available under its 2001 and 2003 Stock Option and Restricted Stock Plans and its 2005 Inducement Stock Option and Restricted Stock Plan. The shares awarded were typically earned in 25%, 25% and 50% increments on the first, second and third anniversaries of the award, respectively, and are distributed provided the employee has remained employed by the Company through such anniversary dates; otherwise the unvested shares are forfeited. The grant date fair value of these shares at the date of award is recorded as compensation expense ratably on a straight-line basis over the related vesting periods, as adjusted for estimated forfeitures of unvested awards. Restricted stock shares are no longer being granted from previously established restricted stock award plans. Instead, restricted stock units are currently being granted from the LTIP. Restricted stock units are typically earned in 33% increments on the first, second and third anniversaries of the award, respectively, and are distributed provided the employee remains employed by the Company through such anniversary dates; otherwise the unvested shares are forfeited. The grant date fair value of these shares at the date of award is recorded as compensation expense ratably on a straight-line basis over the related vesting periods, as adjusted for estimated forfeitures of unvested awards.

Restricted stock activity is set forth below (shares in thousands):

	Shares			Weighted Average Grant-Date Fair Value
Restricted stock shares/units outstanding, March 1, 2011		424		$	23.79
Granted		262		$	24.60
Canceled or expired		(41	)	$	26.84
Vested		(78	)	$	25.60
Restricted stock shares/units outstanding, August 31, 2011		567		$	23.70

The following table summarizes information relating to RSAs and RSUs activity:

	As of August 31,
	2011		2010
Total unrecognized compensation cost (in thousands)	$	11,115	$	5,301
Weighted average period over which cost is expected to be recognized (in years)		1.6		1.7

Stock Appreciation Rights Plans

In September 2004 and September 2006, the Company’s Board of Directors approved Stock Appreciation Rights (“SAR”) Plans (the “Plans”), the purpose of which are to attract, retain, reward and motivate employees and consultants to promote the Company’s best interests and to share in its future success. The Plans authorize the Board’s Compensation Committee to grant up to six million SAR awards to eligible officers, employees and consultants (after amendment to the 2006 SARs Plan, effective April 30, 2008). Each award, when granted, provides the participant with the right to receive payment in cash, upon exercise, for the appreciation in market value of a share of SMSC common stock over the award’s exercise price. On July 11, 2006, the Company’s Board of Directors approved the 2006 Director Stock Appreciation Rights Plan. The Company can grant up to 200,000 Director SARs under this plan. On April 9, 2008, the Board of Directors authorized an increase in the number of SARs issuable pursuant to this plan from 200,000 to 400,000. The exercise price of a SAR is equal to the closing market price of SMSC stock on the date of grant. SAR awards generally vest over four or five-year periods, and expire no later than ten years from the date of grant. The Company has currently ceased issuing SARs to employees and Directors and is using the LTIP instead.

The Company recognizes compensation expense or benefit for SARs using a graded vesting methodology, adjusting for changes in fair value from period to period. Compensation expense also includes adjustments for any exercises of SARs to record any differences between total cash paid at settlement and previously recognized compensation expenses. Prior to the adoption of guidance now codified as ASC Topic 718, “Compensation — Stock Compensation” (“ASC 718”), the Company recognized compensation expense for SARs based on the excess of the award’s market value over its exercise price over the term of the award.

17

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The total unrecognized compensation cost related to SMSC’s stock appreciation rights plan is $5.8 million as of August 31, 2011. The weighted average period over which the cost is expected to be recognized is 2.8 years.

Activity under the Plans is summarized below (in thousands, except per share data):

	Shares			Weighted Average Exercise Price per Share		Weighted Average Contractual Term (in yrs.)		Aggregate Intrinsic Value
Stock appreciation rights outstanding, March 1, 2011		4,249		$	24.96
Granted		-		$	-
Exercised		(134	)	$	17.21
Canceled or expired		(139	)	$	26.55
Stock appreciation rights outstanding, August 31, 2011		3,976		$	25.16		6.0	$	6,235
Stock appreciation rights exercisable, August31, 2011		2,853		$	26.18		5.6	$	3,793

Activity under the Stock Appreciation Rights Plan is summarized below:

	As of August 31,
	2011		2010
Total unrecognized compensation cost (in thousands)	$	5,802	$	9,924
Weighted average period over which cost is expected to be recognized (in years)		2.8		3.5

The fair value of SARs granted in connection with the Plans has been estimated utilizing the following assumptions:

	Three Months Ended August 31,						Six Months Ended August 31,
	2011			2010			2011			2010
Dividend yield		-			-			-			-
Expected volatility		38 - 46	%		37-51	%		28 – 46	%		37-53	%
Risk-free interest rates		0.18 - .85	%		0.04-1.87	%		0.01 –1.69	%		0.04-2.76	%
Expected lives (in years)		1.5 - 4.5			0.02-5.37			0.5 – 4.7			0.02-5.62

Employee Stock Purchase Plan

The Company’s 2010 Employee Stock Purchase Plan (the “Purchase Plan”), effective November 1, 2010, provides for the issuance of up to 1,100,000 shares of common stock to eligible employees. The Purchase Plan provides for eligible employees to purchase whole shares of common stock at a price of 85% of the lesser of: (a) the fair market value of a share of common stock on the first date of the purchase period or (b) the fair market value of a share of common stock on the last date of the purchase period. Stock-based compensation expense for the Purchase Plan is recognized over the vesting period of six months on a straight-line basis. In the first quarter of fiscal 2012 the Company issued 54,933 shares and had 1,045,067 shares available for future grants and issuances under the Purchase Plan. The Company recognized expense of $0.1 million and $0.3 million in the three and six months ended August 31, 2011, respectively.

Stock-Based Compensation (Benefit) Expense

The following table summarizes the compensation (benefit) expense for stock options, restricted stock awards and stock appreciation rights at fair value as measured per the provisions of ASC Topic 718, “ Compensation — Stock Compensation ” (“ASC 718”) included in our condensed consolidated statements of operations (in thousands) :

	Three Months Ended August 31,						Six Months Ended August 31,
	2011			2010			2011			2010
Costs of goods sold	$	(1,005	)	$	(451	)	$	(681	)	$	381
Research and development		(2,743	)		(1,498	)		(1,688	)		780
Selling, general and administrative		(5,503	)		(3,264	)		(3,466	)		1,539
Stock-based compensation (benefit) expense, before income taxes	$	(9,251	)	$	(5,213	)	$	(5,835	)	$	2,700

18

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Retirement Plans

The Company maintains an unfunded Supplemental Executive Retirement Plan to provide certain members of 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 following table sets forth the components of the consolidated net periodic pension expense (in thousands):

	Three Months Ended August 31,				Six Months Ended August 31,
	2011		2010		2011		2010
Service cost – benefits earned during the period	$	53	$	88	$	132	$	171
Interest cost on projected benefit obligations		91		96		182		192
Net periodic pension expense	$	144	$	184	$	314	$	363

The following table sets forth the amounts (gross, before tax) recognized in accumulated other comprehensive income (in thousands):

	As of August 31, 2011		As of February 28, 2011
Transition obligation	$	1	$	1
Net actuarial income		659		659
Total amount recognized in accumulated other comprehensive income	$	660	$	660

Annual benefit payments under these plans are expected to be approximately $0.7 million in fiscal 2012, to be funded as general corporate obligations with available cash and cash equivalents. Payments to date on these plans for the six months ended August 31, 2011 were $0.4 million. Additionally, the Company is the beneficiary of life insurance policies that have been purchased as a method of partially financing longer-term benefits payable under the Supplemental Executive Retirement Plan. In November 2009, the Compensation Committee of SMSC’s Board of Directors froze benefits under the Supplemental Executive Retirement Plan for existing participants, and there will be no further eligibility for participation in this plan. The effect of this action is expected to be immaterial to SMSC’s future results of operations.

15. Commitments and Contingencies

Contingent Consideration — BridgeCo Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of BridgeCo. The maximum amount of contingent consideration that can be earned by the sellers is $27.5 million as set forth in the purchase agreement. The fair value of the contingent consideration at acquisition was $8.8 million. This liability was revalued to $8.4 million as of August 31, 2011 based on the likelihood of achieving the performance goals.

The fair value of the contingent consideration arrangement was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, and are therefore Level 3 inputs. Key assumptions include a discount rate of 19% and a probability-adjusted level of annual revenues. The Company performs a quarterly revaluation of contingent consideration and records the change as a component of operating income.

19

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Contingent Consideration — Symwave Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of Symwave on November 12, 2010 at the estimated fair value of $3.1 million. The contingent consideration arrangement requires the Company to pay the former owners of Symwave an earnout amount equal to one times revenue (less certain agreed upon adjustments), depending on the achievement of certain revenue and gross profit margin performance goals, for each of the four quarterly periods from January 1, 2011 until December 31, 2011. No earnout payments shall be payable for any period after December 31, 2011. No liability was recorded as of February 28, 2011 and August 31, 2011 based on the likelihood of achieving the performance goals.

Contingent Consideration — STS Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of STS. The contingent consideration arrangement requires the Company to pay the former owners of STS an earnout amount of $3.0 million for the period from January 1, 2011 until December 31, 2011 provided that revenue meets performance goals set forth in the purchase agreement. No earnout payments shall be payable for any period after December 31, 2011. No liability was recorded as of February 28, 2011 and August 31, 2011 based on the likelihood of achieving the performance goals.

Contingent Consideration — Kleer Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of Kleer. The maximum amount of contingent consideration that can be earned by the sellers was $2.0 million as set forth in the purchase agreement. No liability was recorded as of February 28, 2011 and August 31, 2011 based on the likelihood of achieving the performance goals.

Contingent Consideration — K2L Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of K2L GmbH (“K2L”). The maximum amount of contingent consideration that can be earned by the sellers is 2.1 million Euros. Fifty percent of the contingent consideration was earned in calendar year 2010 and fifty percent is available to be earned in calendar year 2011 based on the level of achievement of revenue as set forth in the purchase agreement. On March 31, 2011, 1.1 million Euros in stock and cash was paid to the former owners of K2L for meeting calendar year 2010 performance targets. This liability was revalued from $2.8 million as of February 28, 2011to $1.4 million as of August 31, 2011 as a result of the payout of the 2010 earnout and the likelihood of achieving the 2011 performance goals.

The fair value of the contingent consideration arrangement was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, and are therefore Level 3 inputs. Key assumptions include a discount rate of 16% and a probability-adjusted level of annual revenues. The Company performs a quarterly revaluation of contingent consideration and records the change as a component of operating income.

Litigation

From time to time as a normal incidence of doing business, various claims and litigation may be asserted or commenced against the Company. Due to uncertainties inherent in litigation and other claims, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability for damages and/or invalidate its proprietary rights. Any lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management’s time and attention, and an adverse outcome of any significant matter could have a material adverse effect on the Company’s consolidated results of operations or cash flows in the quarter or annual period in which one or more of these matters are resolved.

20

STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

16. Supplemental Cash Flow Disclosures

The information below summarizes the Company’s supplemental cash flow disclosures (in thousands):

	Six months ended August 31,
	2011		2010
Design tools acquired under supplier financing	$	2,684	$	4,018
Cash payments made - federal, state, and foreign income taxes	$	1,750	$	6,624

17. Subsequent Event – Treasury Share Repurchase

The Company repurchased 303,576 treasury shares at a cost of $6.2 million subsequent to August 31, 2011. These shares will be included in treasury shares in the shareholders’ equity section of the balance sheet in the next interim reporting period ending November 30, 2011.

21

Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes included in Part I Item 1. — Financial Statements, of this Quarterly Report on Form 10-Q (“Quarterly Report” or “10-Q”) of Standard Microsystems Corporation (the “Company” or “SMSC”).

Forward-Looking Statements

Portions of this Quarterly Report may contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on management’s beliefs and assumptions, current expectations, estimates and projections. Such statements, including statements relating to the Company’s expectations for future financial performance, are not considered historical facts and are considered forward-looking statements under federal securities laws. Words such as “believe,” “expect,” “anticipate” and similar expressions identify forward-looking statements. Risks and uncertainties may cause the Company’s actual future results to be materially different from those discussed in forward-looking statements. The Company’s risks and uncertainties include (but are not limited to): the timely development and market acceptance of new products; the impact of competitive products and pricing; the Company’s ability to procure capacity from suppliers and the timely performance of their obligations; commodity prices; potential investment losses as a result of liquidity conditions; the effects of changing economic and political conditions in the market domestically and internationally and on its customers; relationships with and dependence on customers and growth rates in the personal computer, consumer electronics and embedded and automotive markets and within the Company’s sales channel; changes in customer order patterns, including order cancellations or reduced bookings; the effects of tariff, import and currency regulation; potential or actual litigation; and excess or obsolete inventory and variations in inventory valuation, among others. In addition, 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.

The Company’s forward looking 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, equity investments or divestitures. All forward-looking statements speak only as of the date hereof and are based upon the information available to SMSC at this time. Such statements are subject to change, and the Company does not undertake to update such statements, except to the extent required under applicable law and regulation. 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 periodic and current reports as filed with the United States Securities and Exchange Commission (the “SEC”). Readers are advised to review the Company’s most recent Annual Report on Form 10-K and quarterly reports on Form 10-Q as filed subsequently with the SEC, particularly those sections entitled “ Risk Factors ,” for a more complete discussion of these and other risks and uncertainties. Other cautionary statements concerning risks and uncertainties may also appear elsewhere in this Quarterly Report.

Description of Business

SMSC designs and sells a wide range of silicon-based integrated circuits that utilize analog and mixed-signal technologies. The Company’s integrated circuits and systems provide a wide variety of connectivity products that are incorporated by its globally diverse customers into numerous end products in the Consumer Electronics, Personal Computing (“PC”), Automotive and Industrial markets. These products generally provide connectivity, networking, or input/output control solutions including hardware, software, and firmware, for a variety of high-speed communication, computer and related peripheral, consumer electronics, industrial control systems or automotive information applications. The market for these solutions is increasingly diverse, and the Company’s technologies are increasingly used in various combinations and in alternative applications. SMSC has operations in the United States, Canada, Germany, Bulgaria, Sweden, India, Japan, China, Korea, Singapore and Taiwan. Major engineering design centers are located in North America, Asia and Europe.

22

Critical Accounting Policies & Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and SEC rules and regulations 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.

Information regarding SMSC’s critical accounting policies and estimates appear 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 28, 2011, as filed with the SEC on April 19, 2011. During the six-month period ended August 31, 2011, there were no significant changes to any critical accounting policies or to the related estimates and judgments involved in applying those policies.

SMSC believes critical accounting policies and estimates are important to the portrayal of the Company’s financial condition, results of operations and cash flows, 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.

Recent Accounting Standards

 In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011 - 05, “Presentation of Comprehensive Income” (“ASU 2011 - 05”), which provides guidance regarding the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The updated guidance is effective on a retrospective basis for SMSC beginning in the first quarter of fiscal year 2013. The adoption of this guidance will not have a material impact on our consolidated financial statements.

 In May 2011, the FASB issued Accounting Standards Update 2011 - 04, “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011 - 04”), which provides additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for SMSC beginning in the first quarter of fiscal year 2013. The adoption of this guidance will not have a material impact on our consolidated financial statements.

In December 2010, the FASB issued Accounting Standards Update 2010 - 29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010 - 29”), which specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The new disclosures required by ASU 2010 – 29 were adopted by SMSC beginning in the first quarter of fiscal 2012. The adoption of ASU 2010 - 29 did not have a material effect on our consolidated financial statements.

23

Results of Operations

Overview

Sales and revenues, gross profit, income from operations, and net income were as follows (in thousands):

	For the Three Months Ended August 31,
	2011			2010			Inc./Dec. $			Inc./Dec. %
Sales and revenues	$	112,581		$	104,084		$	8,497			8.2	%
Gross profit	$	60,344		$	58,658		$	1,686			2.9	%
Gross profit as percentage of sales and revenues		53.6	%		56.4	%
Operating income	$	21,520		$	22,346		$	(826	)		-3.7	%
Operating income as percentage of sales and revenues		19.1	%		21.5	%
Net income	$	11,891		$	12,902		$	(1,011	)		-7.8	%

	For the Six Months Ended August 31,
	2011			2010			Inc./Dec. $		Inc./Dec. %
Sales and revenues	$	216,076		$	201,243		$	14,833		7.4	%
Gross profit	$	116,129		$	110,453		$	5,676		5.1	%
Gross profit as percentage of sales and revenues		53.7	%		54.9	%
Operating income	$	29,189		$	24,147		$	5,042		20.9	%
Operating income as percentage of sales and revenues		13.5	%		12.0	%
Net income	$	18,069		$	13,529		$	4,540		33.6	%

Sales and revenues for the three and six-month periods ended August 31, 2011 increased primarily due to incremental sales from the acquisitions of BridgeCo. Inc. (“BridgeCo”) and Symwave. Improved Automotive sales also contributed to the rise in sales and revenues.

