SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[x] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-7422
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STANDARD MICROSYSTEMS CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2234952
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 ARKAY DRIVE, HAUPPAUGE, NEW YORK, 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 631-435-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ____X____ No ________
As of November 30, 2002, there were 16,722,026 shares of the registrant's common
stock outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands)
November 30, February 28,
2002 2002
---- ----
Assets
Current assets:
Cash and cash equivalents $ 74,197 $ 98,065
Short-term investments 30,291 28,595
Accounts receivable, net 24,482 21,828
Inventories 18,259 17,585
Deferred income taxes 12,781 8,582
Other current assets 6,191 4,317
- -------------------------------------------------------------------------------
Total current assets 166,201 178,972
- -------------------------------------------------------------------------------
Property, plant and equipment, net 23,419 24,170
Goodwill 30,412 -
Intangible assets, net 6,367 -
Investment in Chartered Semiconductor 2,862 9,992
Deferred income taxes 12,177 7,196
Other assets 5,673 15,733
- -------------------------------------------------------------------------------
$ 247,111 $ 236,063
===============================================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 6,741 $ 8,477
Deferred income on shipments to distributors 7,555 6,225
Accrued expenses, income taxes and other
liabilities 11,273 9,289
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Total current liabilities 25,569 23,991
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Other liabilities 7,585 6,973
Minority interest in subsidiary 11,656 11,646
Shareholders' equity:
Preferred stock - -
Common stock 1,854 1,728
Additional paid-in capital 144,693 119,505
Retained earnings 76,468 84,963
Treasury stock, at cost (23,455) (13,861)
Accumulated other comprehensive income 2,741 1,118
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Total shareholders' equity 202,301 193,453
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$ 247,111 $ 236,063
===============================================================================
See Notes to Consolidated Financial Statements.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
------------------------ ------------------------
November 30, November 30,
------------------------ ------------------------
2002 2001 2002 2001
---- ---- ---- ----
Sales and Revenues:
Product Sales $ 40,293 $ 34,644 $ 111,890 $ 95,274
Licensing Revenues 305 29,970 1,015 30,565
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40,598 64,614 112,905 125,839
Cost of goods sold 22,653 24,315 62,777 61,581
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Gross profit 17,945 40,299 50,128 64,258
Operating expenses:
Research and development 8,037 8,793 22,662 24,800
Selling, general and administrative 9,534 9,896 26,387 25,399
Amortization of intangible assets 360 - 807 -
Restructuring costs - 8,019 - 8,019
- ----------------------------------------------------------------------------------------------------------------
Income from operations 14 13,591 272 6,040
Interest income 496 813 1,610 2,872
Impairment of investments (16,306) (419) (16,306) (419)
Other income (expense), net (78) (62) (100) 1,550
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes
and minority interest (15,874) 13,923 (14,524) 10,043
Provision for (benefit from) income taxes (6,854) 4,749 (6,503) 3,313
Minority interest in net income (loss) of subsidiary 12 (21) 10 28
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Income (loss) from continuing operations (9,032) 9,195 (8,031) 6,702
Loss from discontinued operations
(net of income tax benefits of $69, $64, $260 and $360) (125) (116) (464) (668)
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) $ (9,157) $ 9,079 $ (8,495) $ 6,034
================================================================================================================
Basic net income (loss) per share:
Income (loss) from continuing operations $ (0.54) $ 0.57 $ (0.49) $ 0.42
Loss from discontinued operations (0.01) (0.01) (0.03) (0.04)
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Basic net income (loss) per share $ (0.55) $ 0.56 $ (0.52) $ 0.38
================================================================================================================
Diluted net income (loss) per share:
Income (loss) from continuing operations $ (0.54) $ 0.56 $ (0.49) $ 0.40
Loss from discontinued operations (0.01) (0.01) (0.03) (0.04)
- ----------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share $ (0.55) $ 0.55 $ (0.52) $ 0.36
================================================================================================================
Weighted average common shares outstanding:
Basic 16,718 16,071 16,472 16,090
Diluted 16,718 16,525 16,472 16,799
See Notes to Consolidated Financial Statements.
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended November 30,
------------------------------
2002 2001
----------- ------------
Cash flows from operating activities:
Cash received from customers and licensees $ 112,542 $ 119,229
Cash paid to suppliers and employees (108,203) (93,744)
Interest received 1,803 3,806
Interest paid (126) (108)
Income taxes paid (390) (556)
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Net cash provided by operating activities 5,626 28,627
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Cash flows from investing activities:
Capital expenditures (4,346) (3,637)
Acquisition of Gain Technology Corporation (15,669) -
Purchases of short-term investments (30,292) (7,600)
Sales of short-term investments 28,785 13,629
Other 180 3,021
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Net cash provided by (used for) investing activities (21,342) 5,413
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Cash flows from financing activities:
Proceeds from issuance of common stock 4,716 686
Purchases of treasury stock (10,375) (1,633)
Repayments of obligations under capital leases and notes
payable (2,320) (703)
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Net cash used for financing activities (7,979) (1,650)
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Effect of foreign exchange rate changes on cash and cash
equivalents 693 (330)
Net cash used for discontinued operations (866) (1,049)
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Net increase (decrease) in cash and cash equivalents (23,868) 31,011
Cash and cash equivalents at beginning of period 98,065 99,545
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Cash and cash equivalents at end of period $ 74,197 $ 130,556
==========================================================================================
Reconciliation of income (loss) from continuing operations
to net cash provided by operating activities:
Income (loss) from continuing operations $ (8,031) $ 6,702
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 7,822 9,343
Gains on sales of investments and property (43) (1,659)
Asset impairment charges 16,306 5,756
Other adjustments, net 36 116
Changes in operating assets and liabilities, excluding
the effect of business acquisitions:
Accounts receivable (2,880) (5,295)
Inventories (420) 12,024
Accounts payable and accrued expenses and other
liabilities (361) 3,169
Deferred income taxes (8,166) (2,309)
Other changes, net 1,363 780
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Net cash provided by operating activities $ 5,626 $ 28,627
==========================================================================================
During the nine months ended November 30, 2002, the Company acquired $1,876 of
design tools through long-term financing provided by the supplier.
