UNITED STATES
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 August 31, 2004
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 ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes _X_ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 31, 2004, there were 18,460,199 shares of the registrant's common
stock outstanding.
Standard Microsystems Corporation
Form 10-Q
For the Quarter Ended August 31, 2004
Table of Contents
PartI Financial Information
Item 1 Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of August 31, 2004 and
February 29, 2004
Condensed Consolidated Statements of Operations for the Three and Six
Month Periods Ended August 31, 2004 and 2003 Condensed Consolidated
Statements of Cash Flows for the Six Month
Periods Ended August 31, 2004 and 2003
Notes to Condensed Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Item 4 Controls and Procedures
Part II Other Information
Item 1 Legal Proceedings
Item 2 Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 6 Exhibits and Reports on Form 8-K
Signature
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands)
August 31, February 29,
2004 2004
---- ----
Assets
Current assets:
Cash and cash equivalents $ 159,524 $ 135,161
Short-term investments 13,835 23,136
Accounts receivable, net 27,747 21,946
Inventories 27,849 23,162
Deferred income taxes 13,435 15,064
Other current assets 3,314 8,549
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Total current assets 245,704 227,018
- --------------------------------------------------------------------------------
Property, plant and equipment, net 24,299 23,430
Long-term investments 8,600 15,600
Goodwill 29,435 29,595
Intangible assets, net 4,115 4,697
Deferred income taxes 6,784 6,493
Other assets 3,327 3,192
- --------------------------------------------------------------------------------
$ 322,264 $ 310,025
================================================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 19,022 $ 14,679
Deferred income on shipments to distributors 12,858 7,972
Accrued expenses, income taxes and other
liabilities 11,113 13,168
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Total current liabilities 42,993 35,819
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Other liabilities 12,143 12,104
Shareholders' equity:
Preferred stock - -
Common stock 2,030 2,019
Additional paid-in capital 184,023 181,830
Retained earnings 102,817 99,010
Treasury stock, at cost (23,799) (23,454)
Deferred stock-based compensation (2,573) (1,962)
Accumulated other comprehensive income 4,630 4,659
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Total shareholders' equity 267,128 262,102
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$ 322,264 $ 310,025
================================================================================
See Notes to Condensed Consolidated Financial Statements.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
August 31, August 31,
---------------------------------- ------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Sales and revenues:
Product sales $ 47,233 $ 47,961 $ 97,585 $ 90,449
Intellectual property revenues 2,924 328 5,625 561
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50,157 48,289 103,210 91,010
Cost of goods sold 26,260 26,783 52,645 48,842
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Gross profit 23,897 21,506 50,565 42,168
Operating expenses (income):
Research and development 11,220 9,280 22,082 18,381
Selling, general and administrative 11,852 9,965 23,704 19,478
Amortization of intangible assets 266 317 583 677
Gains on real estate transactions - - - (1,444)
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Income from operations 559 1,944 4,196 5,076
Interest income 556 391 1,022 834
Other expense, net (6) (9) (38) (745)
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Income before provision for income taxes
and minority interest 1,109 2,326 5,180 5,165
Provision for income taxes 214 785 1,373 1,680
Minority interest in net income of subsidiary - 35 - 96
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Income from continuing operations 895 1,506 3,807 3,389
Loss from discontinued operations (net of income tax
benefits of $14 and $106) - (26) - (190)
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Net income $ 895 $ 1,480 $ 3,807 $ 3,199
====================================================================================================================================
Basic net income per share:
Income from continuing operations $ 0.05 $ 0.09 $ 0.21 $ 0.20
Loss from discontinued operations - - - (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Basic net income per share $ 0.05 $ 0.09 $ 0.21 $ 0.19
====================================================================================================================================
Diluted net income per share:
Income from continuing operations $ 0.05 $ 0.08 $ 0.20 $ 0.19
Loss from discontinued operations - - - (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ 0.05 $ 0.08 $ 0.20 $ 0.18
====================================================================================================================================
Weighted average common shares outstanding:
Basic 18,308 16,863 18,278 16,830
Diluted 19,169 17,869 19,482 17,643
See Notes to Condensed Consolidated Financial Statements.