The following table summarizes the stock-based compensation (benefit) expense for stock options, restricted stock awards, restricted stock units, employee stock purchase plan shares and stock appreciation rights included in results of operations (in thousands):

	Three Months Ended August 31,						Six Months Ended August 31,
	2011			2010			2011			2010
Costs of goods sold	$	(1,005	)	$	(451	)	$	(681	)	$	381
Research and development		(2,743	)		(1,498	)		(1,688	)		780
Selling, general and administrative		(5,503	)		(3,264	)		(3,466	)		1,539
Stock-based compensation (benefit) expense, before income taxes	$	(9,251	)	$	(5,213	)	$	(5,835	)	$	2,700

The decrease in stock-based compensation is mainly driven by the Company’s Stock Appreciation Rights (“SARs”) due to the relative decrease in the Company’s common stock market price during the three and six-month periods ended August 31, 2011 as compared to the same prior year periods. SARs accounted for an $11.8 million credit to stock-based compensation in the three months ended August 31, 2011.

Gross profit increased in the three and six-month periods ended August 31, 2011 mainly due to sales and revenues attributable to the aforementioned acquisitions and credits to stock-based compensation as discussed previously. Gross profit as a percentage of sales and revenues decreased mainly due to lower margins attributable to BridgeCo and Symwave sales, increased amortization expense from acquired intangibles, increased gold adder charges, lower absorption and an inventory impairment related to Symwave in the three months ended May 31, 2011.

The year over year decrease in income from operations and net income for the three months ended August 31, 2011 is primarily attributable to increased research and development expenses partially offset by increased gross profit and credit from stock-based compensation. The year over year increase in income from operations and net income in the six months ended August 31, 2011 is mainly due to increased gross profit and the credit from stock-based compensation. The dilutive effect of lower margin BridgeCo sales had less impact on a year to date basis since BridgeCo was acquired in May 2011.

24

Sales and Revenues

Sales and revenues by end market were as follows (in thousands):

	For the Three Months Ended August 31
	2011		2010		Inc./Dec. $			Inc./Dec. %
PCs	$	36,667	$	37,854	$	(1,187	)		-3.1	%
Consumer electronics		35,906		28,445		7,461			26.2	%
Industrial & other		17,943		19,587		(1,644	)		-8.4	%
Automotive		22,065		18,198		3,867			21.2	%
Total	$	112,581	$	104,084	$	8,497			8.2	%

	For the Six Months Ended August 31
	2011		2010		Inc./Dec. $			Inc./Dec. %
PCs	$	73,835	$	74,320	$	(485	)		-0.7	%
Consumer electronics		63,964		52,590		11,374			21.6	%
Industrial & other		36,901		37,452		(551	)		-1.5	%
Automotive		41,376		36,881		4,495			12.2	%
Total	$	216,076	$	201,243	$	14,833			7.4	%

Sales and revenues by reporting unit were as follows (in thousands):

	For the Three Months Ended August 31
	2011		2010		Inc./Dec. $			Inc./Dec. %
Analog / Mixed Signal	$	78,707	$	83,597	$	(4,890	)		-5.8	%
Automotive		21,592		17,731		3,861			21.8	%
Wireless Audio		12,282		2,756		9,526			345.6	%
Total	$	112,581	$	104,084	$	8,497			8.2	%

	For the Six Months Ended August 31
	2011		2010		Inc./Dec. $			Inc./Dec. %
Analog / Mixed Signal	$	158,474	$	161,247	$	(2,773	)		-1.7	%
Automotive		40,460		36,002		4,458			12.4	%
Wireless Audio		17,142		3,993		13,149			329.3	%
Total	$	216,076	$	201,242	$	14,834			7.4	%

PCs and industrial end markets continue to be impacted by negative global macroeconomic conditions resulting in reduced sales in the Analog/Mixed Signal reporting unit. Consumer electronics benefitted from the acquisitions of BridgeCo and Symwave, which contributed $9.4 million to the year over year improvement in the three months ended August 31, 2011 and $11.6 million in the six months ended August 31, 2011. Automotive sales and revenues increased due to strong demand from automotive based customers.

25

Gross profit, operating expenses and income from operations were as follows (in thousands):

	For the Three Months Ended August 31,
	2011			2010			Inc./Dec. $			Inc./Dec. %
Gross profit on sales and revenues	$	60,344		$	58,658		$	1,686			2.9	%
Gross profit as percentage of sales and revenues		53.6	%		56.4	%
Operating expenses:
Research and development	$	22,632		$	19,763		$	2,869			14.5	%
Selling, general and administrative		16,234			16,045			189			1.2	%
Restructuring charges		356			47			309			N/M	*
Revaluation of contingent considerations		(398	)		457			(855	)		N/M	*
Income from operations	$	21,520		$	22,346		$	(826	)		-3.7	%

*N/M – Not meaningful

	For the Six Months Ended August 31,
	2011			2010			Inc./Dec. $			Inc./Dec. %
Gross profit on sales and revenues	$	116,129		$	110,453		$	5,676			5.1	%
Gross profit as percentage of sales and revenues		53.7	%		54.9	%
Operating expenses:
Research and development	$	47,159		$	43,582		$	3,577			8.2	%
Selling, general and administrative		39,463			41,399			(1,936	)		-4.7	%
Restructuring charges		699			868			(169	)		N/M	*
Revaluation of contingent considerations		(381	)		457			(838	)		N/M	*
Income from operations	$	29,189		$	24,147		$	5,042			20.9	%

*N/M – Not meaningful

Gross Profit

The increase in gross profit in the three and six-month periods ended August 31, 2011 was primarily due to sales and revenue increases and increased credit from stock-based compensation, as discussed previously. Increases were partially offset by increased amortization of $0.5 million and $1.0 million from acquired intangibles in the three month and six month periods ended August 31, 2011, respectively, increased gold adder charges, lower absorption and Symwave inventory impairments of $0.6 million recorded in the three months ended May 31, 2011. The decrease in gross profit as a percentage of sales and revenue is attributable to the acquisitions of BridgeCo, STS and Symwave, all of which had lower than average gross margins. We expect these margins to be more in line with overall gross profit margins in 18-24 months as we leverage supply chain and operating efficiencies.

Research and Development Expenses (“R&D”)

The increase in R&D expenses was primarily due to increases in engineering compensation costs and depreciation associated with the acquisition of  BridgeCo, partially offset by decreases in stock-based compensation expenses, as previously mentioned.

The Company intends to continue its efforts to develop innovative new products and technologies, and believes that an ongoing commitment to R&D is essential in order to maintain product leadership and compete effectively. Therefore, the Company expects to continue to make significant R&D investments in the future including acquisitions. The recent acquisitions of STS and BridgeCo have added additional engineering talent and capabilities.

Selling, General and Administrative Expenses (“SG&A”)

SG&A expenses were relatively flat in the three months ended August 31, 2011 compared to the same prior year period due to incremental SG&A from the BridgeCo acquisition, nearly offset by increased stock-based compensation credits, as previously mentioned. The decrease in year to date SG&A expenses was primarily the result of a decrease in stock-based compensation charges, as mentioned previously. The impact of incremental SG&A expenses associated with the acquisition of BridgeCo had less of an impact on a year to date basis since BridgeCo was acquired in May 2011.

26

Restructuring Charges

Restructuring charges were as follows (in thousands):

	For the Three Months Ended August 31,				For the Six Months Ended August 31,
	2011		2010		2011		2010
Employee Severance and Benefits Charges	$	356	$	47	$	626	$	868
Asset Impairment Charges		-		-		73		-
	$	356	$	47	$	699	$	868

During the second quarter of fiscal 2012 the Company reorganized certain engineering groups resulting in severance charges of $0.4 million. Costs incurred as result of this action will result in cash payments to be completed in the third quarter of fiscal 2012.

During the fourth quarter of fiscal 2011 the Company initiated a plan to reduce costs and investments in certain businesses. As a result, approximately 80 positions worldwide, including approximately 50 positions at its subsidiary in Shenzhen China, were eliminated as part of the plan to substantially reduce investment in storage solutions acquired as part of the Symwave acquisition. The positions eliminated consist of certain administrative positions, certain positions in its subsidiary in Canada as part of its plan to converge the wireless audio products roadmap from the Kleer and STS acquisitions and certain engineering positions. An additional $0.3 million in charges were incurred in the first quarter of fiscal 2012 for additional severance and termination benefits and asset impairment charges relating to this restructuring plan.

Restructuring charges incurred in the three and six month periods ended August 31, 2010 were primarily related to a restructuring plan initiated in the fourth quarter of fiscal 2010 in connection with the integration and reorganization of engineering and corporate overhead resources, primarily for severance obligations and termination benefits for certain employees.

Revaluation of Contingent Acquisition Liabilities

The Company recorded liabilities for contingent consideration as part of the purchase price for the acquisitions of BridgeCo, Symwave, STS, Kleer and K2L. The payment of contingent consideration is based upon the achievement of certain financial results over specified time periods post-acquisition. The Company performs a quarterly revaluation of contingent consideration and records any changes in estimated payments and accretion expense as a component of operating income. A $0.4 million gain was recorded in the three and six-month periods ending August 31, 2011 due to reduced forecasted financial results related to BridgeCo. A $0.5 million expense was recorded in the three months ending August 31, 2010 due to an increase in estimated future operating results of K2L. Due to reductions in estimated future operating results of Symwave, Kleer and STS at the end of fiscal 2011, the Company expects to make no contingent consideration payments related to these acquisitions.

Interest and Other (Expense) Income, Net

Interest and other income (expense) were as follows (in thousands):

	For the Three Months Ended August 31,						For the Six Months Ended August 31,
	2011			2010			2011			2010
Interest income	$	69		$	174		$	187		$	318
Interest expense		(39	)		(66	)		(76	)		(95	)
Other (expense) income , net		(99	)		(181	)		43			(336	)
	$	(69	)	$	(73	)	$	154		$	(113	)

Interest income decreased primarily due to reduced investment in auction rate securities, as the Company continues to liquidate its positions as opportunities arise. Funds from liquidated auction rate securities investments as well as funds generated through operating activities are currently being invested in high grade money market accounts, at lower average rates of return.

Other (expenses) income, net, primarily consists of realized and unrealized foreign exchange gains and losses on net U.S. dollar monetary assets held by the Company’s foreign affiliates.

27

Provision for Income Taxes

The Company’s effective income tax rate reflects statutory federal, state and foreign tax rates, the impact of certain permanent differences between the book and tax treatment of certain expenses, and the impact of tax-exempt income and various income tax credits.

The provisions for income taxes for the three and six month periods ended August 31, 2011 was $9.6 million (an effective income tax rate of 44.6%) and $11.3 million (an effective tax rate of 38.4%), respectively. The income tax provision for the six month period ended August 31, 2011 includes a net deferred tax benefit of $1.4 million related to a change in the effective state tax rate, $0.7 million of qualified research and development credits, and $0.2 million of accrued interest and penalties related to uncertain tax positions. The income tax provision excludes the impact of certain losses in various jurisdictions that could not be benefitted.

The provisions for income taxes for the three and six month periods ended August 31, 2010 was $9.4 million (an effective income tax rate of 42.1%) and $10.5 million (an effective tax rate of 43.7% ) , respectively. The tax provision for the six month period ended August 31, 2010 includes the impact of $0.1 million of accrued interest and penalties related to uncertain tax positions. The provision excludes the impact of certain losses in various jurisdictions that could not be benefitted. In addition, the 2010 research and development tax credit expired on December 31, 2009 therefore no tax credit was included in the income tax provisions for the three or six month periods ended August 31, 2010.

The difference between the effective tax rates of 38.4% for the six months ended August 31, 2011 compared to 43.7% for the six months ended August 31, 2010 is primarily attributable to a deferred tax benefit related to a change in the effective state tax rate and a credit for research and development were recorded for the six months ended August 31, 2011 which was not available in the six months ended August 31, 2010.

Business Outlook

Our future results of operations and other matters comprising the subject of forward-looking statements contained in this Form 10-Q, included within this MD&A, involve a number of risks and uncertainties — in particular, current economic uncertainty, including tight credit markets, as well as future economic conditions, our goals and strategies, new product introductions, plans to cultivate new businesses, divestitures or investments, revenue, pricing, gross margin and costs, capital spending, depreciation, R&D expense levels, selling, general and administrative expense levels, potential impairment of investments, our effective tax rate, pending legal proceedings, ability to realize the benefits of recent acquisitions, and other operating parameters. In addition to the various important factors discussed above, a number of other important factors could cause actual results to differ materially from our expectations. See the risks described in Part II — Item 1.A. — Risk Factors.

Business conditions are currently uncertain given the soft worldwide macroeconomic environment. The Company presently expects growth in its wireless audio and automotive products, while prospects for its personal computing and industrial products are flat to negative.

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Liquidity & Capital Resources

The Company currently finances its operations through a combination of existing working capital resources and cash generated by operations. The Company had no bank debt during fiscal 2012 or 2011. The Company may 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 investments in such businesses, products or technologies owned by third parties.

The Company expects that its cash, cash equivalents and cash flows from operations will be sufficient to finance the Company’s operating and capital requirements through the next twelve months.

Cash Flow

	Six Months Ended August 31,
	2011			2010
	(in thousands)
Cash flows from operating activities:
Net income	$	18,069		$	13,529
Adjustments to reconcile net income to net cash provided by operating activities, net:		28,124			21,961
Changes in operating assets and liabilities, net of effects of business acquisitions:		(17,406	)		(10,967	)
Net cash provided by operating activities		28,787			24,523
Cash flows from investing activities:
Net cash (used for) provided by investing activities		(45,404	)		10,899
Cash flows from financing activities:
Net cash (used for) provided by financing activities		(10,385	)		1,846
Effect of foreign exchange rate changes on cash and cash equivalents		1,032			(563	)
Net (decrease) increase in cash and cash equivalents	$	(25,970	)	$	36,705

The increase in operating cash flows is commensurate with the increase in sales and revenues and net income, partially offset by other increases and decreases in various operating assets and liabilities, primarily increases in taxes receivable and decreases in accrued liabilities in the current year versus increases in accounts receivable in the prior year.

Cash used for investing activities in the six-month period ended August 31, 2011 consisted primarily of the $41.0 million used for the acquisition of BridgeCo (including extinguishment of debt, net of cash acquired), as well as $5.7 million used for capital expenditures, mainly for design tools. Cash provided by investing activities in the same prior year period included the sale of $30.5 million in commercial paper classified as short-term investments and $10.5 million in net auction rate securities redemptions, partially offset by $22.0 million used for the acquisition of STS and $6.5 million in capital expenditures, mainly for design tools.

Net cash used in financing activities in the six-month period ended August 31, 2011 consisted primarily of $10.5 million used for share repurchases. Net cash generated by financing activities in the same prior year period consisted primarily of proceeds from the issuance of shares in connection with stock option exercises, partially offset by repayments of notes payable in connection with the acquisition of supplier financed design tools.

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Working Capital

The Company’s current assets and liabilities and net working capital were as follows (in thousands):

	August 31, 2011		February 28, 2011		Inc./Dec. $			Inc./Dec. %
Current assets:
Cash and cash equivalents	$	144,417	$	170,387	$	(25,970	)		-15.2	%
Accounts receivable, net		63,819		64,714		(895	)		-1.4	%
Inventories		49,872		47,232		2,640			5.6	%
Deferred income taxes, net		15,062		31,156		(16,094	)		-51.7	%
Other current assets		16,504		8,047		8,457			105.1	%
Total current assets	$	289,674	$	321,536	$	(31,862	)		-9.9	%
Current liabilities:
Accounts payable	$	27,227	$	27,171	$	56			0.2	%
Deferred income from distribution		18,868		16,167		2,701			16.7	%
Accrued expenses, income taxes and other liabilities		59,538		72,459		(12,921	)		-17.8	%
Total current liabilities	$	105,633	$	115,797	$	(10,164	)		-8.8	%
	$	184,041	$	205,739	$	(21,698	)		-10.5	%

The Company’s total cash and cash equivalents decreased primarily due to the $41.0 million (including extinguishment of debt, net of cash acquired) paid for the acquisition of BridgeCo, $10.5 million used for share repurchases and $5.7 million used for capital expenditures, partially offset by $28.8 million in cash generated from operations. Deferred income taxes, net and accrued liabilities decreased $12.3 million due to the decrease in the SARs liability as a result of the decrease in the Company’s common stock market price during six-month periods ended August 31, 2011.

As of August 31, 2011, the Company held approximately $69.3 million in financial instruments measured at fair value, including auction rate securities, money market funds and cash surrender value of life insurance policies. Auction rate securities are long-term variable rate bonds tied to short-term interest rates that were, until February 2008, reset through a “Dutch auction” process. As of August 31, 2011, 100% of the Company’s auction rate securities were “AAA” rated by one or more of the major credit rating agencies, mainly collateralized by student loans guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program (“FFELP”), as well as auction rate preferred securities ($6.1 million at par) which are AAA rated and part of a closed end fund that must maintain an asset ratio of 2 to 1.

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Historically, the carrying value (par value) of the auction rate securities approximated fair market value due to the frequent resetting of variable interest rates. Beginning in February 2008, however, the auctions for auction rate securities began to fail and were largely unsuccessful. As a result, the interest rates on the investments reset to the maximum rate per the applicable investment offering statements. The types of auction rate securities generally held by the Company had historically traded at par and are callable at par at the option of the issuer.