See Notes to Consolidated Financial Statements.
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Organization and Basis of Presentation
The accompanying unaudited condensed consolidated financial information of
Standard Microsystems Corporation and subsidiaries, referred to herein as
"SMSC" or "the Company", has been prepared in accordance with generally
accepted accounting principles and reflects all adjustments, consisting
only of normal recurring adjustments, which in management's opinion are
necessary to state fairly the Company's financial position, results of
operations and cash flows for all periods presented.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenue and
expenses during the reporting period. Actual results may differ from those
estimates, and such differences may be material to the financial
statements. These condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements for
the year ended February 28, 2002 included in the Company's Annual Report on
Form 10-K, as filed on April 26, 2002 with the Securities and Exchange
Commission. The results of operations for the three and nine months ended
November 30, 2002 are not necessarily indicative of the results to be
expected for any future periods.
2. Balance Sheet Data
Inventories are valued at the lower of first-in, first-out cost or market
and consist of the following (in thousands):
Nov. 30, 2002 Feb. 28, 2002
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Raw materials $ 826 $ 465
Work in process 6,896 5,820
Finished goods 10,537 11,300
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$ 18,259 $ 17,585
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Property, plant and equipment consists of the following (in thousands):
Nov. 30, 2002 Feb. 28, 2002
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Land $ 3,434 $ 3,434
Buildings and improvements 29,663 29,257
Machinery and equipment 80,877 76,121
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113,974 108,812
Less: accumulated depreciation 90,555 84,642
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$ 23,419 $ 24,170
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3. Net Income (Loss) Per Share
Basic net income (loss) per share is calculated using the weighted-average
number of common shares outstanding during the period. Diluted net income
(loss) per share is calculated using 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 (loss) per
share for the Consolidated Statements of Operations included within this
report are reconciled as follows (in thousands):
Three Months Ended Nine Months Ended
November 30, November 30,
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2002 2001 2002 2001
----------- ---------- ----------- ---------
Average shares outstanding for
basic net income (loss) per share 16,718 16,071 16,472 16,090
Dilutive effect of stock options - 454 - 709
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Average shares outstanding for
diluted net income (loss) per share 16,718 16,525 16,472 16,799
============================================================================================
The Company reported a loss from continuing operations for the three and
nine month periods ended November 30, 2002, and accordingly, the effect of
stock options was antidilutive for those periods and therefore excluded
from the calculation of average shares outstanding used for diluted net
income (loss) per share.
Stock options excluded from the computation of diluted net income (loss)
per share because their effect was antidilutive were as follows (in
thousands):
Three Months Ended Nine Months Ended
November 30, November 30,
--------------------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Number of shares under options
excluded from the computation
of diluted net income (loss)
per share 5,011 2,644 4,732 1,715
==========================================================================
4. Comprehensive Income (Loss)
The Company's other comprehensive income (loss) consists of foreign
currency translation adjustments from those subsidiaries not using the U.S.
dollar as their functional currency, and unrealized gains and losses on
equity investments classified as available-for-sale. The components of the
Company's comprehensive income (loss) for the three and nine month periods
ended November 30, 2002 and 2001 were as follows (in thousands):
Three Months Ended Nine Months Ended
November 30, November 30,
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2002 2001 2002 2001
------------- ------------- ------------- -------------
Net income (loss) $ (9,157) $ 9,079 $ (8,495) $ 6,034
Other comprehensive income (loss):
Change in foreign currency translation
adjustment (509) (92) 1,209 (593)
Change in unrealized loss on marketable
equity securities, net of taxes 22 (1,471) (18) (1,407)
Reclassification adjustment for loss on
marketable equity security included in
net loss, net of taxes 3,542 - 432 -
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Total comprehensive income (loss) $ (6,102) $ 7,516 $ (6,872) $ 4,034
========================================================================================================
During the three months ended November 30, 2002, as discussed more fully
within Note 12, the Company recorded a charge for an other-than-temporary
impairment in the value of its equity investment in publicly traded
Chartered Semiconductor Manufacturing, Ltd. This investment is classified
as available-for-sale, and temporary changes in its market value, net of
income taxes, are included within the Company's Other comprehensive income
(loss), and are also presented cumulatively as an unrealized gain or loss,
net of income taxes, within Accumulated other comprehensive income (loss)
on the Company's Consolidated Balance Sheets. The amounts presented as
reclassification adjustments in the preceding table represent the amounts
previously reported within Other comprehensive income (loss) as unrealized
losses on this investment, net of income taxes, for the three and nine
months ended November 30, 2002, respectively.
5. Business Acquisition
In June 2002, the Company acquired all of the outstanding common stock of
Gain Technology Corporation (Gain), a developer and supplier of high-speed,
high-performance analog and mixed-signal communications integrated circuits
and proprietary intellectual property cores, based in Tucson, Arizona. Gain
now operates as SMSC Analog Technology Center, Inc. (ATC). Through this
acquisition, the Company has significantly enhanced its analog and
mixed-signal capabilities, by adding 35 highly skilled engineers and
designers, acquiring several new products, and expanding its intellectual
property portfolio.