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended August 31,
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2004 2003
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Cash flows from operating activities:
Cash received from customers and licensees $ 105,124 $ 89,931
Cash paid to suppliers and employees (98,520) (85,190)
Interest received 983 836
Interest paid (72) (40)
Income taxes refunded (paid) 6,738 (510)
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Net cash provided by operating activities 14,253 5,027
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Cash flows from investing activities:
Capital expenditures (6,202) (4,628)
Sales of property, plant and equipment - 7,080
Sales of long-term investments 4,000 2,114
Purchases of short-term investments (7,130) (14,055)
Sales of short-term investments 19,431 15,794
Other 36 149
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Net cash provided by investing activities 10,135 6,454
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Cash flows from financing activities:
Proceeds from issuance of common stock 976 1,036
Repayments of obligations under capital
leases and notes payable (1,016) (874)
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Net cash provided by (used for) financing
activities (40) 162
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Effect of foreign exchange rate changes on
cash and cash equivalents 15 138
Cash used for discontinued operation - (296)
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Net increase in cash and cash equivalents 24,363 11,485
Cash and cash equivalents at beginning of
period 135,161 90,025
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Cash and cash equivalents at end of period $ 159,524 $ 101,510
=======================================================================================
Reconciliation of income from continuing
operations to net cash provided by operating
activities:
Income from continuing operations $ 3,807 $ 3,389
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 6,111 5,429
Tax benefits from employee stock plans 117 265
Gains from sales of investments and property, net - (732)
Other adjustments, net (18) (74)
Changes in operating assets and liabilities:
Accounts receivable (5,632) (6,431)
Inventories (4,696) (3,553)
Accounts payable, deferred income, accrued
expenses and other liabilities 6,935 5,682
Current and deferred income taxes 7,995 906
Other changes, net (366) 146
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Net cash provided by operating activities $ 14,253 $ 5,027
=======================================================================================
See Notes to Condensed Consolidated Financial Statements.
STANDARD MICROSYSTEMS CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial information of
Standard Microsystems Corporation and subsidiaries, referred to herein as
"SMSC" or "the Company", has been prepared in accordance with generally
accepted accounting principles and the rules and regulations of the
Securities and Exchange Commission, and reflects all adjustments,
consisting only of normal recurring adjustments, which in management's
opinion are necessary to state fairly the Company's financial position,
results of operations and cash flows for all periods presented.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of sales and revenues
and expenses during the reporting period. Actual results may differ from
those estimates, and such differences may be material to the financial
statements. These condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements for
the year ended February 29, 2004 included in the Company's annual report on
Form 10-K, as filed on May 14, 2004 with the Securities and Exchange
Commission (SEC). The results of operations for the three and six-month
periods ended August 31, 2004 are not necessarily indicative of the results
to be expected for any future periods.
2. Stock-Based Compensation
The Company has in effect several stock-based compensation plans under
which incentive stock options, non-qualified stock options and restricted
stock awards are granted to employees and directors. All stock options are
granted with exercise prices equal to the fair value of the underlying
shares on the date of grant. The Company accounts for stock option grants
in accordance with Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees" and accordingly recognizes no
compensation expense for the stock option grants. Additional pro forma
disclosures as required under Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," are detailed below.
For purposes of pro forma disclosures, the estimated fair market value of
the Company's options is amortized as an expense over the options' vesting
periods. The fair value of each option grant, as defined by SFAS No. 123,
is estimated on the date of grant using the Black-Scholes option-pricing
model. The Black-Scholes model, as well as other currently accepted option
valuation models, was developed to estimate the fair value of freely
tradable, fully transferable options without vesting restrictions, that
significantly differ from the Company's stock option awards. Because the
Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate,
in the opinion of management, the existing models do not necessarily
provide a reliable single measure of the fair value of employee stock
options.
Had compensation expense been recorded under the provisions of SFAS No.
123, the Company's net income (loss) and net income (loss) per share would
have been the pro forma amounts indicated below (in thousands, except per
share data):
Three Months Ended Six Months Ended
August 31, August 31,
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2004 2003 2004 2003
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Net income - as reported $ 895 $ 1,480 $ 3,807 $ 3,199
Add: Stock-based compensation expense included in
net income, net of taxes - as reported 189 256 331 459
Deduct: Stock-based compensation expense
determined using the fair value method for all
awards, net of taxes (2,100) (2,256) (4,522) (4,691)
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Net loss - pro forma $(1,016) $ (520) $ (384) $(1,033)
==========================================================================================================
Basic net income per share - as reported $ 0.05 $ 0.09 $ 0.21 $ 0.19
==========================================================================================================
Diluted net income per share - as reported $ 0.05 $ 0.08 $ 0.20 $ 0.18
==========================================================================================================
Basic net loss per share - pro forma $ (0.06) $ (0.03) $ (0.02) $ (0.06)
==========================================================================================================
Diluted net loss per share - pro forma $ (0.06) $ (0.03) $ (0.02) $ (0.06)
==========================================================================================================
3. Balance Sheet Data
Inventories are valued at the lower of first-in, first-out cost or market
and consist of the following (in thousands):
Aug. 31, 2004 Feb. 29, 2004
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Raw materials $ 1,117 $ 910
Work in process 17,742 13,202
Finished goods 8,990 9,050
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$ 27,849 $ 23,162
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Property, plant and equipment consist of the following (in thousands):
Aug. 31, 2004 Feb. 29,2004
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Land $ 1,570 $ 1,570
Buildings and improvements 21,643 20,842
Machinery and equipment 95,166 90,195
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118,379 112,607
Less: accumulated depreciation 94,080 89,177
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$ 24,299 $ 23,430
========================================================================
4. Net Income Per Share
Basic net income per share is calculated using the weighted-average number
of common shares outstanding during the period. Diluted net income per
share is calculated using the weighted-average number of common shares
outstanding during the period, plus the dilutive effect of unvested
restricted stock awards and shares issuable through stock options.