The par (invested principal) value of the auction rate securities associated with these failed auctions will not be accessible to the Company until a successful auction occurs, a buyer is found outside of the auction process, the securities are called or the underlying securities have matured. In light of these liquidity constraints and the lack of market-based data, the Company performed a valuation analysis to determine the estimated fair value of these investments. The fair value of these investments is based on a trinomial discount model. This model considers the probability of three potential occurrences for each auction event through the maturity date of the security. The three potential outcomes for each auction are (i) successful auction/early redemption, (ii) failed auction and (iii) issuer default. Inputs in determining the probabilities of the potential outcomes include, but are not limited to, the security’s collateral, credit rating, insurance, issuer’s financial standing, contractual restrictions on disposition and the liquidity in the market. The fair value of each security is determined by summing the present value of the probability weighted future principal and interest payments determined by the model. The discount rate was determined using a proxy based upon the current market rates for successful auctions within the AAA rated auction rate securities market. The expected term was based on management’s estimate of future liquidity. The illiquidity discount was based on the levels of federal insurance or FFELP backing for each security as well as considering similar preferred stock securities ratings and asset backed ratio requirements for each security.

As a result, as of August 31, 2011, the Company recorded an estimated cumulative unrealized loss of $1.9 million (net of tax) related to the temporary impairment of the auction rate securities, which was included in accumulated other comprehensive income within shareholders’ equity. The Company deemed the loss to be temporary because the Company does not plan to sell any of the auction rate securities prior to maturity at an amount below the original purchase value and, at this time, does not deem it probable that it will receive less than 100% of the principal and accrued interest from the issuer. Further, the auction rate securities held by the Company are AAA rated. The Company continues to liquidate investments in auction rate securities as opportunities arise. In the three and six-month periods ended August 31, 2011, $1.1 million and $1.3 million, respectively, in auction rate securities were liquidated at par in connection with issuer calls.

Given its sufficient cash reserves and normally positive cash flow from operations, the Company does not believe it will be necessary to access these investments to support current working capital requirements. However, the Company may be required to record additional unrealized losses in accumulated other comprehensive income in future periods based on then current facts and circumstances. Further, if the credit rating of the security issuers deteriorates, or if active markets for such securities are not reestablished, the Company may be required to adjust the carrying value of these investments through impairment charges recorded in the condensed consolidated statements of operations, and any such impairment adjustments may be material.

Commitments and Contingencies

Contingent Consideration — BridgeCo Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of BridgeCo. The maximum amount of contingent consideration that can be earned by the sellers is $27.5 million as set forth in the purchase agreement. The fair value of the contingent consideration at acquisition was $8.8 million. This liability was revalued to $8.4 million as of August 31, 2011 based on the likelihood of achieving the performance goals.

The fair value of the contingent consideration arrangement was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, which is a Level 3 input. Key assumptions include a discount rate of 19% and a probability-adjusted level of annual revenues. The Company performs a quarterly revaluation of contingent consideration and records the change as a component of operating income.

Contingent Consideration — Symwave Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price of Symwave at acquisition on November 12, 2010 at the estimated fair value of $3.1 million. The contingent consideration arrangement requires the Company to pay the former owners of Symwave an earnout amount equal to one times revenue (less certain agreed upon adjustments), depending on the achievement of certain revenue and gross profit margin performance goals, for each of the four quarterly periods from January 1, 2011 until December 31, 2011. No earnout payments shall be payable for any period after December 31, 2011.

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Due to reductions in estimated future operating results of Symwave at the end of fiscal 2011, the Company expects to make no contingent consideration payments related to this acquisition. No liability was recorded as of February 28, 2011 and August 31, 2011 based on the likelihood of achieving the performance goals.

Contingent Consideration — STS Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of STS. The contingent consideration arrangement requires the Company to pay the former owners of STS an earnout amount of $3.0 million for the period from January 1, 2011 until December 31, 2011 provided that revenue meets performance goals set forth in the purchase agreement. No earnout payments shall be payable for any period after December 31, 2011.

Due to reductions in estimated future operating results of STS at the end of fiscal 2011, the Company expects to make no contingent consideration payments related to this acquisition. No liability was recorded as of February 28, 2011 and August 31, 2011 based on the likelihood of achieving the performance goals.

Contingent Consideration — Kleer Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of Kleer. The maximum amount of contingent consideration that can be earned by the sellers was $2.0 million as set forth in the purchase agreement.

Due to reductions in estimated future operating results of Kleer at the end of fiscal 2011, the Company expects to make no contingent consideration payments related to this acquisition. No liability was recorded as of February 28, 2011 and August 31, 2011 based on the likelihood of achieving the performance goals.

Contingent Consideration — K2L Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of K2L. The maximum amount of contingent consideration that can be earned by the sellers is 2.1 million Euros. Fifty percent of the contingent consideration was earned in calendar year 2010 and fifty percent is available to be earned in 2011 based on the level of achievement of revenue as set forth in the purchase agreement. On March 31, 2011, 1.1 million Euros in stock and cash was paid to the former owners of K2L for calendar year 2010 performance targets. This liability was reduced from $2.8 million as of February 28, 2011to $1.4 million as of August 31, 2011 as a result of the payout of the 2010 earnout and the likelihood of achieving the 2011 performance goals.

The fair value of the contingent consideration arrangement was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, which is a Level 3 input. Key assumptions include a discount rate of 16% and a probability-adjusted level of annual revenues. The Company performs a quarterly revaluation of contingent consideration and records the change as a component of operating income.

Litigation

From time to time as a normal incidence of doing business, various claims and litigation may be asserted or commenced against the Company. Due to uncertainties inherent in litigation and other claims, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability for damages and/or invalidate its proprietary rights. Any lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management’s time and attention, and an adverse outcome of any significant matter could have a material adverse effect on the Company’s consolidated results of operations or cash flows in the quarter or annual period in which one or more of these matters are resolved.

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Item 3. — Quantitative and Qualitative Disclosures About Market Risk

Interest Rate and Investment Liquidity Risk — The Company’s exposure to interest rate risk relates primarily to its investment portfolio (i.e. with respect to interest income). 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 August 31, 2011, the Company’s $28.2 million of long-term investments consisted primarily of investments in U.S. government agency backed AAA rated auction rate securities. From time to time, the Company has also held investments in corporate, government and municipal obligations with maturities of between three and twelve months at acquisition. Auction rate securities have long-term underlying maturities, but have interest rates that until February 2008 had been reset every 90 days or less at auction, at which time the securities could also typically be repurchased or sold.

In February 2008, the Company began to experience failed auctions on some of its auction rate securities. Based on the failure rate of these auctions, the frequency and extent of the failures, and due to the lack of liquidity in the current market for the auction rate securities, the Company determined that the estimated fair value of the auction rate securities no longer approximates par value. The Company used a discounted cash flow model to determine the estimated fair value of these investments as of August 31, 2011, and recorded an unrealized loss of $1.9 million, (net of tax) related to the temporary impairment of the auction rate securities, which is included in accumulated other comprehensive income within shareholders’ equity on the consolidated balance sheet.

Assuming all other assumptions disclosed in Part I — Item 1 — Financial Statements — Note 3 of this Report, being equal, an increase or decrease in the liquidity risk premium (i.e. the discount rate) of 100 basis points as used in the model would decrease or increase, respectively, the fair value of the auction rate securities by approximately $0.8 million. In addition, an increase or decrease in interest rates of 100 basis points would increase interest income in the three and six-month periods ended August 31, 2011 by $0.2 million and $0.9 million, respectively, or decrease interest income to a negligible amount.

Equity Price Risk — The Company is not exposed to any significant equity price risks at August 31, 2011.

Foreign Currency Risk — The Company has international operations and is therefore subject to certain foreign currency rate exposures, principally the Euro, Japanese Yen and the Indian Rupee. The Company also conducts a significant amount of its business in Asia. 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.

The Company’s foreign subsidiaries purchase a significant amount of their products for resale in U.S. dollars, and from time to time have entered into forward exchange contracts to hedge against currency fluctuations associated with these product purchases. Gains or losses on these contracts are intended to offset the gains or losses recorded for statutory and U.S. GAAP purposes from the remeasurement of certain assets and liabilities from U.S. dollars into local currencies. No such contracts were executed during fiscal 2010, and there are no obligations under any such contracts as of August 31, 2011. However, the Company has purchased currencies from time to time throughout the current fiscal year in anticipation of more significant foreign currency transactions, in order to optimize effective rates associated with those settlements.

Operating activities in Europe include transactions conducted in both Euros and U.S. dollars. The Euro is the functional currency for the Company’s European subsidiaries. Losses recorded from the remeasurement of U.S. dollar denominated assets and liabilities into Euros were $0.1 million for the three and six-month period ending August 31, 2011, compared with a gain of $0.1 million and a loss of $0.2 million for the three and six-month period ending August 31, 2010, respectively. Losses recorded from the remeasurement of U.S. dollar denominated assets and liabilities into Yen were $0.1 million for the three and six-month periods ending August 31, 2011 compared with losses of $0.3 million for the three and six-month periods ending August 31, 2010.

Commodity Price Risk — The Company routinely uses precious metals in the manufacturing of its products. Supplies for such commodities may from time-to-time become restricted, or general market factors and conditions may affect pricing of such commodities. Beginning in the latter part of fiscal 2008, the price of gold has increased precipitously, and certain of our supply chain partners began and continue to assess surcharges to compensate for the resultant increase in manufacturing costs. The Company is engaged in a project to replace gold with copper in certain of its parts to reduce this exposure. While the Company continues to attempt to mitigate the risk of similar increases in commodities-related costs, there can be no assurance that the Company will be able to successfully safeguard against potential short-term and long-term commodities price fluctuations.

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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 Principal Executive Officer and Principal 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 Principal Executive Officer and Principal Financial Officer have concluded that, as of August 31, 2011, 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 within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to the Company’s management, including the Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure.

There have been no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

Item 1. — Legal Proceedings

From time to time as a normal consequence of doing business, various claims and litigation may be asserted or commenced against the Company. In particular, the Company in the ordinary course of business may receive claims that its products infringe the intellectual property of third parties, or that customers have suffered damage as a result of defective products allegedly supplied by the Company. Due to uncertainties inherent in litigation and other claims, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability for damages and/or invalidate its proprietary rights. Any lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management’s time and attention, and an adverse outcome of any significant matter could have a material adverse effect on the Company’s consolidated results of operations or cash flows in the quarter or annual period in which one or more of these matters are resolved.

Item 1.A. — Risk Factors

Readers of this Quarterly Report on Form 10-Q should carefully consider the risks described in the Company’s other reports filed or furnished with the SEC, including the Company’s prior and subsequent reports on Forms 10-K, 10-Q and 8-K, in connection with any evaluation of the Company’s financial position, results of operations and cash flows.

The risks and uncertainties described in the Company’s most recent Annual Report on Form 10-K, filed with the SEC as of April 19, 2011, are not the only risks facing the Company. Additional risks and uncertainties not presently known, currently deemed immaterial, or those otherwise discussed in this Quarterly Report on Form 10-Q may also affect the Company’s operations. Any of these risks, uncertainties, events or circumstances could cause the Company’s future financial condition, results of operations or cash flows to be adversely affected.

Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds

(a) The Company issued 21,096 unregistered shares of its common stock at a cost of $0.6 million to the former shareholders of K2L on March 31, 2011 in connection with the K2L business combination. See Part I — Item 1. — Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 6 — Business Combinations for additional information regarding these business combinations. These issuances were exempt from registration under the Securities Act of 1933, as amended as a private placement under Section 4(2) of the Securities Act or as offshore transactions under regulations under the Securities Act of 1933.

(b) None.

(c) Issuer Purchases of Equity Securities.

In October 1998, the Company’s Board of Directors approved a common stock repurchase program, allowing the Company to repurchase up to one million shares of its common stock on the open market or in private transactions. The Board of Directors authorized the repurchase of additional shares in one million share increments in July 2000, July 2002, November 2007 and April 2008, and another two million shares in April 2011, bringing the total authorized repurchases to seven million shares as of August 31, 2011. As of August 31, 2011, the Company has repurchased approximately 5.0 million shares of its common stock at a cost of $111.1 million under this program, including 444,327 shares repurchased at a cost of $9.9 million in fiscal 2012, 1,084,089 shares repurchased at a cost of $28.5 million in fiscal 2009, 1,165,911 shares repurchased at a cost of $40.6 million in fiscal 2008 and 253,300 shares repurchased at a cost of $6.1 million in fiscal 2007.

35

Period	Total Number of Shares Purchased		Average Price per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans		Maximum Number of Shares that may Yet be Purchased
March 2011		-		-		-		504,916
April 2011		-		-		-		2,504,916
May 2011		-		-		-		2,504,916
June 2011		-		-		-		2,504,916
July 2011		130,803	$	25.25		130,803		2,374,113
August 2011		313,524	$	21.16		313,524		2,060,589
Total		444,327				444,327

Note:

In addition, the Company purchased 20,680 shares at an average price per share of $26.29 in the six month period ending August 31, 2011, as part of an ongoing program in which the Company will purchase shares withheld from employees to fund tax withholdings required on restricted shares vesting each period. The Company purchased 8,834 shares at an average price per share of $25.19 in fiscal 2011 as part of this program.

Item 3. — Defaults Upon Senior Securities

None.

Item 4. — Removed and Reserved

Item 5. — Other Information

None.

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Item 6. — Exhibits

10.1	—	Standard Microsystems Corporation 2009 Long Term Incentive Plan as amended on July 28, 2011 annexed hereto.
10.2	—	Assignment and Assumption of Lease Agreement between Standard Microsystems Corporation and Rep 80 Arkay Drive, LLC dated as of August 16, 2011 incorporated by reference to exhibit 2.1 to the registrant’s Form 8-K filed August 18, 2011.
10.3	—	Compensation of Dr. Guenter Reichart, Director, as reflected in the registrant’s Form 8-K filed on September 27, 2011.
31.1	—	Certification of Principal 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 Principal 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 Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	—	XBRL Instance Document
101.SCH	—	XBRL Taxonomy Schema Document
101.CAL	—	XBRL Taxonomy Calculation Linkbase Document
101.LAB	—	XBRL Taxonomy Label Linkbase Document
101.PRE	—	XBRL Taxonomy Presentation Linkbase Document

37

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

STANDARD MICROSYSTEMS CORPORATION
By:	/s/ Kris Sennesael
	(Signature)
	Kris Sennesael
	Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

Date: September 30, 2011

EXHIBIT INDEX

Exhibit No.		Description
10.1	—	Standard Microsystems Corporation 2009 Long Term Incentive Plan as amended on July 28, 2011 annexed hereto.
10.2	—	Assignment and Assumption of Lease Agreement between Standard Microsystems Corporation and Rep 80 Arkay Drive, LLC dated as of August 16, 2011 incorporated by reference to exhibit 2.1 to the registrant’s Form 8-K filed August 18, 2011.
10.3	—	Compensation of Dr. Guenter Reichart, Director, as reflected in the registrant’s Form 8-K filed on September 27, 2011.
31.1	—	Certification of Principal 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 Principal 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 Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	—	XBRL Instance Document
101.SCH	—	XBRL Taxonomy Schema Document
101.CAL	—	XBRL Taxonomy Calculation Linkbase Document
101.LAB	—	XBRL Taxonomy Label Linkbase Document
101.PRE	—	XBRL Taxonomy Presentation Linkbase Document

38

EX-10.1

Exhibit 10.1

STANDARD MICROSYSTEMS CORPORATION 2009 LONG TERM INCENTIVE PLAN (as amended on July 28, 2011)

1. PURPOSE. The 2009 Long Term Incentive Plan (the "Plan") has been established by Standard Microsystems Corporation (the "Company") (a) to reward Employees, Directors and Consultants by means of appropriate incentives for achieving long-range Company goals, (b) to provide incentive compensation opportunities that are competitive with those of other similar companies, (c) to further match Employees' financial interests with those of the Company's other Stockholders through compensation that is based on the Company's common stock and thereby enhance the long-term financial interest of the Company and its Affiliates, including through the growth in the value of the Company's equity and enhancement of long-term shareholder return, and (d) to facilitate recruitment and retention of outstanding personnel eligible to participate in the plan. The Plan is intended to comply with Section 409A, and to replace the existing employee and director stock option and restricted stock plans.

2. DEFINITIONS. The capitalized terms used in this Plan have the meanings set forth below, or as otherwise defined herein. Except when otherwise indicated by the context, reference to the masculine gender shall include the feminine gender and any term used in the singular shall also include the plural.

(a) "Affiliate" means (i) any Subsidiary of the Company, (ii) any entity or Person or group of Persons that, directly or through one or more intermediaries, is controlled by the Company and (iii) any entity or Person or group of Persons in which the Company has a significant equity interest, as determined by the Committee.

(b) "Agreement" means any written agreement, contract or other instrument or document evidencing any Award granted under the Plan, which may, but need not, be executed or acknowledged by a Participant.

(c) "Award" means any Option, award of Restricted Stock or Restricted Stock Units, Other Stock-Based Award or Performance Award granted under the Plan.