The Company acquired ATC for initial consideration of $36.1 million,
consisting of approximately 749,000 shares of SMSC common stock valued at
$17.9 million, $16.6 million of cash (net of cash acquired), and $1.6
million of direct acquisition costs, including legal, banking, accounting
and valuation fees. The value of the SMSC common stock was determined using
the stock's market value for a reasonable period before and after the date
the terms of the acquisition were announced. Up to $17.5 million of
additional consideration, payable in SMSC common stock and cash, may be
issued to ATC's former shareholders during fiscal 2004 upon satisfaction of
certain future performance goals. Any additional consideration paid will be
recorded as goodwill.
In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, the purchase price was
allocated to the estimated fair values of assets acquired and liabilities
assumed, as set forth in the following table. The fair values assigned to
intangible assets and in-process research and development were determined
with the assistance of a third-party appraisal.
(in thousands)
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Current assets $ 1,575
Property, plant and equipment 1,114
Deferred income taxes 1,033
Other assets 41
Goodwill 30,412
Current technologies 6,179
Other intangible assets 908
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Total assets acquired 41,262
Current liabilities 3,358
Long-term obligations 1,356
Other liabilities 535
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Total liabilities assumed 5,249
Net assets acquired 36,013
In-process research and development 87
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Total initial consideration $ 36,100
================================================================
The amounts allocated to current technologies are being amortized on a
straight-line basis over their estimated useful life of six years. Other
intangible assets are also being amortized on a straight-line basis over
their respective estimated useful lives, ranging from one to ten years. In
accordance with the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets, the $30.4 million assigned to goodwill will not be
amortized. Further information regarding goodwill and other intangible
assets is provided within Note 9 included herein.
The amount assigned to in-process research and development relates to those
ongoing projects that have not yet proven to be commercially feasible, and
for which no alternative future use currently exists for the related
technology. This charge is included within the Company's consolidated
operating results for the nine months ended November 30, 2002.
The pro forma results of operations set forth below give effect to the
acquisition of ATC as if it had occurred at the beginning of fiscal 2002.
Pro forma data is subject to certain assumptions and estimates, and is
presented for informational purposes only. This data does not purport to be
indicative of the results that would have actually occurred had the
acquisition occurred on the basis described above, nor do they purport to
be indicative of future operating results.
Nine Months Ended
November 30,
-----------------------
(in thousands, except per share data) 2002 2001
-----------------------
Revenues $ 114,143 $ 130,899
Net income (loss) (9,338) 4,531
=================================================================
Basic net income (loss) per share $ (0.54) $ 0.27
=================================================================
Diluted net income (loss) per share $ (0.54) $ 0.26
=================================================================
6. Business Restructuring
In November 2001, the Company's Board of Directors approved management's
plan to exit the PC chipset business, redirect the Company's resources, and
increase its focus on leveraging its core technologies toward higher growth
and higher margin businesses. This restructuring was announced on December
3, 2001. The decision to exit this business was based upon an assessment of
the PC chipset marketplace, and management's conclusions that the
opportunities for profitability in this marketplace had declined, and that
the costs of entry had increased, to a point where further investments in
PC chipset technology were not justified.
As a result of this restructuring, the Company recorded $9.3 million of
restructuring charges in the third quarter of fiscal 2002. These charges
included $1.3 million for excess and obsolete inventory classified within
cost of goods sold, and $8.0 million of other restructuring costs
classified within operating expenses on the Company's Consolidated
Statements of Operations. These other restructuring costs included $5.3
million for impairments in asset values, $1.9 million for long-term,
non-cancelable lease obligations, $0.3 million for a workforce reduction of
55 people, and $0.5 million for other costs. The $0.5 million for other
costs was subsequently adjusted to $0.2 million in the fourth quarter of
fiscal 2002.
The following is a summary of the changes in restructuring liabilities for
the nine months ended November 30, 2002 (in thousands):
Business Business
Restructuring Restructuring
Reserve as of Non-Cash Cash Reserve as of
Feb. 28, 2002 Charges Payments Nov. 30, 2002
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Workforce reduction $ 2 $ (2) $ - $ -
Non-cancelable lease
obligations 1,771 - 297 1,474
Other charges 181 2 20 163
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$ 1,954 $ - $ 317 $ 1,637
===========================================================================
The Company completed its restructuring program during the quarter ended
February 28, 2002. Substantially all of the cash payments related to the
workforce reduction were made in that period. Payments related to
non-cancelable lease obligations will be paid over their respective terms
through August 2008.
7. Discontinued Operations
The Company has been involved in several legal actions relating to past
divestitures of divisions and business units. These divestitures were
accounted for as discontinued operations, and accordingly, costs associated
with these actions, one of which has continued into fiscal 2003, are
reported as a Loss from discontinued operations on the Consolidated
Statements of Operations. These costs totaled $0.1 million and $0.5
million, after applicable income tax benefits, for the three and nine month
periods ended November 30, 2002, respectively, and $0.1 million and $0.7
million, after applicable income tax benefits, for the corresponding prior
year periods.
8. Shareholders' Equity
In July 2002, the Company's Board of Directors approved an increase in the
number of shares authorized for repurchase under the Company's common stock
repurchase program by one million shares, bringing the total number of
shares authorized for repurchase under the program to three million. This
program allows the Company to repurchase shares of its common stock on the
open market or in private transactions.
As of November 30, 2002, the Company has repurchased approximately 1.8
million shares of common stock at a cost of $23.5 million under this
program, including 481,000 shares repurchased in the first nine months of
fiscal 2003 at a cost of $9.6 million. The Company also paid $0.8 million
in early March 2002 to settle 45,000 treasury shares acquired at the end of
February 2002. The Company currently holds repurchased shares as treasury
stock, reported at cost.