(d) "Board" or "Board of Directors" means the Board of Directors of the Company.

(e) "Change in Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any Person or group (as that term is used in Section 13(d) (3) of the Exchange Act) of Persons, (ii) a Person or group (as so defined) of Persons (other than management of the Company on the date of the adoption of this Plan or their Affiliates) shall have become the beneficial owner of more than 35% of the outstanding voting stock of the Company, or (iii) during any one-year period, individuals who at the beginning of such period constitute the Board (together with any new Director whose election or nomination was approved by a majority of the Directors then in office who were either Directors at the beginning of such period or who were previously so approved, but excluding under all circumstances any such new Director whose initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, corporation, partnership or other entity or group) cease to constitute a majority of the Board. Notwithstanding the foregoing or any provision of this Plan to the contrary, if an Award is subject to Section 409A (and not excepted therefrom) and a Change of Control is a distribution event for purposes of such Award, the foregoing definition of Change in Control shall be interpreted, administered and construed in manner necessary to ensure that the occurrence of any such event shall result in a Change of Control only if such event qualifies as a change in the ownership or effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company, as applicable, within the meaning of Treas. Reg. § 1.409A-3(i)(5).

(f) "Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time, or any successor statute.

(g) "Committee" means the Compensation Committee of the Board.

(h) "Consultant" shall mean an independent contractor providing services to the Company who has been specifically authorized by the Committee to participate in the Plan.

(i) "Covered Person" means an individual who is expected by the Committee to be both (i) a "covered employee" as defined in Section 162(m) of the Code for the tax year of the Company with regard to which a deduction in respect of such person's Award would be allowed and (ii) the recipient of compensation (other than "qualified performance based compensation" as defined in Section 162(m)) in excess of $1,000,000 for such tax year.

(j) "Disability" means the disability of a Participant (i) such that the Participant is considered disabled under any long term disability plan of the Company, or otherwise (ii) as determined by the Committee.

(k) "Director" shall mean a non-employee member of the Board of Directors of the Company.

(l) "Employee" means any full-time or part-time employee (including an Officer or Director who is also an employee) of the Company or an Affiliate. "Employee" shall also include any individual or individuals to whom an offer of employment has been extended. References in this Plan to "employment" and related terms shall include the provision of services in any such capacity.

(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(n) "Fair Market Value" means the closing sale price of the Shares, as reported on the composite tape of NASDAQ issues (or the exchange on which the Company's Shares are listed at the time of the relevant grant), or any other reporting system selected by the Committee on the relevant dates, or, if no sale of Shares is reported for that date, on the next subsequent business day in which the NASDAQ and the Company are open.

(o) "Incentive Stock Option" ("ISO") means an Option granted under Section 6 that meets the requirements of Section 422 of the Code, or any successor provision thereto.

(p) "Non-Qualified Stock Option" means an Option granted under Section 6 that is not an Incentive Stock Option.

(q) "Option" means a stock option to purchase Shares granted under Section 6 and may be either an Incentive Stock Option or a Non-Qualified Stock Option.

(r) "Other Stock-Based Award" means any right granted under Section 8.

(s) "Participant" means an Employee, Director or Consultant to whom an Award has been made.

(t) "Performance Award" means an Award granted under Section 9.

(u) "Person" means any individual, corporation, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

(v) "Plan" means this 2009 Long Term Incentive Plan, as amended and in effect from time to time.

(w) "Restricted Stock" means any Share underlying an Award granted under Section 7.

(x) "Restricted Stock Unit" means a contractual right underlying an Award granted under Section 7 that is denominated in Shares, which Unit represents a right to receive the value of a Share (or a percentage of such value, which percentage may be higher than 100%) upon the terms and conditions set forth in the Plan and the applicable Agreement.

(y) "Retirement" means retirement of an Employee or Director (i) as defined under any retirement plan of the Company or any Affiliate which is qualified under Section 401 of the Code or otherwise (ii) as determined by the Committee.

(z) "Section 409A" shall mean Section 409A of the Code, the regulations and other binding guidance promulgated thereunder.

(aa) "Separation from Service" and "Separate from Service" shall mean the Participant's death, retirement or other termination of employment, directorship or consultancy with the Company (including all persons treated as a single employer under Section 414(b) and 414(c) of the Code) or change in circumstances that constitutes a "separation from service" (within the meaning of Section 409A). For purposes hereof, the determination of controlled group members shall be made pursuant to the provisions of Section 414(b) and 414(c) of the Code; provided that the language "at least 50 percent" shall be used instead of "at least 80 percent" in each place it appears in Section 1563(a)(1), (2) and (3) of the Code and Treas. Reg. § 1.414(c)-2; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(h)(3)), the language "at least 20 percent" shall be used instead of "at least 80 percent" in each place it appears.

(bb) "Specified Employee" means a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Company as determined in accordance with Section 409A and the procedures established by the Company.

(cc) "Share" means a share of Stock.

(dd) "Stock" means the common stock, $.10 par value per share (as such par value may be adjusted from time to time), of the Company.

(ee) "Subsidiary" means any entity in which the Company owns or otherwise controls, directly or indirectly, stock or other ownership interests having the voting power to elect a majority of the Board, or other governing group having functions similar to a board of Directors, as determined by the Committee.

(ff) "Substitute Award" means an Award granted in assumption of, or in substitution for, an outstanding award previously granted by a company acquired by the Company or with which the Company combines.

(gg) "Successor" with respect to a Participant means the legal representative of an incompetent Participant and, if the Participant is deceased, the legal representative of the estate of the Participant or the person or persons who may, by bequest or inheritance, or under the terms of an Award or of forms submitted by the Participant to the Committee, acquire the right to receive cash and/or Shares issuable in satisfaction of an Award.

3. ADMINISTRATION. The authority to control and manage the operation and administration of the Plan shall be vested in the Committee.

(a) The Committee shall have exclusive power to make Awards, to determine when and to whom Awards will be granted, the types of Awards and the number of Shares covered by the Awards, to establish the terms, conditions, performance criteria, restrictions, and other provisions of such Awards and, subject to the terms of the Plan, to cancel or suspend Awards. In making such Award determinations, the Committee may take into account the nature of services rendered by the Participant, the Participant's present and potential contribution to the Company's success and such other factors as the Committee deems relevant.

(b) Subject to the provisions of the Plan, the Committee will have the authority and discretion to determine the extent to which Awards under the Plan will be structured to conform to the requirements applicable to performance-based compensation as described in Section 162(m) of the Code, and to take such action, establish such procedures, and impose such restrictions at the time such Awards are granted as the Committee determines to be necessary or appropriate to conform to such requirements.

(c) The Committee shall have the authority and discretion to establish terms and conditions of Awards as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.

(d) Subject to Section 12(b) of the Plan, the Committee may determine whether, to what extent and under what circumstances Awards may be settled, paid or exercised in cash, Shares or other Awards or other property, or canceled, forfeited or suspended.

(e) Subject to Section 12(b) of the Plan, the Committee shall have the authority to interpret the Plan and any Award or Agreement made under the Plan, to establish, amend, waive and rescind any rules and regulations relating to the administration of the Plan, to determine the terms and provisions of any Agreements entered into hereunder (not inconsistent with the Plan), and to make all other determinations necessary or advisable for the administration of the Plan.

(f) The Committee shall determine whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property, and other amounts payable with respect to an Award under the Plan shall be deferred either automatically, or at the election of the holder thereof, or of the Committee.

(g) The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem desirable. The determinations of the Committee in the administration of the Plan, as described herein, shall be final, binding and conclusive.

(h) In controlling and managing the operation and administration of the Plan, the Committee shall act by a majority of its then members, by meeting or by writing or email filed without a meeting. The Committee shall maintain and keep adequate records concerning the Plan and concerning its proceedings and acts in such form and detail as the Committee may decide.

(i) Except to the extent prohibited by applicable law or regulation, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. Notwithstanding the foregoing, the Committee shall not delegate any authority in connection with Awards related to Directors, and Awards to non-employee Directors may not be subject to management discretion. The Committee may revoke any such allocation or delegation at any time.

(j) The Company and any Affiliate shall furnish the Committee with such data and information as may be required for it to discharge its duties. The records of the Company and any Affiliate as to an Employee's or Participant's employment, or other provision of services, termination of employment, or cessation of the provision of services, leave of absence, reemployment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefit under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan.

(k) To the fullest extent permitted by law, each member and former member of the Committee and each person to whom the Committee delegates or has delegated authority under this Plan shall be entitled to indemnification by the Company against and from any loss, liability, judgment, damage, cost and reasonable expense incurred by such member, former member or other person by reason of any action taken, failure to act or determination made in good faith under or with respect to this Plan.

4. SHARES AVAILABLE FOR AWARDS.

(a) Subject to adjustment as provided in Section 4(e), the maximum number of Shares that may be delivered pursuant to Awards granted under the Plan is (i) 2,000,000, plus (ii) any shares that have been authorized but not issued pursuant to prior plans of the Company as of June 30, 2009 up to a maximum of an additional 500,000 Shares, plus (iii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of June 30, 2009 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 3,844,576 Shares. The maximum number of ISOs that may be granted under the Plan is 1,500,000. Notwithstanding the foregoing and subject to adjustment as provided in Section 4(e), no Participant may receive Awards under this Plan in any calendar year that relate to more than 1,000,000 Shares.

(b) Any Shares subject to Options or stock appreciation rights shall be counted against the numerical limits of this Section 4 as one share for every share subject thereto. Any Awards other than Options or stock appreciation rights shall be counted against the numerical limits of this Section 4 as 1.5 shares for every one share subject thereto. To the extent that a Share that was subject to an Award that counted as 1.5 Shares against the Plan reserve pursuant to the preceding sentence is recycled back into the Plan under paragraph (d) of this Section 4, the Plan shall be credited with 1.5 Shares.

(c) Shares to be issued under the Plan may be made available from authorized but unissued Stock, Stock held by the Company in its treasury, or Stock purchased by the Company on the open market or otherwise. During the term of the Plan, the Company will at all times reserve and keep available the number of shares of Stock that shall be sufficient to satisfy the requirements of the Plan.

(d) If any Shares covered by an Award other than a Substitute Award, or to which such an Award relates, terminate, lapse or are forfeited or cancelled, or such an Award is otherwise settled without the delivery of the full number of Shares underlying the Award, then the Shares covered by such Award, or to which such Award relates, to the extent of any such forfeiture, termination, lapse, cancellation, etc., shall again be, or shall become available for issuance under the Plan; provided, however, that Shares (i) delivered in payment of the exercise price of an Option, (ii) not issued upon the net settlement or net exercise of stock appreciation rights, or (iii) delivered to or withheld by the Company to pay withholding taxes related to an Award , shall not become available again for issuance under this Plan.

(e) Shares underlying Substitute Awards shall not reduce the number of Shares available for delivery under this Plan.

(f) In the event of any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, share split, reverse share split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affecting the Shares the Committee shall make such provision as it shall consider appropriate for (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards, including without limitation the individual limit set forth in Section 4(a), (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards, and (iii) the grant, purchase, or exercise price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, however, that the number of Shares subject to any Award shall always be a whole number. The determination of the Committee shall be conclusive; provided, further, with respect to any Award subject to Section 409A, any such adjustment shall be authorized only to the extent that such adjustment would not cause the Award to fail to comply with Section 409A.

5. ELIGIBILITY. All Employees, Directors and Consultants are eligible to participate in this Plan and receive Awards hereunder. Holders of equity-based awards issued by a company acquired by the Company or with which the Company combines are eligible to receive Substitute Awards hereunder.

6. OPTIONS. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan and subject to Section 12(b) of the Plan, as the Committee shall determine:

(a) The purchase price per Share under an Option shall be determined by the Committee; provided, however, that, except in the case of Substitute Awards, such purchase price shall not be less than the Fair Market Value of a Share on the date of grant of such Option.

(b) The term of each Option shall be fixed by the Committee and the effect thereon, if any, of the termination of employment of the Participant shall be determined by the Committee. Absent specific action by the Committee, the effect of termination of employment shall be governed by Article 10 of the Plan unless a different result is set forth in the applicable Agreement for a Participant, or in a Participant's employment contract approved by the Compensation Committee. Notwithstanding, the term of an Option shall not exceed ten (10) years.

(c) Any Option may be exercised at any time during the period commencing with either the date that Option is granted or the first date permitted under a vesting schedule established by the Committee and ending with the expiration date of the Option. A Participant may exercise his Option for all or part of the number of Shares which he is eligible to exercise under terms of the Option. The Committee shall determine the method or methods by which, and the form or forms in which, including, without limitation, cash, Shares, other Awards, or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price, payment of the exercise price with respect thereto may be made or deemed to have been made.

(d) The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder.

7. RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS. The Committee is hereby authorized, subject to Section 12(b) of the Plan to grant Awards of Restricted Stock and/or Restricted Stock Units to Participants.

(a) The Awards granted under this Section 7 shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote Shares underlying Restricted Stock Awards or the right to receive any dividend, other right or property), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate. If the vesting conditions applicable to an Award of Restricted Stock or Restricted Stock Units relate exclusively to the passage of time and continued employment or provision of services, or refraining therefrom, the last vesting date of all or a portion of such Award shall occur no less than 36 months following the date of such Award, except that the foregoing restriction shall not apply to such Awards if they (i) are made in satisfaction of Company obligations to employees that would otherwise be paid in cash, (ii) are issued in connection with the exercise of an Option or other Award hereunder, or (iii) are Substitute Awards.

(b) Any Award of Restricted Stock or Restricted Stock Units may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of Shares underlying a Restricted Stock Award, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Shares.

8. OTHER STOCK-BASED AWARDS. (a) The Committee is hereby authorized, subject to Section 12(b) of the Plan, to grant to Participants such other Awards (including, without limitation, stock appreciation rights and rights to dividends and dividend equivalents) that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares) as are deemed by the Committee to be consistent with the purposes of the Plan. Rights to dividends and dividend equivalents may not attach to Options or stock appreciations rights. Subject to the terms of the Plan, the Committee shall determine the terms and conditions of such Awards. Notwithstanding, the term of a stock appreciation right shall not exceed ten (10) years, and, except in the case of Substitute Awards, the exercise price for a stock appreciation right shall not be less than the Fair Market Value of a Share on the date of grant of such stock appreciation right. Shares or other securities delivered pursuant to a purchase right granted under this Section 8 shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, as the Committee shall determine, the value of which consideration, as established by the Committee, shall, except in the case of Substitute Awards, not be less than the Fair Market Value of such Shares or other securities as of the date such purchase right is granted.

(b) The total number of Awards issued pursuant to Sections 7 and 8 of this Plan, excluding stock appreciation rights, that vest in less than three years may not exceed 300,000 Shares.

9. PERFORMANCE AWARDS.

(a) The Committee is hereby authorized to grant Performance Awards to Participants, including to Covered Persons, if the Committee intends that such Awards shall qualify as "qualified performance based compensation" under Section 162(m) of the Code.

(b) Performance Awards shall become earned and payable if targets relating to one or more of the following performance measures are achieved during a performance period or periods, as determined by the Committee: (i) Cash Value Added, (ii) Total Shareholder Return, (iii) Return on Equity, (iv) Revenue, (v) Return on Net Assets, (vi) Earnings Per Share, (vii) EBITDA, (viii) Return on Invested Capital, (ix) Parent Operating Cash Flow, (x) Consolidated Free Cash Flow, (xi) Cash Return on Investment (CRI), (xii) Operating Income, (xiii) Operating Margin and (xiv) Gross Margin. These financial measures may be GAAP or non-GAAP measures as determined by the Committee. These measures may be used as absolute, relative or growth measures as determined by the Committee.

(c) Performance targets relating to the performance measures set forth above shall be preestablished by the Committee, and achievement thereof certified, in writing, prior to payment of the Award, as required by Section 162(m) and regulations promulgated thereunder, may relate to the Company as a whole, or to one or more units thereof, and may be measured over such periods, as the Committee shall determine.

(d) The Committee may, in its discretion, reduce or eliminate the amount of any Award payable to any Participant pursuant to this Section 9, based on such factors as the Committee may deem relevant, but the Committee may not increase the amount of any Award payable to any Participant above the amount established in accordance with the relevant performance targets.

(e) The minimum vesting period applicable to a Performance Award shall be such that the last vesting date of all or a portion of such Award shall occur no less than 12 months following the date of such Award, except that the foregoing restriction shall not apply to Substitute Awards The maximum value of the total of any Performance Awards which may be earned by an Employee under the Plan in any calendar year is $10,000,000.

10. TERMINATION OF EMPLOYMENT OR SERVICES. Except as otherwise provided in an applicable Agreement or determined by the Committee and to the extent not inconsistent with Section 14(k) hereof, in case of termination of employment, directorship or consultancy, the following provisions shall apply:

(a) Upon termination of employment, or cessation of provision of services by the Participant, for reason of death or Disability:

(i) any Award (other than Options) then held by such Participant shall be immediately accelerated and become fully vested, exercisable and payable, and

(ii) any Option then held by such Participant shall be immediately accelerated and become fully vested, exercisable and payable and shall expire on the earlier of (1) the date the Option would have expired had the Participant continued in such employment and (2) one year after the date such Participant's service ceases.