9. Goodwill and Intangible Assets
In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No.142 requires goodwill and
certain other intangible assets to be tested for impairment at least
annually and written down only when determined to be impaired, replacing
the previous accounting practice of ratably amortizing these items over
their estimated useful lives. Intangible assets other than goodwill that
have a finite life are amortized over their useful lives. This statement
applies to existing goodwill and intangible assets, beginning with fiscal
years starting after December 15, 2001.
As discussed within Note 5, the Company's June 2002 acquisition of Gain
Technology Corporation included the acquisition of $7.1 million of
finite-lived intangible assets and $30.4 million of goodwill. In accordance
with the provisions of SFAS No. 142, this goodwill is not amortized, but is
tested for impairment in value annually, as well as when an event or
circumstance occurs indicating a possible impairment in value.
As of November 30, 2002, the Company's finite-lived intangible assets
consisted of the following (in thousands):
Accumulated
Cost Amortization Net
----------------------------------------------------------------------
Existing technologies $ 6,179 $ 515 $ 5,664
Customer contracts 498 102 396
Non-compete agreements 410 103 307
----------------------------------------------------------------------
$ 7,087 $ 720 $ 6,367
======================================================================
All finite-lived intangible assets are being amortized on a straight-line
basis over their estimated useful lives. Existing technologies have been
assigned an estimated useful life of six years. Customer contracts have
been assigned useful lives of between one and ten years (with a weighted
average life of approximately seven years), and non-compete agreements have
been assigned useful lives of two years. The weighted average useful life
of all intangible assets is approximately six years. Estimated future
intangible asset amortization expense for the remainder of fiscal 2003, and
for the five fiscal years thereafter, is as follows (in thousands):
Period Amount
-----------------------------------------
Remainder of fiscal 2003 $ 360
Fiscal 2004 1,310
Fiscal 2005 1,114
Fiscal 2006 1,062
Fiscal 2007 1,062
Fiscal 2008 1,062
=========================================
10. Technology and Patent License Agreement with Intel Corporation
In 1987, the Company and Intel Corporation (Intel) entered into an
agreement providing for, among other things, a broad, worldwide,
non-exclusive patent cross-license between the two companies, covering
manufacturing processes and products, thereby providing each company access
to the other's current and future patent portfolios.
In September 1999, the two companies announced a technology exchange
agreement (the Agreement) that would allow SMSC to accelerate its
then-ongoing development of Intel-compatible chipset products. Chipset
products are integrated circuits that communicate with the microprocessor
(CPU) and assist in controlling the flow of information within a personal
computer or similar application. The Agreement provided, among other
things, for Intel to transfer certain intellectual property related to
Intel chipset architectures to SMSC, and continues to provide SMSC the
opportunity to supply Intel chipset components along with its own chipset
solutions. The Agreement also limited SMSC's rights regarding Northbridges
and Intel Architecture Microprocessors under the 1987 agreement.
The Agreement included provisions for its termination under certain
circumstances. Under one such provision, beginning in the third year of the
Agreement and annually thereafter, SMSC could elect to terminate the
Agreement should SMSC not achieve certain minimum chipset revenue amounts
set forth in the Agreement, unless Intel paid SMSC an amount equal to the
shortfall between the minimum revenue amount and the actual revenue for
that period. Upon the Agreement terminating under this provision, the
limitations imposed by the Agreement on the Northbridge rights under the
1987 agreement would terminate immediately, and the limitations imposed by
the Agreement on the microprocessor rights under the 1987 agreement would
terminate 12 months later. Should Intel elect to make the revenue amount
shortfall payment, the provisions of the Agreement would remain in force
for the subsequent 12-month period, for which another minimum revenue
amount would be applicable, and at the end of which a similar termination
event would arise. Minimum chipset revenue amounts were $30 million, $45
million, and $60 million for the 12 months ending September 21, 2001, 2002,
and 2003, respectively, increasing by 10% for each succeeding 12-month
period following 2003, until expiration of the Agreement in July 2007.
In September 2001, SMSC notified Intel of a chipset revenue shortfall of
approximately $29.6 million for the twelve months ended September 21, 2001.
In November 2001, the Company received a $29.6 million payment from Intel,
which was reported as licensing revenue on the Company's Consolidated
Statements of Operations in the three-month period ended November 30, 2001.
In September 2002, SMSC notified Intel of a chipset revenue shortfall of
approximately $44.9 million for the 2002 twelve-month period. Intel did not
make a payment to SMSC of that shortfall within the time frame specified
within the Agreement, and SMSC gave Intel notice of termination of the
Agreement in accordance with the terms thereof. The Company and Intel have
commenced discussions regarding their various corporate and intellectual
property relationships, including under the Agreement. However, there can
be no assurance as to the outcome of those discussions.
11. Litigation
The Company is subject to various lawsuits and claims in the ordinary
course of business. While the outcome of these matters cannot currently be
determined, management believes that their ultimate resolution will not
have a material effect on the Company's operations or financial position.
In October 1997, the Company sold an 80.1% interest in SMC Networks, Inc.,
a then-newly formed subsidiary comprised of its former local area
networking division, to an affiliate of Accton Technology Corporation
(Accton). In consideration for the sale, the Company received $38.2 million
in cash, plus an additional $2.0 million, which was placed in an
interest-bearing escrow account as security for the Company's indemnity
obligations under the agreement, and which was scheduled for release to the
Company in January 1999. The Company's 19.9% minority interest in SMC
Networks, Inc. carried an original cost of $8.5 million. Further discussion
regarding this investment appears within Note 12, included herein.