(b) Upon termination of employment, or cessation of provision of services by the Participant, for reason of Retirement:

(i) any Award (other than Options) then held by such Participant may be immediately accelerated by the Committee and become fully vested, exercisable and payable, and

(ii) any Option then held by such Participant shall automatically expire on the earlier of (1) the date the Option would have expired had the Participant continued in such employment and (2) one year after the date such Participant's service ceases, except that any Incentive Stock Option shall automatically expire on the earlier of the date set forth in clause (1) above and three months after the date that such Participant's service ceases.

(c) Upon termination of employment by the Company for cause (as determined by the Committee in its sole discretion), or under other circumstances provided by the Committee in its discretion in the applicable Agreement:

(i) any Award then held by such Participant whose restrictions have not lapsed, which is not exercisable or which is not payable will automatically be forfeited in full and canceled by the Company upon such termination of employment, and

(ii) any Option then held by such Participant, to the extent exercisable, shall automatically expire on the earlier of (1) the date the Option would have expired had the Participant continued in such employment and (2) and three months after the date that such Participant's service ceases.

(d) Upon termination of employment or cessation of provision of services by the Participant for any reason other than death, Disability, Retirement or termination of employment by the Company for cause (as determined by the Committee in its sole discretion), or under other circumstances provided by the Committee in its discretion in the applicable Agreement:

(i) any Award (other than Performance Awards) then held by such Participant whose restrictions have not lapsed, which is not exercisable or which is not payable will automatically be forfeited in full and canceled by the Company upon such termination of employment,

(ii) any Option then held by such Participant, to the extent exercisable, shall automatically expire on the earlier of (1) the date the Option would have expired had the Participant continued in such employment and (2) ninety days after the date the such Participant's service ceases, except that any Incentive Stock Option shall automatically expire on the earlier of clause (i) above and three months after the date that such Participant's service ceases,

(iii) any Performance Award then held by such Participant which is not then payable will be paid in accordance with its terms at the time the Performance Award would have been payable if the termination of employment had not occurred, and the payment shall be prorated based on the number of days in the performance period that occurred prior to the termination of employment, and

(iv) If an Employee becomes a Consultant or Director without a break in service to the Company then his Awards shall not terminate and shall continue under their original terms and conditions, except to the extent such Awards are subject to Section 409A and the transition results in a Separation from Service, in which case such Awards shall be treated in accordance with Section 14(k)(ii) below.

11. DURATION. The Plan shall be effective as of July 8, 2009, subject to its approval by the stockholders of the Company. No Award shall be granted under the Plan after the tenth anniversary of the effective date. However, unless otherwise expressly provided in the Plan or in an applicable Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to administer the Plan and to amend, alter, adjust, suspend, discontinue, or terminate any such Award, or to waive any conditions or rights under any such Award, and the authority of the Board to amend the Plan, shall extend beyond such date.

12. AMENDMENT, MODIFICATION AND TERMINATION.

(a) Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Agreement or in the Plan, the Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided, however, that no such amendment, alteration, suspension, discontinuation or termination shall be made without (i) shareholder approval (x) if such approval is necessary to comply with any tax or regulatory requirement for which or with which the Board deems it necessary or desirable to qualify or comply or (y) if the proposed amendment will increase the number of Shares that may be issued under the Plan, modify the requirements for participation in the Plan, or increase benefits that have already accrued to Participants under the Plan or (ii) the consent of the affected Participant, if such action would adversely affect the rights of such Participant under any outstanding Award. Notwithstanding anything to the contrary herein, the Committee may amend the Plan in such manner as may be necessary to enable the Plan to achieve its stated purposes in any jurisdiction outside the United States in a tax-efficient manner and in compliance with local rules and regulations. Notwithstanding the foregoing or any provision of the Plan or an Award to the contrary, (i) the Committee may at any time (without the consent of any Participant) modify or amend any or all of the provisions of the Plan or an Award to the extent necessary to conform the provisions of the of the Plan or an Award to comply with Section 409A, the regulations issued thereunder or an exception thereto, regardless of whether such modification or amendment of the Award shall adversely affect the rights of a Participant, and (ii) except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding Awards may not be amended to reduce the exercise price of outstanding Options or stock appreciation rights or cancel outstanding Options or stock appreciation rights in exchange for cash, other Awards, Options or stock appreciation rights with an exercise price that is less than the exercise price of the original Award, without stockholder approval.

(b) The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue or terminate, any Award theretofore granted, prospectively or retroactively, without the consent of any Participant or holder or beneficiary of an Award, provided, however, that no such action shall impair the rights of a Participant or holder or beneficiary under any Award theretofore granted under the Plan. Notwithstanding the foregoing, the Committee may not change the vesting schedule of Awards without shareholder approval except in cases of death, Disability, Retirement or Change in Control; except that the vesting schedule for up to ten percent (10%) of the total number of Shares in the Plan may be established or amended, subject to the approval of the Committee, without being subject to the foregoing restrictions on vesting.

(c) With respect to Participants who reside or work outside the United States of America, the Committee may, in its sole discretion, amend, or otherwise modify, without Board or shareholder approval, the terms of the Plan or Awards with respect to such Participant in order to conform such terms with the provisions of local law; provided that such amendment or other modification shall not increase the total number of Shares reserved for purposes of the Plan without the approval of the Stockholders of the Company.

(d) The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, an event affecting the Company, or the financial statements of the Company, or of changes in applicable laws, regulations or accounting principles), whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

(e) To the extent not inconsistent with Section 14(k) hereof, in connection with a Change in Control or an event described in Section 4(e), the Committee may, in its discretion (i) cancel any or all outstanding Awards under the Plan in consideration for payment to the holder of each such cancelled Award of an amount equal to the portion of the consideration that would have been payable to such holder pursuant to such transaction if such Award had been fully vested and exercisable, and had been fully exercised, immediately prior to such transaction, less the exercise price if any that would have been payable therefore, or (ii) if the net amount referred to in clause (i) would be negative, cancel such Award for no consideration or payment of any kind. Payment of any amount payable pursuant to the preceding sentence may be made in cash and/or securities or other property in the Committee's discretion and to the extent applicable, must comply with Section 409A.

13. CHANGE IN CONTROL. Awards granted to the Directors of the Company shall become fully vested, exercisable and payable upon the occurrence of a Change in Control. The Committee may provide, subject to complying with Section 409A, that Awards granted to specific Employees shall become fully vested, exercisable and payable if the Employee's employment with the Company is terminated, as defined by the Committee, within one year of a Change of Control.

14. MISCELLANEOUS.

(a) Nothing in the Plan or in any Agreement shall confer upon any Participant the right to continue in the service or employment of the Company or any Affiliate or affect any right which the Company or any Affiliate may have to terminate or modify the employment or provision of service of the Participant with or without cause.

(b) The Company shall have a right to withhold from any payment of cash or Stock to a Participant or other person under the Plan an amount sufficient to cover any required withholding taxes, including the Participant's social security and Medicare taxes (FICA) and federal, state, local income tax or such other applicable taxes ("Taxes") with respect to income arising from payment of the Award. The Company shall have the right to require the payment of any Taxes before issuing any Stock pursuant to the Award. The Committee may, if it deems appropriate in the case of a Participant, withhold such Taxes through a reduction of the number of Shares delivered to such individual, or allow the Participant to elect to cover all or any part of the required withholdings, and to cover any additional withholdings up to the amount needed to cover the Taxes with respect to income arising from payment of the Award, through a reduction of the number of Shares delivered to such individual or a subsequent return to the Company of Shares held by the Participant or other person, in each case valued in the same manner as used in computing the withholding taxes under the applicable laws. Notwithstanding the foregoing or any provisions of the Plan to the contrary, any broker-assisted cashless exercise shall comply with the requirements for equity classification of Paragraph 35 of FASB Statement No. 123(R) and any withholding satisfied through a net-settlement shall be limited to the minimum statutory withholding requirements.

(c) Awards received by a Participant under this Plan shall not be deemed a part of a Participant's regular, recurring compensation for purposes of any termination, indemnity or severance pay laws and shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan, contract or similar arrangement provided by the Company or an Affiliate, unless expressly so provided by such other plan, contract or arrangement, or unless the Committee so determines.

(d) Subject to the provisions of the Plan, (i) no Award and no right under any Award shall be assignable, alienable, saleable or transferable by a Participant otherwise than by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant, and to receive any property distributable, with respect to any Award upon the death of the Participant; (ii) each Award, and each right under any Award, shall be exercisable during the Participant's lifetime only by the Participant or, if permissible under applicable law, by the Participant's guardian or legal representative; and (iii) no Award and no right under any such Award, may be pledged, alienated, attached, or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company. The provisions of this paragraph shall not apply to any Award which has been fully exercised, earned or paid, as the case may be, and shall not preclude forfeiture of an Award in accordance with the terms thereof.

(e) This Plan shall be unfunded and the Company shall not be required to segregate any assets that may at any time be represented by Awards under this Plan. Neither the Company, its Affiliates, the Committee, nor the Board shall be deemed to be a trustee of any amounts to be paid under this Plan nor shall anything contained in this Plan or any action taken pursuant to its provisions create or be construed to create a fiduciary relationship between the Company and/or its Affiliates, and a Participant or Successor. To the extent any person acquires a right to receive an Award under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company.

(f) Any liability of the Company to any Participant with respect to an Award shall be based solely upon contractual obligations created by this Plan and the applicable Agreement. Except as may be required by law, neither the Company nor any member or former member of the Board or of the Committee, nor any other person participating (including participation pursuant to a delegation of authority under Sections 3(c) and 3(i) hereof) in any determination of any question under this Plan, or in the interpretation, administration or application of this Plan, shall have any liability to any party for any action taken, or not taken, under this Plan.

(g) No certificate for Shares distributable pursuant to this Plan shall be issued and delivered unless the issuance of such certificate complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended and in effect from time to time or any successor statute, the Exchange Act and the requirements of the exchanges on which the Company's Shares may, at such time be listed.

(h) To the extent that federal laws do not otherwise control, this Plan and all determinations made and actions taken pursuant to this Plan shall be governed by the laws of Delaware and construed accordingly.

(i) In the event that any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

(j) No fractional shares shall be issued or delivered pursuant to this Plan or any Agreement, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.

(k) Notwithstanding any provision of the Plan or an Agreement to the contrary, if any Award or benefit provided under this Plan is subject to the provisions of Section 409A, the provisions of the Plan and any applicable Agreement shall be administered, interpreted and construed in a manner necessary to comply with Section 409A or an exception thereto (or disregarded to the extent such provision cannot be so administered, interpreted or construed). The following provisions shall apply, as applicable:

(i) If a Participant is a Specified Employee and a payment subject to Section 409A (and not excepted therefrom) to the Participant is due upon Separation from Service, such payment shall be delayed for a period of six (6) months after the date the Participant Separates from Service (or, if earlier, the death of the Participant), to the extent required by Section 409A. Any payment that would otherwise have been due or owing during such six-month period will be paid immediately following the end of the six-month period in the month following the month containing the 6-month anniversary of the date of termination, with interest at the rate of prime plus 2%, determined as of the first day of the month in which the Separation from Service occurred, unless another compliant date is specified in the applicable Agreement.

(ii) For purposes of Section 409A, and to the extent applicable to any Award or benefit under the Plan, it is intended that distribution events qualify as permissible distribution events for purposes of Section 409A and shall be interpreted and construed accordingly. With respect to payments subject to Section 409A, the Company reserves the right to accelerate and/or defer any payment to the extent permitted and consistent with Section 409A. Whether a Participant has Separated from Service will be determined based on all of the facts and circumstances and, to the extent applicable to any Award or benefit, in accordance with the guidance issued under Section 409A. For this purpose, a Participant will be presumed to have experienced a Separation from Service when it is anticipated that the level of bona fide services performed permanently will decrease to a level less than twenty percent (20%) of the average level of bona fide services performed by the Participant during the immediately preceding thirty-six (36) month period or such other applicable period as provided by Section 409A.

(iii) The Committee, in its discretion, may specify the conditions under which the payment of all or any portion of any Award may be deferred until a later date. Deferrals shall be for such periods or until the occurrence of such events, and upon such terms and conditions, as the Committee shall determine in its discretion, in accordance with the provisions of Section 409A, the regulations and other binding guidance promulgated thereunder; provided, however, that no deferral shall be permitted with respect to Awards to the extent it would result in a violation of Section 409A. An election shall be made by filing an election with the Company (on a form provided by the Company) on or prior to December 31st of the calendar year immediately preceding the beginning of the calendar year (or other applicable service period) to which such election relates (or at such other date as may be specified by the Committee to the extent consistent with Section 409A) and shall be irrevocable for such applicable calendar year (or other applicable service period).

(iv) The grant of Non-Qualified Stock Options and stock appreciation rights shall be granted under terms and conditions consistent with Treas. Reg. § 1.409A-1(b)(5) such that any such Award does not constitute a deferral of compensation under Section 409A. Accordingly, any such Award may be granted to Employees of the Company and its subsidiaries and affiliates in which the Company has a controlling interest. In determining whether the Company has a controlling interest, the rules of Treas. Reg. § 1.414(c)-2(b)(2)(i) shall apply; provided that the language "at least 50 percent" shall be used instead of "at least 80 percent" in each place it appears; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(b)(5)(iii)(E)(i)), the language "at least 20 percent" shall be used instead of "at least 80 percent" in each place it appears. The rules of Treas. Reg. §§ 1.414(c)-3 and 1.414(c)-4 shall apply for purposes of determining ownership interests.

(v) In no event shall any member of the Board, the Committee or the Company (or its employees, Officers or Directors) have any liability to any Participant (or any other Person) due to the failure of an Award to satisfy the requirements of Section 409A.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Christine King, 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 am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e) and internal control over financial reporting (as defined in Exchange Act Rules 13a — 15 (f) and 15d — 15 (f) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal 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 functions):

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.

By:	/s/ CHRISTINE KING
	(signature)
	Christine King President and Chief Executive Officer (Principal Executive Officer)

Date: September 30, 2011

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Kris Sennesael, 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 am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e) and internal control over financial reporting (as defined in Exchange Act Rules 13a — 15 (f) and 15d — 15 (f) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal 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 functions):

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.

By:	/s/ KRIS SENNESAEL
	(signature)
	Kris Sennesael Vice President and Chief Financial Officer (Principal Financial Officer)

Date: September 30, 2011

EX-32.1

Exhibit 32.1

CERTIFICATIONS

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsection (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 August 31, 2011 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.

By:	/s/ CHRISTINE KING
	(signature)
	Christine King President and Chief Executive Officer (Principal Executive Officer)

By:	/s/ KRIS SENNESAEL
	(signature)
	Kris Sennesael Vice President and Chief Financial Officer (Principal Financial Officer)

Dated: September 30, 2011

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data	3 Months Ended		6 Months Ended
	Aug. 31, 2011	Aug. 31, 2010	Aug. 31, 2011	Aug. 31, 2010
CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]
Sales and revenues	$ 112,581	$ 104,084	$ 216,076	$ 201,243
Costs of goods sold	52,237	45,426	99,947	90,790
Gross profit on sales and revenues	60,344	58,658	116,129	110,453
Operating expenses:
Research and development	22,632	19,763	47,159	43,582
Selling, general and administrative	16,234	16,045	39,463	41,399
Restructuring charges	356	47	699	868
Revaluation of contingent consideration	(398)	457	(381)	457
Income from operations	21,520	22,346	29,189	24,147
Interest income	69	174	187	318
Interest expense	(39)	(66)	(76)	(95)
Other (expense) income, net	(99)	(181)	43	(336)
Income before income taxes	21,451	22,273	29,343	24,034
Provision for income taxes	9,560	9,371	11,274	10,505
Net income	$ 11,891	$ 12,902	$ 18,069	$ 13,529
Net income per share:
Basic	$ 0.52	$ 0.57	$ 0.78	$ 0.60
Diluted	$ 0.51	$ 0.57	$ 0.77	$ 0.59
Weighted average common shares outstanding:
Basic	23,065	22,606	23,047	22,540
Diluted	23,493	22,756	23,516	22,772

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	6 Months Ended
	Aug. 31, 2011	Aug. 31, 2010
Cash flows provided by operating activities:
Net income	$ 18,069	$ 13,529
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,793	11,871
Foreign exchange loss	18	255
Excess tax benefits from stock-based compensation	(137)	(68)
Stock-based compensation	(6,029)	2,953
Deferred income taxes	16,527	(520)
Losses on sales of property, plant and equipment	0	18
Deferred income from distribution	2,701	7,156
Non cash restructuring charges	73	0
Provision for sales returns and allowances	139	296
Changes in operating assets and liabilities, net of effects of business acquisitions:
Accounts receivable	1,864	(14,373)
Inventories	(1,318)	(1,373)
Accounts payable, accrued expenses and other liabilities	(7,126)	1,603
Accrued restructuring charges	(1,946)	(877)
Income taxes receivable and payable	(9,943)	3,591
Other changes, net	1,102	462
Net cash provided by operating activities	28,787	24,523
Cash flows from investing activities:
Capital expenditures	(5,711)	(6,501)
Acquisition of business, net of cash acquired (BridgeCo)	(40,968)	(22,000)
Loans receivable form related party	0	(1,625)
Purchases of short-term and long-term investments	0	(14,900)
Sales and maturities of short-term and long-term investments	1,275	55,925
Net cash (used in) provided by investing activities	(45,404)	10,899
Cash flows from financing activities:
Excess tax benefits from stock-based compensation	137	68
Proceeds from issuance of common stock	3,205	4,141
Purchases of treasury stock	(10,481)	(25)
Repayments of obligations under supplier financing arrangements	(3,245)	(2,338)
Net cash (used in) provided by financing activities	(10,384)	1,846
Effect of foreign exchange rate changes on cash and cash equivalents	1,032	(563)
Net (decrease) increase in cash and cash equivalents	(25,970)	36,705
Cash and cash equivalents at beginning of period	170,387	109,141
Cash and cash equivalents at end of period	$ 144,417	$ 145,846

XML



Document And Entity Information (USD $)	6 Months Ended
	Aug. 31, 2011	Sep. 30, 2011	Aug. 31, 2010
Entity Registrant Name	STANDARD MICROSYSTEMS CORP
Entity Central Index Key	0000093384
Current Fiscal Year End Date	--02-28
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 407,441,790
Entity Common Stock, Shares Outstanding		23,166,811
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Aug. 31, 2011

XML



Goodwill and Intangible Assets

6 Months Ended

Aug. 31, 2011

Goodwill and Intangible Assets [Abstract]

Goodwill and Intangible Assets

8. Goodwill and Intangible Assets

Changes in the carrying amount of goodwill by reporting unit consists of the following (in thousands):

	Analog/Mixed Signal			Wireless Audio		AIS			Total
Gross balance, 2/28/11	$	33,393		$	24,531	$	71,649		$	129,573
Accumulated impairment losses		-			-		(52,300	)		(52,300	)
Balance, 2/28/11		33,393			24,531		19,349			77,273
Adjustments		193			-		-			193
Goodwill acquired		-			40,173		-			40,173
Foreign exchange rate impact		(27	)		361		242			576
Gross balance, 8/31/11		33,559			65,065		71,891			170,515
Accumulated impairment		-			-		(52,300	)		(52,300	)
Balance, 8/31/11	$	33,559		$	65,065	$	19,591		$	118,215

On May 19, 2011 SMSC completed the acquisition of BridgeCo, a leader in wireless networked audio technologies. Goodwill related to this acquisition is included within the wireless audio reporting unit.