In December 1998, Accton notified the Company and the escrow agent of
Accton's intention to seek indemnification and damages from the Company in
excess of $10.0 million by reason of alleged misrepresentations and
inadequate disclosures relating to the transaction and other alleged
breaches of covenants and representations in the related agreements. Based
upon those allegations, the escrow account was not released to the Company
as scheduled in January 1999. In January 1999, SMSC filed an action in the
Supreme Court of New York (the Action) against Accton, SMC Networks, Inc.
and other parties, seeking the release of the escrow account to the Company
on the grounds that Accton's allegations are without merit, and seeking
payment of approximately $1.6 million owed to the Company by SMC Networks,
Inc. In November 1999, the Court issued an order staying the Action and
directed the parties to arbitration under the arbitration provisions of the
original transaction agreements. The parties are proceeding with
arbitration and, in July 2000, the Company asserted various claims against
Accton and its affiliates, including claims for fraud, improper transfer of
profits, mismanagement, breach of fiduciary duties and payment default.
The Company remains confident that it negotiated and fully performed its
obligations under the Agreements with Accton in good faith and considers
the claims against it to be without merit. The Company is vigorously
defending itself against the allegations made by Accton and, although it is
not possible at this time to assess the likelihood of any liability being
established, expects that the outcome will not be material to the Company.
Furthermore, the Company is vigorously pursuing recovery of damages and
other relief from Accton pursuant to the Company's claims, but the
likelihood of any such recovery also cannot currently be established.
12. Impairment Of Investments
During the three months ended November 30, 2002, the Company recorded
non-cash charges totaling $16.3 million for declines in value, considered
to be other-than- temporary, of its equity investments in SMC Networks,
Inc. and Chartered Semiconductor Manufacturing Ltd. (Chartered).
As described within Note 11, the Company's investment in SMC Networks, Inc.
is a residual minority equity interest in a non-public company sold by SMSC
in 1997. Based upon a valuation analysis performed by the Company with the
assistance of a third party during the third quarter of fiscal 2003, this
investment, which carried an original cost of $8.5 million, was fully
written off.
The Company also recorded a $7.8 million impairment charge for its equity
investment in Chartered, a publicly traded company, based upon a sustained
reduction in Chartered's stock price performance. This investment was
written down to its market value of $2.9 million as of November 30, 2002.
Following these charges, the remaining $2.9 million investment in Chartered
stock represents the only material investment in equity securities of other
companies on the Company's Consolidated Balance Sheet.
13. New Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
Accounting for Exit or Disposal Activities. SFAS No. 146 requires that the
liabilities for costs associated with an exit or disposal activity be
recognized at their fair values when the liabilities are incurred. Under
previous guidance, liabilities for certain exit costs were recognized at
the date that management committed to an exit plan, which is generally
before the actual liabilities are incurred. SFAS No. 146 is effective only
for exit or disposal activities initiated after December 31, 2002. The
Company does not currently expect the adoption of this statement to have a
material impact on its financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and footnotes thereto contained in this
report.
Overview
- --------
Description of Business
Standard Microsystems Corporation (the Company or SMSC) is a designer and
worldwide supplier of advanced digital and analog Input/Output (I/O) system
solutions and connectivity solutions for a broad range of communications and
computing applications in the areas of Advanced I/O, Connectivity, Local Area
Networking and Embedded Control Systems. The Company is a fabless semiconductor
supplier whose products are manufactured by third party world-class
semiconductor foundries and assemblers. To ensure the highest product quality,
the Company conducts a significant portion of its final testing requirements in
the Company's own state-of-the-art testing operation.
The Company is prominent as the leading supplier of Advanced I/O integrated
circuits for desktop and mobile personal computers. Advanced I/O circuits
contain a variety of individual functions and unique I/O controllers delivered
in a single package, including floppy disk control, keyboard control and BIOS,
parallel and serial port control, and often flash memory, infrared
communications support, a real time clock, system management and power
management.
The Company serves the Universal Serial Bus (USB) connectivity market with its
family of connectivity products, which provide solutions using both USB 1.1 and
USB 2.0 technologies. Embedded networking products are designed to serve a
variety of Embedded Control Systems in machine-to-machine communications
applications, such as set-top boxes, home gateway products, printers and
wireless base stations.
The Company's headquarters are in Hauppauge, New York, and SMSC operates design
centers in New York, Austin, Texas, Tucson, Arizona and Phoenix, Arizona and has
sales offices in the United States, Europe, Taiwan and China. The Company
conducts its business in the Japanese market through its majority-owned
subsidiary, SMSC Japan.
Business Acquisition
In June 2002, the Company acquired all of the outstanding common stock of Gain
Technology Corporation (Gain), a developer and supplier of high-speed,
high-performance analog and mixed-signal communications integrated circuits and
proprietary intellectual property cores, based in Tucson, Arizona. Gain now
operates as SMSC Analog Technology Center, Inc., (ATC). Total initial
consideration paid for the acquisition of ATC was approximately $36.1 million,
consisting of approximately 749,000 shares of SMSC common stock valued at $17.9
million, $16.6 million of cash, and $1.6 million of direct acquisition costs.
Through this acquisition, the Company has significantly enhanced its analog and
mixed-signal capabilities, by adding 35 highly skilled engineers and designers,
acquiring several new products, and expanding its intellectual property
portfolio.
The Company's new GT3200 device, acquired through the ATC acquisition, is the
first in a family of high-performance analog physical layer (PHY) and high-speed
serial data communication devices specifically designed for the new USB 2.0
connectivity standard. It is fully certified by the USB-IF consortium and
complements the Company's new line of Hi-Speed USB 2.0 products, which include
the USB97C201/202 family of True Speed ATA/ATAPI/CF Bridge Controller for
external disk drives, the USB97C210 Memory Card Controller for USB memory card
readers and the USB97C242 Flash Drive Controller.
Leveraging ATC's assets and expertise, the Company is pursuing additional
product opportunities in high-speed, high-performance serial transceiver and
wireless integrated circuit (IC) markets.