The Company's intangible assets consisted of the following (in thousands):

	As of August 31, 2011				As of February 28, 2011
	Cost		Accumulated Amortization		Cost		Accumulated Amortization
Purchased technologies	$	56,833	$	36,549	$	48,151	$	32,353
Customer relationships and contracts		21,087		12,251		18,291		10,268
Other		2,276		875		2,096		642
Total – finite-lived intangible assets		80,196		49,675		68,538		43,263
Trademarks and trade names - indefinite-lived		6,763		-		6,470		-
	$	86,959	$	49,675	$	75,008	$	43,263

Purchased technologies have been assigned estimated useful lives of between six and nine years, with a weighted-average useful life of approximately eight years. Customer relationships and contracts have been assigned useful lives of between one and fifteen years, with a weighted-average useful life of approximately seven years. Certain trade names related to the acquired businesses are amortized over a period of one year and included in other in the table above.

Total amortization expense recorded for finite-lived intangible assets using straight-line amortization was as follows (in thousands):

	Three Months Ended August 31				Six Months Ended August 31,
	2011		2010		2011		2010
Amortization expense	$	2,700	$	2,077	$	5,091	$	3,842

Estimated future finite-lived intangible asset amortization expense is as follows (in thousands):

Period	Amount
Remainder of Fiscal 2012	$	5,415
Fiscal 2013	$	9,933
Fiscal 2014	$	4,516
Fiscal 2015	$	3,976
Fiscal 2016	$	3,194
Fiscal 2017 and thereafter	$	3,487
	$	30,521

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Restructuring

6 Months Ended

Aug. 31, 2011

Restructuring [Abstract]

Restructuring

13. Restructuring

During the second quarter of fiscal 2012 the Company reorganized certain engineering groups resulting in severance charges of $0.4 million. Costs incurred as result of this action will result in cash payments to be completed in the third quarter of fiscal 2012.

During the fourth quarter of fiscal 2011, the Company initiated a plan to reduce costs and investments in certain businesses. As a result, approximately 80 positions worldwide, including approximately 50 positions at its subsidiary in Shenzhen China, were eliminated as part of the plan to substantially reduce investment in storage solutions acquired as part of the acquisition of Symwave, Inc. (“Symwave”).

The remaining positions eliminated consist of certain administrative positions, certain positions in its subsidiary in Canada as part of its plan to converge the wireless audio products roadmap from the acquisitions of Kleer Corporation and Kleer Semiconductor Corporation (collectively, “Kleer”) and Wireless Audio IP B.V. (“STS”) and to rationalize worldwide resources working on wireless audio products, and certain engineering positions. An additional $0.3 million was incurred in the first quarter of fiscal 2012 for additional severance and termination benefits and asset impairment charges relating to this restructuring plan. Costs incurred as result of this action will result in cash payments to be completed in the third quarter of fiscal 2012.

In the second quarter of fiscal 2011, the Company initiated a restructuring plan for severance and termination benefits for 9 employees of $0.1 million. An additional $0.3 million in expenses were incurred in the third and fourth quarters of fiscal 2011 relating to this plan. The Company expects the payments on these obligations to be completed in the third quarter of fiscal 2012.

In the fourth quarter of fiscal 2010, the Company initiated a restructuring plan for severance and termination benefits for 5 employees. The payments on these obligations were completed in the first quarter of fiscal 2012.

In the second quarter of fiscal 2010, the Company announced a plan to reduce its workforce by sixty-four employees in connection with the relocation of certain of its test floor activities from Hauppauge, New York to third party offshore facilities (Sigurd Microelectronics Corporation) in Taiwan. The payments on these obligations were completed in the first quarter of fiscal 2012.

In the fourth quarter of fiscal 2009, the Company announced a restructuring plan that included a supplemental voluntary retirement program and involuntary separations that would result in approximately a ten percent reduction in employee headcount and expenses worldwide. The payments on these obligations were completed in the first quarter of fiscal 2012.

The following tables summarize the activity related to the accrual for restructuring charges for the six months ended August 31, 2011 and the twelve months ended February 28, 2011 (in thousands):

	Balance as of March 1, 2011		Severance & Benefits Charges		Assets Impairment		Payments			Non-Cash Items			Balance as of August 31, 2011
Q4 Fiscal 2009 Restructuring Plan	$	2	$	-	$	-	$	(2	)	$	-		$	-
Q2 Fiscal 2010 Restructuring Plan		15		-		-		-			-			15
Q4 Fiscal 2010 Restructuring Plan		27		-		-		(27	)		-			-
Q2 Fiscal 2011 Restructuring Plan		348		-		-		(226	)		-			122
Q4 Fiscal 2011 Restructuring Plan		2,429		270		73		(2,317	)		(73	)		382
Q2 Fiscal 2012 Restructuring Plan		-		356							-			356
Total	$	2,821	$	626	$	73	$	(2,572	)	$	(73	)	$	875

	Balance as of March 1, 2010		Severance & Benefits Charges		Assets Impairment		Payments			Non-Cash Items			Balance as of February 28, 2011
Q4 Fiscal 2009 Restructuring Plan	$	210	$	-	$	-	$	(212	)	$	4		$	2
Q2 Fiscal 2010 Restructuring Plan		101		-		-		(86	)		-			15
Q4 Fiscal 2010 Restructuring Plan		780		822		-		(1,440	)		(135	)		27
Q2 Fiscal 2011 Restructuring Plan		-		348		-		-			-			348
Q4 Fiscal 2011 Restructuring Plan		-		2,489		1,044		-			(1,104	)		2,429
Total	$	1,091	$	3,659	$	1,044	$	(1,738	)	$	(1,235	)	$	2,821

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Comprehensive Income (Loss)

6 Months Ended

Aug. 31, 2011

Comprehensive Income Loss [Abstract]

Comprehensive Income (Loss)

4. Comprehensive Income (Loss)

The Company's other comprehensive income (loss) consists of foreign currency translation adjustments from those subsidiaries whose functional currency is other than the U.S. dollar (“USD”) and unrealized gains and losses on investments classified as available-for-sale.

The components of the Company's comprehensive income were as follows (in thousands):

	Three Months Ended August 31					Six Months Ended August 31
	2011			2010		2011			2010
Net income	$	11,891		$	12,902	$	18,069		$	13,529
Other comprehensive income:
Change in foreign currency translation adjustments		1,101			2,855		3,635			(792	)
Change in unrealized loss on securities		(3	)		639		(16	)		1,160
Total comprehensive income	$	12,989		$	16,396	$	21,688		$	13,897

The components of the Company's accumulated other comprehensive income were as follows (in thousands):

	August 31, 2011			February 28, 2011
Unrealized losses on investments, net of tax	$	(1,880	)	$	(1,864	)
Foreign currency translation		14,402			10,767
Minimum pension liability adjustment, net of tax		(415	)		(415	)
Accumulated other comprehensive income	$	12,107		$	8,488

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Deferred Income from Distribution

6 Months Ended

Aug. 31, 2011

Deferred Income From Distribution [Abstract]

Deferred Income from Distribution

10. Deferred Income from Distribution

Certain of the Company's products are sold to electronic component distributors under agreements providing for price protection and rights to return unsold merchandise. Accordingly, recognition of revenue and associated gross profit on shipments to a majority of the Company's distributors is deferred until the distributors resell the products. At the time of shipment to distributors, the Company records a trade receivable for the selling price, relieves inventory for the carrying value of goods shipped, and records the gross margin as deferred income from distribution on the consolidated balance sheets. This deferred income represents the gross margin on the initial sale to the distributor; however, the amount of gross margin recognized in future consolidated statements of operations will typically be less than the originally recorded deferred income as a result of price allowances. Price allowances offered to distributors are recognized as reductions in product sales when incurred, which is generally at the time the distributor resells the product. Shipments made by the Company's Japanese subsidiary to distributors in Japan are made under agreements that permit limited stock return and no price protection privileges. Revenue for shipments to distributors in Japan is recognized as title passes to such distributors upon delivery.

Deferred income on shipments to distributors consists of the following (in thousands):

	August 31, 2011			February 28, 2011
Deferred revenue	$	30,677		$	26,609
Deferred cost of goods sold		(5,722	)		(4,904	)
Provisions for sales returns		656			757
Advances to distributors for price allowances		(6,743	)		(6,295	)
	$	18,868		$	16,167

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Commitments and Contingencies

6 Months Ended

Aug. 31, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

15. Commitments and Contingencies

Contingent Consideration - BridgeCo Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of BridgeCo. The maximum amount of contingent consideration that can be earned by the sellers is $27.5 million as set forth in the purchase agreement. The fair value of the contingent consideration at acquisition was $8.8 million. This liability was revalued to $8.4 million as of August 31, 2011 based on the likelihood of achieving the performance goals.

The fair value of the contingent consideration arrangement was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, and are therefore Level 3 inputs. Key assumptions include a discount rate of 19% and a probability-adjusted level of annual revenues. The Company performs a quarterly revaluation of contingent consideration and records the change as a component of operating income.

Contingent Consideration - Symwave Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of Symwave on November 12, 2010 at the estimated fair value of $3.1 million. The contingent consideration arrangement requires the Company to pay the former owners of Symwave an earnout amount equal to one times revenue (less certain agreed upon adjustments), depending on the achievement of certain revenue and gross profit margin performance goals, for each of the four quarterly periods from January 1, 2011 until December 31, 2011. No earnout payments shall be payable for any period after December 31, 2011. No liability was recorded as of February 28, 2011 and August 31, 2011 based on the likelihood of achieving the performance goals.

Contingent Consideration - STS Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of STS. The contingent consideration arrangement requires the Company to pay the former owners of STS an earnout amount of $3.0 million for the period from January 1, 2011 until December 31, 2011 provided that revenue meets performance goals set forth in the purchase agreement. No earnout payments shall be payable for any period after December 31, 2011. No liability was recorded as of February 28, 2011 and August 31, 2011 based on the likelihood of achieving the performance goals.

Contingent Consideration - Kleer Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of Kleer. The maximum amount of contingent consideration that can be earned by the sellers was $2.0 million as set forth in the purchase agreement. No liability was recorded as of February 28, 2011 and August 31, 2011 based on the likelihood of achieving the performance goals.

Contingent Consideration - K2L Acquisition

The Company recorded a liability for contingent consideration as part of the purchase price for the acquisition of K2L GmbH (“K2L”). The maximum amount of contingent consideration that can be earned by the sellers is 2.1 million Euros. Fifty percent of the contingent consideration was earned in calendar year 2010 and fifty percent is available to be earned in calendar year 2011 based on the level of achievement of revenue as set forth in the purchase agreement. On March 31, 2011, 1.1 million Euros in stock and cash was paid to the former owners of K2L for meeting calendar year 2010 performance targets. This liability was revalued from $2.8 million as of February 28, 2011to $1.4 million as of August 31, 2011 as a result of the payout of the 2010 earnout and the likelihood of achieving the 2011 performance goals.

The fair value of the contingent consideration arrangement was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, and are therefore Level 3 inputs. Key assumptions include a discount rate of 16% and a probability-adjusted level of annual revenues. The Company performs a quarterly revaluation of contingent consideration and records the change as a component of operating income.

Litigation

From time to time as a normal incidence of doing business, various claims and litigation may be asserted or commenced against the Company. Due to uncertainties inherent in litigation and other claims, the Company can give no assurance that it will prevail in any such matters, which could subject the Company to significant liability for damages and/or invalidate its proprietary rights. Any lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management's time and attention, and an adverse outcome of any significant matter could have a material adverse effect on the Company's consolidated results of operations or cash flows in the quarter or annual period in which one or more of these matters are resolved.

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Other Expense, Net

6 Months Ended

Aug. 31, 2011

Other Expense Net [Abstract]

Other Expense, Net

11. Other Expense, Net

The components of the Company's other expense, net consisted of the following (in thousands):

	Three Months Ended August 31						Six Months Ended August 31
	2011			2010			2011		2010
Unrealized and realized foreign currency transaction gains	$	(130	)	$	(274	)	$	11	$	(370	)
Other miscellaneous income, net		31			93			32		34
	$	(99	)	$	(181	)	$	43	$	(336	)

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Other Balance Sheet Data

6 Months Ended

Aug. 31, 2011

Other Balance Sheet Data [Abstract]

Other Balance Sheet Data

9. Other Balance Sheet Data

Other balance sheet data is as follows (in thousands):

	August 31, 2011			February 28, 2011
Inventories:
Raw materials	$	2,254		$	2,413
Work-in-process		12,555			14,329
Finished goods		35,063			30,490
	$	49,872		$	47,232
Property, plant and equipment:
Land	$	578		$	578
Buildings and improvements		38,901			36,164
Machinery and equipment		140,690			133,778
		180,169			170,520
Less: Accumulated depreciation and amortization		(113,249	)		(103,138	)
	$	66,920		$	67,382
Accrued expenses, income taxes and other liabilities:
Employee compensation, incentives and benefits	$	20,069		$	19,174
Stock appreciation rights		15,982			28,259
Supplier financing – current		6,465			4,934
Restructuring charges (see Note 13)		875			2,821
Accrued rent obligations		2,792			2,944
Income taxes payable		1,360			2,545
Accrued contingent consideration--current		5,700			1,445
Other accrued		6,295			10,337
	$	59,538		$	72,459
Other liabilities:
Retirement benefits	$	8,843		$	8,799
Income taxes		6,083			5,225
Supplier financing – non-current		3,939			5,406
Accrued contingent consideration--non-current		4,125			1,401
Other liabilities		798			1,038
	$	23,788		$	21,869

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Recent Accounting Standards

6 Months Ended

Aug. 31, 2011

Recent Accounting Standards [Abstract]

Recent Accounting Standards

2. Recent Accounting Standards

 In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011 - 05, “Presentation of Comprehensive Income” (“ASU 2011 - 05”), which provides guidance regarding the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The updated guidance is effective on a retrospective basis for SMSC beginning in the first quarter of fiscal year 2013. The adoption of this guidance will not have a material impact on our consolidated financial statements.

 In May 2011, the FASB issued Accounting Standards Update 2011 - 04, “Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011 - 04”), which provides additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for SMSC beginning in the first quarter of fiscal year 2013. The adoption of this guidance will not have a material impact on our consolidated financial statements.

In December 2010, the FASB issued Accounting Standards Update 2010 - 29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010 - 29”), which specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The new disclosures required by ASU 2010 – 29 were adopted by SMSC beginning in the first quarter of fiscal 2012. The adoption of ASU 2010 - 29 did not have a material effect on our consolidated financial statements.