Results of Operations
- ---------------------
Revenues
Revenues for the three and nine months ended November 30, 2002 were $40.6
million and $112.9 million, respectively, compared to $64.6 million and $125.8
million for the corresponding year-earlier periods, respectively.
Both the three and nine month periods in the prior fiscal year were favorably
impacted by a special license payment of $29.6 million received from Intel
Corporation (Intel) as provided for in the Company's September 1999 chipset
agreement with Intel. Further details regarding this payment are provided within
Note 10 to the Consolidated Financial Statements included within this report.
Excluding this special license payment, revenues were $35.0 million and $96.2
million for the three and nine months ended November 30, 2001, respectively.
Excluding the special license payment in fiscal 2002, revenues increased in the
three and nine-month periods ended November 30, 2002, by $5.6 million and $16.7
million, or 16% and 17%, respectively, over the corresponding year-earlier
periods. These increases in revenues reflect higher unit volume Advanced I/O
product shipments, driven by new design-wins achieved with several key customers
in fiscal 2002 and fiscal 2003. The Company believes it has increased its
Advanced I/O market share during fiscal 2003 on the strength of these key
design-wins. In addition, revenues from the Company's Embedded products for both
the three and nine-month periods ended November 30, 2002 exceed revenues
achieved in the comparable fiscal 2002 periods. Embedded product revenues have
increased for four consecutive fiscal quarters, continuing to signal that demand
for these products has begun to recover, following a prolonged slump. Several
key new USB products, mentioned above, and Ethernet connectivity products have
also contributed to the improved Embedded product revenues.
Revenues from customers outside of North America accounted for 91% and 90% of
the Company's revenues for the three and nine-month periods ended November 30,
2002, respectively. Excluding the impact of the special license payment received
in November 2001, revenues from customers outside of North America were 92% and
90% for the corresponding prior-year periods, respectively. The Company expects
that international shipments, particularly to the Asia and Pacific Rim region,
will continue to represent a significant portion of its revenues.
From time to time, several key customers can account for a significant portion
of the Company's revenues. The Company expects that its key customers will
continue to account for a significant portion of its revenues for the remainder
of fiscal 2003 and for the foreseeable future.
Gross Profit
Gross profit for the three months ended November 30, 2002 was $17.9 million, or
44.2% of revenues, compared to $40.3 million, or 62.4% of revenues, for the
three months ended November 30, 2001. Gross profit for the nine months ended
November 30, 2002 was $50.1 million, or 44.4% of revenues, compared to $64.3
million, or 51.1% of revenues, for the nine months ended November 30, 2001.
Gross profit in both the three and nine-month periods in fiscal 2002 were
favorably impacted by the $29.6 million special license payment, and adversely
impacted by $1.3 million in inventory charges related to the Company's November
2001 business restructuring. Excluding these items, gross profit was $12.0
million, or 34.3% of revenues (as adjusted for the special license payment), and
$35.9 million, or 37.3% of adjusted revenues, for the three and nine-month
periods ended November 30, 2001, respectively.
The improvement in gross profit in fiscal 2003, after adjusting fiscal 2002
gross profit for the special items discussed in the preceding paragraph,
reflects the combination of lower product costs, new product introductions, an
increase in unit production, and the impact of $1.6 million of inventory
obsolescence charges recorded in the third quarter of fiscal 2002, unrelated to
the November 2001 restructuring, resulting from reduced customer demand. Record
unit production during the first nine months of fiscal 2003 has resulted in a
more efficient use of fixed manufacturing overhead costs, which also contributed
to higher margins.
Research and Development Expenses
The Company's research and development expenses (R&D) consist of circuit design,
development and validation, product engineering, software development and
related support activities. The Company's ongoing commitment to research and
development is essential to maintaining product leadership in existing product
lines and to providing innovative product offerings, which, in turn, drive the
Company's opportunities for future growth.
R&D expenses were $8.0 million and $22.7 million for the three and nine months
ended November 30, 2002, respectively, compared to $8.8 million and $24.8
million for the three and nine months ended November 30, 2001, respectively.
R&D expenses for the three and nine-month periods ended November 30, 2002
reflect increased expenses associated with the June 2002 acquisition of ATC, and
reduced expenditures for PC chipset development resulting from Company's
November 2001 restructuring. That restructuring, further details regarding which
appear within Note 6 to the Consolidated Financial Statements included within
this report, among other things, reduced R&D expenses for engineering staff,
prototype costs and other development activities associated with PC chipset
development programs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $9.5 million and $26.4
million, or 23.5% and 23.4% of revenues, for the three and nine-month periods
ended November 30, 2002, respectively. These expenses compare to $9.9 million
and $25.4 million, or 28.3% and 26.2% of revenues for the respective
year-earlier periods, excluding the $29.6 million special license payment.
Selling, general and administrative expenses declined by a modest amount for the
three-month period ending November 30, 2002, compared to the year earlier
period, due to lower professional fees and lower accruals for incentives. This
was partially offset by additional selling, general and administrative costs
associated with the operation of ATC, and incremental selling costs associated
with higher product revenues in the current year's three month period.
Selling, general and administrative expenses for the current nine-month period
were higher than the corresponding year-earlier period due to additional
selling, general and administrative costs associated with the operation of ATC,
and incremental selling costs associated with the higher product revenues in the
current nine-month period. Partially offsetting these increases was the impact
of the Company's November 2001 business restructuring, which reduced annual
selling, general and administrative expenses by approximately $0.9 million.
Amortization of Intangible Assets
For the three and nine months ended November 30, 2002, the Company recorded
amortization expenses of $0.4 million and $0.8 million, respectively, for
intangible assets associated with the June 2002 acquisition of ATC.
Impairment of Investments
During the three months ended November 30, 2002, the Company recorded non-cash
charges totaling $16.3 million for declines in value, considered to be
other-than- temporary, of its equity investments in SMC Networks, Inc. and
Chartered Semiconductor Manufacturing Ltd. (Chartered).
As described within Note 12 to the Consolidated Financial Statements included in
this report, the Company's investment in SMC Networks, Inc. is a residual
minority equity interest in a non-public company sold by SMSC in 1997. Based
upon a valuation analysis performed by the Company with the assistance of a
third party during the third quarter of fiscal 2003, this investment, which
carried an original cost of $8.5 million, was fully written off.
The Company also recorded a $7.8 million impairment charge for its investment in
Chartered, a publicly traded company, based upon a sustained reduction in
Chartered's stock price performance. This investment was written down to its
market value of $2.9 million as of November 30, 2002.
Following these charges, the remaining $2.9 million investment in Chartered
stock represents the only material investment in equity securities of other
companies on the Company's Consolidated Balance Sheet.
The Company recorded a charge of $0.4 million during the three months ended
November 30, 2001 for an impairment in value of an equity investment in a
privately held company.
Restructuring Costs
In November 2001, the Company's Board of Directors approved management's plan to
exit the PC chipset business, redirect the Company's resources, and increase its
focus on leveraging its core technologies toward higher growth and higher margin
businesses. The decision to exit this business was based upon an assessment of
the PC chipset marketplace, and management's conclusions that the opportunities
for profitability in this marketplace had declined, and the costs of entry had
increased, to a point where further investments in PC chipset technology were
not justified.
As a result of this restructuring, the Company recorded $9.3 million of
restructuring charges in the third quarter of fiscal 2002. These charges
included $1.3 million for excess and obsolete inventory classified within cost
of goods sold, and $8.0 million of other restructuring costs classified within
operating expenses on the Company's Consolidated Statements of Operations. These
other restructuring costs included $5.3 million for impairments in asset values,
$1.9 million for long-term, non-cancelable lease obligations, $0.3 million for a
workforce reduction of 55 people, and $0.5 million for other costs. The $0.5
million for other costs was subsequently adjusted to $0.2 million in the fourth
quarter of fiscal 2002.
Other Income and Expense
Interest income of $0.5 million and $1.6 million for the three and nine-month
periods ended November 30, 2002, respectively, declined from $0.8 million and
$2.9 million reported for the corresponding year-earlier periods, respectively,
reflecting lower interest rates on short-term investments.
Other income (expense), net, was negligible for the three and nine-month periods
ended November 30, 2002 and for the three-month period ended November 30, 2001.
For the nine-month period ending November 30, 2001, other income (expense), net,
totaled $1.6 million and included gains of $0.6 million realized from the sale
of two underutilized facilities and gains of $1.1 million realized on sales of a
portion of an equity investment, partially offset by $0.1 million of interest
and other expenses.
Provision For (Benefit From) Income Taxes
The Company recorded income tax benefits from continuing operations of $6.9
million and $6.5 million, for the three and nine months ended November 30, 2002,
respectively, compared to income tax provisions on continuing operations of $4.7
million and $3.3 million, respectively, for the three and nine months ended
November 30, 2001.
The Company recorded a benefit for income taxes from continuing operations for
the nine months ended November 30, 2002 at its expected effective tax benefit
rate for fiscal 2003 of approximately 39.0%. In addition, during the three
months ended November 30, 2002, the Company recorded tax benefits of $0.8
million for lower than previously expected tax liabilities attributable to prior
fiscal years. By comparison, the effective income tax rate was approximately
33.0% for the nine months ended November 30, 2001. The expected effective income
tax benefit rate for fiscal 2003 primarily reflects the impact of tax-exempt
interest income and income tax credits anticipated for fiscal 2003.
Discontinued Operations
The Company has been involved in several legal actions relating to past
divestitures of divisions and business units. These divestitures were accounted
for as discontinued operations, and accordingly, costs associated with these
actions, one of which has continued into fiscal 2003, are reported as a Loss
from discontinued operations on the Consolidated Statements of Operations. These
costs totaled $0.1 million and $0.5 million for the three and nine months ended
November 30, 2002, respectively, compared to $0.1 million and $0.7 million for
the corresponding year-earlier periods, respectively, all after applicable
income tax benefits.
Liquidity and Capital Resources
- -------------------------------
The Company currently finances its operations through a combination of existing
resources and cash generated by operations.
The Company's cash, cash equivalents and short-term investments decreased to
$104.5 million as of November 30, 2002, compared to $126.7 million at February
28, 2002. This decrease reflects, among other things, $15.7 million of cash used
for the acquisition of ATC, and $10.4 million used for purchases of treasury
stock.
Operating activities generated $5.6 million of cash for the nine months ended
November 30, 2002. Investing activities consumed $21.3 million of cash for the
same period, including, among other things, the $15.7 million used in the
acquisition of ATC, $4.3 million used for capital expenditures and $1.5 million
for net purchases of short-term investments. Financing activities consumed $8.0
million of cash during the first nine months of fiscal 2003, including the $10.4
million for purchases of treasury stock and $2.3 million for debt payments,
partially offset by $4.7 million generated from the issuance of common stock
through exercises of stock options.
The Company's inventories were $18.3 million at November 30, 2002 compared to
$17.6 at February 28, 2002. Inventories decreased by $5.7 million from the
August 31, 2002 level of $24.0 million. The Companies inventories typically
increase during the first half of the fiscal year in anticipation of increased
demand during the second half of the year for personal computers and related
equipment.
Capital expenditures for the nine months ended November 30, 2002 were $4.3
million. Capital expenditures are typically incurred to support the Company's
semiconductor test operation and to acquire hardware, software and other tools
used in the design of the Company's products. There were no material commitments
for capital expenditures as of November 30, 2002.