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Net Income Per Share

6 Months Ended

Aug. 31, 2011

Net Income Per Share [Abstract]

Net Income Per Share

5. 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 sum of the weighted-average number of common shares outstanding during the period, plus the dilutive effect of 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 August 31				Six Months Ended August 31
	2011		2010		2011		2010
Weighted average shares outstanding for basic net income per share		23,065		22,606		23,047		22,540
Dilutive effect of stock options and restricted stock units		428		150		469		232
Weighted average shares outstanding for diluted net income per share		23,493		22,756		23,516		22,772

Options covering approximately 1.8 million and 1.5 million shares for the three month periods ended August 31, 2011 and 2010, and approximately 1.6 million and 1.6 million shares for the six month periods ended August 31, 2011 and 2010, respectively, were excluded from the computation of average shares outstanding for diluted net income per share because their effects were antidilutive.

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Business Combinations

6 Months Ended

Aug. 31, 2011

Business Combinations [Abstract]

Business Combinations

6. Business Combinations

BridgeCo

On May 19, 2011 SMSC completed the acquisition of BridgeCo, Inc. (“BridgeCo”), a leader in wireless networked audio technologies. BridgeCo's JukeBlox(TM) technology connects tablets, smartphones, PCs, Macs and other consumer electronics products by enabling consumers to access their local or cloud-based music library from any device and from any room in the home. Its JukeBlox software platform, with integrated WiFi® support, enables music streaming to virtually all home audio equipment including home theater systems, A/V receivers, radios, wireless speakers and portable music player docking stations. BridgeCo's technology has been adopted by some of the largest consumer electronics brands in the world including Pioneer, Philips, Denon, Marantz, JBL, B&W and Harmon/Kardon.

The majority of BridgeCo's assets are located in the United States. BridgeCo also has operations in India and Japan. The functional currency of BridgeCo's operations in the United States is the U.S. dollar (“USD”), in India, the Indian Rupee and in Japan, the Japanese Yen.

SMSC made an initial investment of $41.0 million in cash (net of cash acquired). The terms of the purchase agreement provide for potential earnout payments of up to $5.0 million in 2012 and up to $22.5 million in 2013 to former BridgeCo shareholders, dependent on BridgeCo reaching certain revenue goals in calendar years 2011 and 2012.

In addition, an employee incentive bonus plan was established as part of the merger agreement in which a portion of the earnout payment due to shareholders was apportioned to employees contingent upon continuous future employment as of the specified payout dates established by the plan. This portion of the earnout was not included as part of the contingent consideration liability but is being charged to earnings over the required service period as earned.

The fair value of the contingent consideration at acquisition of $8.8 million was estimated by applying the income approach. That measure was based on significant inputs that are unobservable in the market, and are therefore level 3 inputs. Key assumptions included a discount rate of 19% and a probability-adjusted level of forecasted quarterly revenues.

The following table summarizes the components of the purchase price at fair value (in thousands):

BridgeCo

Cash acquired	$	(374	)
Cash consideration paid		41,342
Liability for contingent consideration		8,800
Total consideration	$	49,768

The following table summarizes the allocation of the purchase price at fair value (in thousands):

Receivables	$	601
Inventories		950
Other current assets		629
Property, plant and equipment		442
Customer relationships		1,900
Trade name		70
Technology		7,400
Goodwill (all non-deductible for tax purposes)		40,173
Deferred tax assets		438
Other non current assets		257
Non-interest bearing liabilities		(2,402	)
Deferred tax liabilities		(690	)
Net assets	$	49,768

The results of BridgeCo's operations subsequent to May 19, 2011 have been included in the Company's consolidated results of operations. In the three-month and six-month periods ended August 31, 2011, BridgeCo contributed $8.7 million and $9.5 million in revenue, respectively.

The following unaudited pro forma financial information presents the combined operating results of SMSC and BridgeCo as if the acquisition had occurred as of the beginning of the comparative prior annual reporting period only. In the three month period ended August 31, 2011 there were no pro forma adjustments as the BridgeCo results were included in the SMSC results for the entire period. Pro forma data is subject to various assumptions and estimates, and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.

Pro forma financial information is presented in the following table (in thousands):

	Three Months Ended August 31,				Six Months Ended August 31,
	2011		2010		2011		2010
	(Unaudited)				(Unaudited)
Sales and revenues	$	112,581	$	105,697	$	219,073	$	203,944
Net income	$	11,891	$	10,951	$	15,790	$	10,204

Symwave

On November 12, 2010 SMSC completed the acquisition of Symwave, Inc. (“Symwave”), a global fabless semiconductor company supplying high-performance analog/mixed-signal connectivity solutions utilizing proprietary technology, IP and silicon design capabilities. Symwave was headquartered in Laguna Niguel, California, with design centers in San Diego, California and Shenzhen, China. Symwave had approximately 90 employees, of which over 60 were in Asia. The functional currency of Symwave's operations in the United States is the U.S. dollar (“USD”) and in China is the Chinese Yuan Renminbi (“CNY”).

SMSC made an initial $5.2 million equity investment in Symwave in fiscal 2010, resulting in an equity stake of approximately 14% and in fiscal 2011 provided $3.1 million in bridge financing to Symwave. At acquisition, the initial equity investment was revalued to $2.0 million and an impairment loss of $3.2 million was recorded within income from operations. The terms of the purchase agreement provide for quarterly cash payments to former Symwave shareholders upon achievement of certain revenue and gross profit margin goals. As a result, no cash was paid at acquisition and SMSC recorded a $3.1 million liability for contingent consideration. The fair value of the initial equity investment of $2.0 million was estimated by applying the income approach. That measure is based on significant inputs that are unobservable in the market, and are therefore level 3 inputs. Key assumptions include a discount rate of 15 percent and a probability-adjusted level of quarterly revenues and gross profit margins.

Symwave

The following table summarizes the components of the purchase price at fair value (in thousands):

Fair value of initial investment in Symwave	$	2,030
Assumption of liability for overdue accounts payable		4,062
Assumption of liability for notes payable		3,212
Liability for contingent consideration		3,094
	$	12,398

The following table summarizes the allocation of the purchase price at fair value (in thousands):

Cash and cash equivalents	$	1,517
Inventories		3,441
Accounts receivable		3,338
Other current assets		343
Fixed assets		1,989
Customer relationships		290
Trade name		150
Technology		3,600
Goodwill (all non-deductible for tax purposes)		1,690
Deferred tax assets		1,486
Accounts payable and accrued liabilities		(5,446	)
	$	12,398

The results of Symwave's operations subsequent to November 12, 2010 have been included in the Company's consolidated results of operations. In the three and six month periods ended August 31, 2011, Symwave contributed $0.7 million and $2.1 million in revenue, respectively.

During the fourth quarter of fiscal 2011 the Company initiated a plan to reduce costs and investments, including reducing investment in the former Symwave business (see Note 13 - Restructuring).

The following unaudited pro forma financial information presents the combined operating results of SMSC and Symwave as if the acquisition had occurred as of the beginning of the comparable prior annual reporting period only. In the three and six month periods ended August 31, 2011 there were no pro forma adjustments as the Symwave results were included in the SMSC results for the entire period. Pro forma data is subject to various assumptions and estimates, and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.

Pro forma financial information is presented in the following table (in thousands):

	Three Months Ended August 31				Six Months Ended August 31
	2011		2010		2011		2010
	(Unaudited)				(Unaudited)
Sales and revenues	$	112,581	$	105,996	$	216,076	$	203,960
Net income	$	11,891	$	11,979	$	18,069	$	11,685

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Benefit and Incentive Plans (including Share-Based Payments)

6 Months Ended

Aug. 31, 2011

Benefit And Incentive Plans Including Share Based Payments [Abstract]

Benefit and Incentive Plans (including Share-Based Payments)

14. Benefit and Incentive Plans (including Share-Based Payments)

The Company has several stock-based compensation plans in effect under which incentive stock options and non-qualified stock options (collectively “stock options”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) have been granted to employees and directors. In July 2009, the shareholders approved the 2009 Long Term Incentive Plan (the “LTIP”). The Company has ceased issuing stock options and restricted stock awards under previously established stock option and restricted stock plans, and has ceased issuing SARs, and instead is using the LTIP to issue stock options and RSUs. The Compensation Committee and management continue to evaluate means to effectively promote share ownership by employees and directors while offering industry-competitive compensation packages, including appropriate use of stock-based compensation awards.

Long Term Incentive Plan

Under the LTIP, the Compensation Committee of the Board of Directors is authorized to grant awards of stock options, restricted stock or restricted stock units, or other stock-based awards. The Committee is authorized under the LTIP to delegate its authority in certain circumstances. The purpose of this plan is to promote the interests of the Company and its shareholders by providing officers, directors and key employees with additional incentives and the opportunity, through stock ownership, to better align their interests with the Company's and enhance their personal interest in its continued success. After amendment on July 28, 2011 the maximum number of shares that may be delivered pursuant to awards granted under the LTIP is 2,000,000 plus: (i) any shares that have been authorized but not issued pursuant to previously established plans of the Company as of June 30, 2009, up to a maximum of an additional 500,000 shares; (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of June 30, 2009 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 3,844,576 shares. The maximum number of incentive stock options that may be granted under the LTIP is 1,500,000. No participant may receive awards under the LTIP in any calendar year for more than 1,000,000 shares equivalents. As of August 31, 2011, awards amounting to 1,286,091 share equivalents are available for grant under the LTIP.

Employee and Director Stock Option Plans

Under the Company's various plans, the Compensation Committee of the Board of Directors had been authorized to grant options to purchase shares of common stock. Stock options under inducement plans were offered only to new employees, and all options were granted at prices not less than the fair market value on the date of grant. The grant date fair values of stock options are recorded as compensation expense ratably over the vesting period of each award, as adjusted for forfeitures of unvested awards. Stock options generally vest over four or five-year periods, and expire no later than ten years from the date of grant. Following shareholder approval of the LTIP, the Company ceased issuing awards under previously established stock option plans.

Stock option plan activity is summarized below (in thousands, except per share data):

	Shares			Weighted Average Exercise Price per Share		Weighted Average Contractual Term (in yrs.)		Aggregate Intrinsic Value
Options outstanding, March 1, 2011		3,075		$	22.75
Granted		222		$	24.96
Exercised		(116	)	$	18.08
Canceled, forfeited or expired		(147	)	$	29.91
Options outstanding, August 31, 2011		3,034		$	22.74		5.7	$	4,568
Options exercisable, August 31, 2011		1,980		$	22.50		4.4	$	3,443

The following table summarizes information relating to outstanding and exercisable options as of August 31, 2011 (shares in thousands):

Range of Exercise Prices		Weighted Average Remaining Lives		Options Outstanding		Weighted Average Exercise Prices		Options Exercisable		Weighted Average Exercise Prices
$	10.56 - $17.62		4.7		792	$	16.37		628	$	16.46
$	18.29 - $22.35		5.1		876	$	20.44		613	$	20.55
$	22.40 - $27.76		7.9		779	$	25.29		271	$	25.68
$	27.90 - $36.13		5.1		587	$	31.36		468	$	31.33
			5.7		3,034	$	22.74		1,980	$	22.50

The following table summarizes information relating to currently outstanding and exercisable options:

	As of August 31,
	2011		2010
Total remaining unrecognized compensation cost (in thousands)	$	7,969	$	11,790
Weighted average period over which cost is expected to be recognized (in years)		1.5		1.7

The fair value of stock options granted in connection with the Company's stock incentive plans have been estimated utilizing the following assumptions:

	Three Months Ended August 31,						Six Months Ended August 31,
	2011			2010			2011			2010
Dividend yield		-			-			-			-
Expected volatility		43	%		46	%		43 - 44	%		46-47	%
Risk-free interest rates		1.6 - 1.8	%		1.8-2.0	%		1.6 - 2.1	%		1.8-2.6	%
Expected lives (in years)		5.0			5.0			5.0			5.0

Restricted Stock Awards/Restricted Stock Units

The Company provides common stock awards to certain officers and key employees. The Company previously granted restricted stock awards, at its discretion, and as part of the Company's management incentive plan, from the shares available under its 2001 and 2003 Stock Option and Restricted Stock Plans and its 2005 Inducement Stock Option and Restricted Stock Plan. The shares awarded were typically earned in 25%, 25% and 50% increments on the first, second and third anniversaries of the award, respectively, and are distributed provided the employee has remained employed by the Company through such anniversary dates; otherwise the unvested shares are forfeited. The grant date fair value of these shares at the date of award is recorded as compensation expense ratably on a straight-line basis over the related vesting periods, as adjusted for estimated forfeitures of unvested awards. Restricted stock shares are no longer being granted from previously established restricted stock award plans. Instead, restricted stock units are currently being granted from the LTIP. Restricted stock units are typically earned in 33% increments on the first, second and third anniversaries of the award, respectively, and are distributed provided the employee remains employed by the Company through such anniversary dates; otherwise the unvested shares are forfeited. The grant date fair value of these shares at the date of award is recorded as compensation expense ratably on a straight-line basis over the related vesting periods, as adjusted for estimated forfeitures of unvested awards.

Restricted stock activity is set forth below (shares in thousands):

	Shares			Weighted Average Grant-Date Fair Value
Restricted stock shares/units outstanding, March 1, 2011		424		$	23.79
Granted		262		$	24.60
Canceled or expired		(41	)	$	26.84
Vested		(78	)	$	25.60
Restricted stock shares/units outstanding, August 31, 2011		567		$	23.70

The following table summarizes information relating to RSAs and RSUs activity:

	As of August 31,
	2011		2010
Total unrecognized compensation cost (in thousands)	$	11,115	$	5,301
Weighted average period over which cost is expected to be recognized (in years)		1.6		1.7

Stock Appreciation Rights Plans

In September 2004 and September 2006, the Company's Board of Directors approved Stock Appreciation Rights (“SAR”) Plans (the “Plans”), the purpose of which are to attract, retain, reward and motivate employees and consultants to promote the Company's best interests and to share in its future success. The Plans authorize the Board's Compensation Committee to grant up to six million SAR awards to eligible officers, employees and consultants (after amendment to the 2006 SARs Plan, effective April 30, 2008). Each award, when granted, provides the participant with the right to receive payment in cash, upon exercise, for the appreciation in market value of a share of SMSC common stock over the award's exercise price. On July 11, 2006, the Company's Board of Directors approved the 2006 Director Stock Appreciation Rights Plan. The Company can grant up to 200,000 Director SARs under this plan. On April 9, 2008, the Board of Directors authorized an increase in the number of SARs issuable pursuant to this plan from 200,000 to 400,000. The exercise price of a SAR is equal to the closing market price of SMSC stock on the date of grant. SAR awards generally vest over four or five-year periods, and expire no later than ten years from the date of grant. The Company has currently ceased issuing SARs to employees and Directors and is using the LTIP instead.

The Company recognizes compensation expense or benefit for SARs using a graded vesting methodology, adjusting for changes in fair value from period to period. Compensation expense also includes adjustments for any exercises of SARs to record any differences between total cash paid at settlement and previously recognized compensation expenses. Prior to the adoption of guidance now codified as ASC Topic 718, “Compensation - Stock Compensation” (“ASC 718”), the Company recognized compensation expense for SARs based on the excess of the award's market value over its exercise price over the term of the award.

The total unrecognized compensation cost related to SMSC's stock appreciation rights plan is $5.8 million as of August 31, 2011. The weighted average period over which the cost is expected to be recognized is 2.8 years.

Activity under the Plans is summarized below (in thousands, except per share data):

	Shares			Weighted Average Exercise Price per Share		Weighted Average Contractual Term (in yrs.)		Aggregate Intrinsic Value
Stock appreciation rights outstanding, March 1, 2011		4,249		$	24.96
Granted		-		$	-
Exercised		(134	)	$	17.21
Canceled or expired		(139	)	$	26.55
Stock appreciation rights outstanding, August 31, 2011		3,976		$	25.16		6.0	$	6,235
Stock appreciation rights exercisable, August31, 2011		2,853		$	26.18		5.6	$	3,793

Activity under the Stock Appreciation Rights Plan is summarized below:

	As of August 31,
	2011		2010
Total unrecognized compensation cost (in thousands)	$	5,802	$	9,924
Weighted average period over which cost is expected to be recognized (in years)		2.8		3.5

The fair value of SARs granted in connection with the Plans has been estimated utilizing the following assumptions:

	Three Months Ended August 31,						Six Months Ended August 31,
	2011			2010			2011			2010
Dividend yield		-			-			-			-
Expected volatility		38 - 46	%		37-51	%		28 – 46	%		37-53	%
Risk-free interest rates		0.18 - .85	%		0.04-1.87	%		0.01 –1.69	%		0.04-2.76	%
Expected lives (in years)		1.5 - 4.5			0.02-5.37			0.5 – 4.7			0.02-5.62

Employee Stock Purchase Plan

The Company's 2010 Employee Stock Purchase Plan (the “Purchase Plan”), effective November 1, 2010, provides for the issuance of up to 1,100,000 shares of common stock to eligible employees. The Purchase Plan provides for eligible employees to purchase whole shares of common stock at a price of 85% of the lesser of: (a) the fair market value of a share of common stock on the first date of the purchase period or (b) the fair market value of a share of common stock on the last date of the purchase period. Stock-based compensation expense for the Purchase Plan is recognized over the vesting period of six months on a straight-line basis. In the first quarter of fiscal 2012 the Company issued 54,933 shares and had 1,045,067 shares available for future grants and issuances under the Purchase Plan. The Company recognized expense of $0.1 million and $0.3 million in the three and six months ended August 31, 2011, respectively.

Stock-Based Compensation (Benefit) Expense

The following table summarizes the compensation (benefit) expense for stock options, restricted stock awards and stock appreciation rights at fair value as measured per the provisions of ASC Topic 718, “ Compensation - Stock Compensation ” (“ASC 718”) included in our condensed consolidated statements of operations (in thousands) :

	Three Months Ended August 31,						Six Months Ended August 31,
	2011			2010			2011			2010
Costs of goods sold	$	(1,005	)	$	(451	)	$	(681	)	$	381
Research and development		(2,743	)		(1,498	)		(1,688	)		780
Selling, general and administrative		(5,503	)		(3,264	)		(3,466	)		1,539
Stock-based compensation (benefit) expense, before income taxes	$	(9,251	)	$	(5,213	)	$	(5,835	)	$	2,700

Retirement Plans

The Company maintains an unfunded Supplemental Executive Retirement Plan to provide certain members of 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 following table sets forth the components of the consolidated net periodic pension expense (in thousands):

	Three Months Ended August 31,				Six Months Ended August 31,
	2011		2010		2011		2010
Service cost – benefits earned during the period	$	53	$	88	$	132	$	171
Interest cost on projected benefit obligations		91		96		182		192
Net periodic pension expense	$	144	$	184	$	314	$	363

The following table sets forth the amounts (gross, before tax) recognized in accumulated other comprehensive income (in thousands):

	As of August 31, 2011		As of February 28, 2011
Transition obligation	$	1	$	1
Net actuarial income		659		659
Total amount recognized in accumulated other comprehensive income	$	660	$	660

Annual benefit payments under these plans are expected to be approximately $0.7 million in fiscal 2012, to be funded as general corporate obligations with available cash and cash equivalents. Payments to date on these plans for the six months ended August 31, 2011 were $0.4 million. Additionally, the Company is the beneficiary of life insurance policies that have been purchased as a method of partially financing longer-term benefits payable under the Supplemental Executive Retirement Plan. In November 2009, the Compensation Committee of SMSC's Board of Directors froze benefits under the Supplemental Executive Retirement Plan for existing participants, and there will be no further eligibility for participation in this plan. The effect of this action is expected to be immaterial to SMSC's future results of operations.

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Investments

6 Months Ended

Aug. 31, 2011

Investments [Abstract]

Investments

7. Investments

Long-term investments consist of AAA rated auction rate securities (most of which are backed by the U.S. Federal or state and municipal government guarantees) held as available-for-sale investments. As of November 30, 2007 and prior period-end dates, investments in auction rate securities were classified as short-term in nature. In the fourth quarter of fiscal 2008, such investments became subject to adverse market conditions, and the liquidity typically associated with the financial markets for such instruments became restricted as auctions began to fail. Given the circumstances, these securities were subsequently classified as long-term (or short-term if stated maturity dates were within one year of the reported balance sheet date), reflecting the restrictions on liquidity and the Company's intent to hold until maturity (or until such time as the principal investment could be recovered through other means, such as issuer calls and redemptions). See Note 3 - Fair Value for further discussion on related issues and matters, including fair valuation.

On November 23, 2010, the Company invested $2.0 million in EqcoLogic, N.V. (“EqcoLogic”), a privately held Belgian corporation based in Brussels, Belgium. SMSC holds approximately 18.0% of the total outstanding equity of EqcoLogic on a fully diluted basis. The purchase of the equity shares has been accounted for as a cost-basis investment and is included in the Investments in equity securities caption on the Company's condensed consolidated balance sheet.

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Subsequent Event Treasury Share Repurchase

6 Months Ended

Aug. 31, 2011

Subsequent Event Treasury Share Repurchase [Abstract]

Subsequent Event - Treasury Share Repurchase

17. Subsequent Event – Treasury Share Repurchase

The Company repurchased 303,576 treasury shares at a cost of $6.2 million subsequent to August 31, 2011. These shares will be included in treasury shares in the shareholders' equity section of the balance sheet in the next interim reporting period ending November 30, 2011.

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Basis of Presentation

6 Months Ended

Aug. 31, 2011

Basis Of Presentation [Abstract]

Basis of Presentation

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and related disclosures of Standard Microsystems Corporation and subsidiaries (“SMSC” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”), reflecting all adjustments (consisting only of normal, recurring adjustments) which in management's opinion are necessary to present fairly the Company's financial position as of August 31, 2011, results of operations for the three and six-month periods ended August 31, 2011 and 2010 and cash flows for the six-month periods ended August 31, 2011 and 2010 (collectively, including accompanying notes and disclosures, the “Interim Financial Statements”). The February 28, 2011 balance sheet information has been derived from audited financial statements, but does not include all information or disclosures required by U.S. GAAP.

The preparation of financial statements in conformity with U.S. GAAP 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 Company's financial statements.

These Interim Financial Statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended February 28, 2011 included in the Company's Annual Report on Form 10-K, as filed on April 19, 2011 with the SEC (the “Fiscal 2011 Form 10-K”).

Results of operations for interim periods are not necessarily indicative of results to be expected for the full fiscal year or any future periods.

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Fair Value of Financial Instruments

6 Months Ended

Aug. 31, 2011

Fair Value Of Financial Instruments [Abstract]

Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

The Company's financial instruments are measured and recorded at fair value. The Company's non-financial instruments (including: goodwill, intangible assets, property, plant and equipment) are measured at fair value when initially recorded for purchase accounting allocation and when an impairment charge is recognized. Contingent consideration on acquisitions is measured at fair value at each reporting period. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, management considers the principal or most advantageous market in which the Company would transact, and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance.

The following table details the fair value measurements within the three levels of fair value hierarchy under US GAAP of the Company's financial assets and liabilities, including investments, cash surrender value of life insurance policies, contingent consideration and cash equivalents at August 31, 2011:

	Total Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Assets:
Auction rate securities	$	28,199	$	-	$	-	$	28,199
Money market funds		39,467		39,467		-		-
Other assets-cash surrender value		1,674		-		1,674		-
Total Assets	$	69,340	$	39,467	$	1,674	$	28,199
Liabilities:
Contingent consideration	$	9,825	$	-	$	-	$	9,825
Total Liabilities	$	9,825	$	-	$	-	$	9,825

The following table details the fair value measurements within the three levels of fair value hierarchy of the Company's financial assets, including investments, cash surrender value of life insurance policies and cash equivalents at February 28, 2011:

	Total Fair Value		Level 1		Level 2		Level 3
	(in thousands)
Assets:
Auction rate securities	$	29,490	$	-	$	-	$	29,490
Money market funds		134,007		134,007		-		-
Other assets-cash surrender value		1,666		-		1,666		-
Total Assets	$	165,163	$	134,007	$	1,666	$	29,490
Liabilities:
Contingent consideration	$	2,778	$	-	$	-	$	2,778
Total Liabilities	$	2,778	$	-	$	-	$	2,778

At February 28, 2011 and August 31, 2011, the Company grouped money market funds using a Level 1 valuation because market prices were readily available. Level 2 financial assets and liabilities represent the fair value of cash surrender value of life insurance.

The assets grouped for Level 3 valuation included auction rate securities consisting of AAA rated securities mainly collateralized by student loans guaranteed by the U.S. Department of Education under the Federal Family Education Loan Program (“FFELP”), as well as auction rate preferred securities ($6.1 million at par) which are AAA rated and part of a closed end fund that must maintain an asset ratio of 2 to 1. Level 3 liabilities consist of contingent consideration on acquisitions. See Note 15 - Commitments and Contingencies, for further discussion on contingent consideration arrangements, including fair value disclosures.

When a determination is made to classify a financial instrument within Level 3, the determination is based upon the lack of significance of the observable parameters to the overall fair value measurement. However, the fair value determination for Level 3 financial instruments may consider some observable market inputs.

The following tables reflect the activity for the Company's major classes of assets and liabilities measured at fair value using Level 3 inputs (in thousands):

Assets:	Three Months Ended 8/31/2011			Six Months Ended 8/31/2011
Balance at beginning of period	$	28,786		$	29,490
Transfers out to Level 2 (Auction Rate Securities with market inputs)		-			(550	)
Sales of Level 3 investments		(550	)		(725	)
Total losses:
Unrealized losses included in accumulated other comprehensive income		(37	)		(16	)
Balance as of August 31, 2011	$	28,199		$	28,199

Liabilities:	Three Months Ended 8/31/2011			Six Months Ended 8/31/2011
Balance at beginning of period	$	10,205		$	2,778
Level 3 liabilities acquired		-			8,800
Level 3 liabilities settled		-			(1,390	)
Total (gains) and losses:
Included in earnings (unrealized)		(398	)		(381	)
Unrealized losses included in accumulated other comprehensive income		18			18
Balance as of August 31, 2011	$	9,825		$	9,825

The following tables summarize the composition of the Company's investments (in thousands):

								Classification on Balance Sheet
August 31, 2011	Cost		Gross Unrealized Losses			Aggregate Fair value		Cash and Cash Equivalents		Long-Term Investments
Auction rate securities	$	30,125	$	(1,926	)	$	28,199	$	-	$	28,199
Money market funds		39,467		-			39,467		39,467		-
	$	69,592	$	(1,926	)	$	67,666	$	39,467	$	28,199

								Classification on Balance Sheet
February 28, 2011	Cost		Gross Unrealized Losses			Aggregate Fair value		Cash and Cash Equivalents		Long-Term Investments
Auction rate securities	$	31,400	$	(1,910	)	$	29,490	$	-	$	29,490
Money market funds		134,007		-			134,007		134,007		-
	$	165,407	$	(1,910	)	$	163,497	$	134,007	$	29,490

The Company classifies all marketable debt and equity securities with remaining contractual maturities of greater than one year as long-term investments. As of August 31, 2011 the Company held approximately $28.2 million of investments in auction rate securities (net of $1.9 million in gross unrealized losses) with maturities ranging from 10 years to 30 years, all classified as available-for-sale. Auction rate securities are long-term variable rate bonds tied to short-term interest rates that were, until February 2008, reset through a “Dutch auction” process. As of August 31, 2011, all of the Company's auction rate securities were “AAA” rated by one or more of the major credit rating agencies.

Historically, the carrying value (par value) of the auction rate securities approximated fair market value due to the frequent resetting of variable interest rates. Beginning in February 2008, however, the auctions for auction rate securities began to fail and were largely unsuccessful. As a result, the interest rates on the investments reset to the maximum rate per the applicable investment offering statements. The types of auction rate securities generally held by the Company have historically traded at par and are callable at par at the option of the issuer.

The par (invested principal) value of the auction rate securities associated with these failed auctions will not be accessible to the Company until a successful auction occurs, a buyer is found outside of the auction process, the securities are called or the underlying securities have matured. In light of these liquidity constraints, the Company performed a valuation analysis to determine the estimated fair value of these investments. The fair value of these investments was based on a trinomial discount model. This model considers the probability of three potential occurrences for each auction event through the maturity date of the security. The three potential outcomes for each auction are (i) successful auction/early redemption, (ii) failed auction and (iii) issuer default. Inputs in determining the probabilities of the potential outcomes include, but are not limited to, the security's collateral, credit rating, insurance, issuer's financial standing, contractual restrictions on disposition and the liquidity in the market. The fair value of each security was then determined by summing the present value of the probability weighted future principal and interest payments determined by the model. The discount rate was determined using a proxy based upon the current market rates for successful auctions within the AAA rated auction rate securities market. The expected term was based on management's estimate of future liquidity. The illiquidity discount was based on the levels of federal insurance or FFELP backing for each security as well as considering similar preferred stock securities ratings and asset backed ratio requirements for each security.

As a result, as of August 31, 2011, the Company recorded an estimated cumulative unrealized loss of $1.9 million (net of tax) related to the temporary impairment of the auction rate securities, which was included in accumulated other comprehensive income within shareholders' equity. The Company deemed the loss to be temporary because the Company does not plan to sell any of the auction rate securities prior to maturity at an amount below the original purchase value and, at this time, does not deem it probable that it will receive less than 100% of the principal and accrued interest from the issuer. Further, the auction rate securities held by the Company are AAA rated, and the Company considers the credit risk to be negligible. The Company continues to liquidate investments in auction rate securities as opportunities arise. In the six-month period ended August 31, 2011, $1.3 million in auction rate securities were liquidated at par in connection with issuer calls.

The Company does not believe it will be necessary to access these investments to support current working capital requirements. However, the Company may be required to record additional unrealized losses in accumulated other comprehensive income or through income in future periods based on then current facts and circumstances. Specifically, if the credit rating of the security issuers deteriorates, or if active markets for such securities are not reestablished, the Company may be required to adjust the carrying value of these investments through impairment charges recorded in the consolidated statements of operations, and any such impairment adjustments may be material.

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Income Taxes

6 Months Ended

Aug. 31, 2011

Income Taxes [Abstract]

Income Taxes

12. Income Taxes

The provision for income taxes for the three and six month periods ended August 31, 2011 was $9.6 million, and $11.3 million or an effective income tax rate of 44.6% on $21.5 million of profit and an effective tax rate of 38.4% on $29.3 million of income before income taxes, respectively. The tax provision for the six month period ended August 31, 2011 includes the net deferred tax benefit of $1.4 million related to a change in the effective rate for state deferred tax assets and liabilities, an impact of $0.2 million from tax exempt income, and approximately $0.2 million of accrued interest and penalties. The provision excludes the impact of certain losses in various jurisdictions that could not be benefitted. In addition, $0.9 million of qualified research and development credit has been included in the net provision for income taxes for the six months ended August 31, 2011.

The provision for income taxes for the three and six month periods ended August 31, 2010 was $9.4 million, and $10.5 million or an effective income tax rate of 42.1% on $22.3 million of profit and an effective tax rate of 43.7% on $24.0 million of income before income taxes, respectively. The provision excludes the impact of certain losses in various jurisdictions that could not be benefitted. In addition, as the research and development tax credit expired on December 31, 2009 there is no such tax credit included in the tax provision for the three and six month periods ended August 31, 2010.

The difference between the effective tax rates of 38.4% for the six months ended August 31, 2011 compared to effective tax rate of 43.7% for the six months ended August 31, 2010 is primarily attributable to a deferred tax benefit related to a change in the effective rate for state deferred tax assets and liabilities and a credit for research and development were recorded for the six months ended August 31, 2011 which was not available in the six months ended August 31, 2010.

The Company increased its reserves for liabilities for uncertain tax positions for the six month period ended August 31, 2011 by $0.7 million to $5.5 million for potential liabilities related to certain acquisitions. Substantially all such unrecognized tax benefits would be recorded as part of the provision for income taxes if realized in future periods. At this time, the Company does not anticipate that liabilities for uncertain tax positions will significantly increase or decrease on or prior to August 31, 2012. All liabilities for uncertain tax positions are classified as long term and included in Other liabilities in the condensed consolidated balance sheet.

The Company files U.S. federal, U.S. state, and foreign tax returns, and is generally no longer subject to tax examinations for fiscal years prior to 2008 (in the case of certain foreign tax returns, calendar year 2007).

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Supplemental Cash Flow Disclosures

6 Months Ended

Aug. 31, 2011

Supplemental Cash Flow Disclosures [Abstract]

Supplemental Cash Flow Disclosures

16. Supplemental Cash Flow Disclosures

The information below summarizes the Company's supplemental cash flow disclosures (in thousands):

	Six months ended August 31,
	2011		2010
Design tools acquired under supplier financing	$	2,684	$	4,018
Cash payments made - federal, state, and foreign income taxes	$	1,750	$	6,624

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands	Aug. 31, 2011	Feb. 28, 2011
Current assets:
Cash and cash equivalents	$ 144,417	$ 170,387
Accounts receivable, net	63,819	64,714
Inventories	49,872	47,232
Deferred income taxes, net	15,062	31,156
Other current assets	16,504	8,047
Total current assets	289,674	321,536
Property, plant and equipment, net	66,920	67,382
Goodwill	118,215	77,273
Intangible assets, net	37,284	31,745
Long-term investments, net	28,199	29,490
Investments in equity securities	2,042	2,042
Deferred income taxes, net	6,454	6,074
Other assets	4,060	3,550
TOTAL ASSETS	552,848	539,092
Current liabilities:
Accounts payable	27,227	27,171
Deferred income from distribution	18,868	16,167
Accrued expenses and other liabilities	59,538	72,459
Total current liabilities	105,633	115,797
Deferred income taxes	5,836	4,519
Other liabilities	23,788	21,869
Commitments and contingencies
Shareholders' equity:
Preferred stock	0	0
Common stock	2,778	2,749
Additional paid-in capital	369,239	359,790
Retained earnings	145,360	127,291
Treasury stock, at cost	(111,893)	(101,411)
Accumulated other comprehensive income	12,107	8,488
Total shareholders' equity	417,591	396,907
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$ 552,848	$ 539,092