The Company completed its acquisition of ATC in June 2002, which resulted in the
use of approximately $15.7 million of cash. Up to $17.5 million of additional
consideration, payable in SMSC common stock and cash, may be issued to ATC's
former shareholders during fiscal 2004 upon satisfaction of certain future
performance goals. Through this acquisition, the Company assumed certain
long-term obligations of ATC, including long-term obligations to vendors,
unsecured notes payable and obligations under capital leases.
During the nine months ended November 30, 2002, the Company purchased 481,000
shares of treasury stock at a cost of $9.6 million under its stock repurchase
program. The Company also paid $0.8 million in early March 2002 to settle 45,000
treasury shares acquired at the end of February 2002. The exercise of stock
options by employees and directors generated $4.7 million of cash during the
same nine-month period.
The Company has considered in the past, and will continue to consider, various
possible transactions to secure necessary foundry manufacturing capacity,
including equity investments in, prepayments to, or deposits with foundries, in
exchange for guaranteed capacity or other arrangements which address the
Company's manufacturing requirements.
The Company expects that its cash, cash equivalents, short-term investments,
cash flows from operations and its borrowing capacity will be sufficient to
finance the Company's operating and capital requirements for at least the next
12 months.
Recent Accounting Pronouncements
- --------------------------------
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
Accounting for Exit or Disposal Activities. SFAS No. 146 requires that the
liabilities for costs associated with an exit or disposal activity be recognized
at their fair values when the liabilities are incurred. Under previous guidance,
liabilities for certain exit costs were recognized at the date that management
committed to an exit plan, which is generally before the actual liabilities are
incurred. SFAS No. 146 is effective only for exit or disposal activities
initiated after December 31, 2002. The Company does not currently expect the
adoption of this statement to have a material impact on its financial
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Market Risks
- ----------------------
Interest Rate Risk - The Company's exposure to interest rate risk relates
primarily to its investment portfolio. The primary objective of the Company'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 November 30, 2002, the Company's $30.3 million of short-term investments
consisted primarily of investments in corporate, government and municipal
obligations with maturities of between three and twelve months. If market
interest rates were to increase immediately and uniformly by 10 percent from
levels at November 30, 2002, the fair value of these short-term investments
would decline by an immaterial amount. The Company generally expects to hold its
fixed income investments until maturity and, therefore, would not expect
operating results or cash flows to be affected to any significant degree by a
sudden change in market interest rates on short-term investments.
Equity Price Risk - The Company is exposed to an equity price risk on its
investment in Chartered Semiconductor Manufacturing, Ltd. (Chartered). For every
10% adverse change in the market value of Chartered common stock, the Company
would experience a decrease of approximately $0.3 million in its November 30,
2002 investment value. The Company recorded a non-cash charge of $7.8 million in
the third quarter of fiscal 2003 for a decline in value of this investment,
considered to be other-than-temporary, based upon a sustained reduction in
Chartered's stock price performance. Following this charge, the remaining $2.9
million investment in Chartered stock represents the only material investment in
equity securities of other companies on the Company's Consolidated Balance
Sheet. The Company has sold call options covering this investment in the past
and may do so in the future to reduce some of this market risk. No call options
were sold covering this investment during the nine months ended November 30,
2002.
Foreign Currency Risk - The Company has international sales and expenditures and
is, therefore, subject to certain foreign currency rate exposure. The Company
conducts a significant amount of its business in Asia. 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. Transactions in the Japanese market made by the
Company's majority-owned subsidiary, SMSC Japan, are denominated in Japanese
yen. SMSC Japan purchases a significant amount of its products for resale from
Standard Microsystems Corporation in U.S. dollars, and from time to time enters
into forward exchange contracts to hedge against currency fluctuations
associated with these product purchases. During March 2002, SMSC Japan entered
into a contract with a Japanese financial institution to purchase U.S. dollars
to meet a portion of its U.S. dollar denominated product purchase requirements.
Gains and losses on this contract have not been not significant. The contract is
scheduled to expire in March 2003.
The Company has never received a cash dividend (repatriation of cash) from SMSC
Japan nor does it expect to receive such a dividend in the near future.
Other Factors That May Affect Future Operating Results
- ------------------------------------------------------
As a supplier of semiconductors, the Company competes in a challenging business
environment, which is characterized by intense competition, rapid technological
change and cyclical business patterns. Except for the historical information
contained herein, the matters discussed in this report are forward-looking
statements. The Company faces a variety of risks and uncertainties in conducting
its business, some of which are out of its control, and any of which, were they
to occur, could impair the Company's operating performance. For a more detailed
discussion of risk factors, please refer to the Company's report on Form 10-K
filed with the Securities and Exchange Commission on April 26, 2002.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
Within the 90 days prior to the filing of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon and as of the date of that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective to ensure
that information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required.
(b) Changes in Internal Controls
There were no changes in the Company's internal controls or in other factors
that could have significantly affected those controls subsequent to the date of
the Company's most recent evaluation.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STANDARD MICROSYSTEMS CORPORATION
DATE: January 14, 2003 /s/ Andrew M. Caggia
----------------------
(Signature)
Andrew M. Caggia
Senior Vice President - Finance
(duly authorized officer) and
Chief Financial Officer
(principal financial officer)
CERTIFICATIONS
I, Steven J. Bilodeau, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Standard
Microsystems Corporation;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 14, 2003 By: /s/ Steven J. Bilodeau
--------------------------
(signature)
Steven J. Bilodeau
Chairman of the Board, President and
Chief Executive Officer
I, Andrew M. Caggia, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Standard
Microsystems Corporation;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 14, 2003 By: /s/ Andrew M. Caggia
-------------------------
(signature)
Andrew M. Caggia
Senior Vice President - Finance
and Chief Financial Officer