The shares used in calculating basic and diluted net income per share for
the Condensed Consolidated Statements of Operations included within this
report are reconciled as follows (in thousands):
Three Months Ended Six Months Ended
August 31, August 31,
2004 2003 2004 2003
----------------------------------------
Average shares outstanding for
basic net income per share 18,308 16,863 18,278 16,830
Dilutive effect of stock options
and unvested restricted stock
awards 861 1,006 1,204 813
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Average shares outstanding for
diluted net income per share 19,169 17,869 19,482 17,643
===========================================================================
Options covering 1.3 million and 1.9 million shares for the three-month
periods ended August 31, 2004 and 2003, respectively, and 0.8 million and
2.3 million shares for the six-month periods ended August 31, 2004 and
2003, respectively, were excluded from the computation of average shares
outstanding for diluted net income per share because their effect was
antidilutive.
5. Comprehensive Income
The Company's other comprehensive income consists of foreign currency
translation adjustments from those subsidiaries not using the U.S. dollar
as their functional currency, and unrealized gains and losses on equity
investments classified as available-for-sale. The components of the
Company's comprehensive income for the three and six months ended August
31, 2004 and 2003 were as follows (in thousands):
Three Months Ended Six Months Ended
August 31, August 31,
2004 2003 2004 2003
----------------------------------------------------
Net income $ 895 $ 1,480 $ 3,807 $ 3,199
Other comprehensive income:
Change in foreign currency translation
adjustment 43 178 (10) 216
Change in unrealized gain (loss) on marketable
equity securities, net of taxes (15) 21 (19) 35
Reclassification adjustment for loss on
marketable equity security included in net
income, net of taxes - - - 665
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Total comprehensive income $ 923 $ 1,679 $ 3,778 $ 4,115
====================================================================================================
During the six months ended August 31, 2003, the Company sold its remaining
equity investment in Chartered Semiconductor Manufacturing, Ltd. This
investment was classified as available-for-sale, and temporary changes in
its market value, net of income taxes, were included within the Company's
Other comprehensive income, and were presented cumulatively as an
unrealized gain or loss, net of income taxes, within Accumulated other
comprehensive income on the Company's Consolidated Balance Sheets. The
amount presented as a reclassification adjustment in the preceding table
represents the amount previously reported within Other comprehensive income
as an unrealized loss on this investment, net of income taxes, through
February 28, 2003.
6. Agreements with Intel Corporation
In 1987, the Company and Intel Corporation (Intel) entered into an
agreement providing for, among other things, a broad, worldwide,
non-exclusive patent cross-license, covering manufacturing processes and
products, thereby providing each company access to the other's current and
future patent portfolios.
In September 2003, the Company and Intel announced that they had enhanced
their intellectual property and business relationship. The companies agreed
to collaborate on certain future Input/Output (I/O) and sensor products,
and Intel agreed to use the Company's devices on certain current and future
generations of Intel products. In addition, the Company agreed to limit its
rights, under its 1987 patent cross-license with Intel, to manufacture and
sell Northbridge products and Intel Architecture Microprocessors on behalf
of third parties. The companies also terminated an Investor Rights
Agreement between them, which had been entered into in connection with
Intel's 1997 acquisition of 1,543,000 shares of the Company's common stock.
Under this agreement, Intel had certain information, corporate governance
and other rights with respect to the activities of the Company.
In respect of this relationship, Intel will pay to the Company an aggregate
amount of $75 million, of which $20 million and $2.5 million was recognized
as Intellectual property revenue, and paid, in the third and fourth
quarters of fiscal 2004, respectively, and $2.5 million was recognized as
Intellectual property revenue, and paid, in each of the first and second
quarters of fiscal 2005, respectively. Of the remaining amount, $5.0
million is payable during the balance of fiscal 2005, $10.25 million is
payable in fiscal 2006, $11.25 million is payable in fiscal 2007, $12.0
million is payable in fiscal 2008 and $9.0 million is payable in fiscal
2009. Such amounts are payable in quarterly installments each year, and are
subject to possible reduction, in a manner and to an extent to be agreed by
the parties, based upon the companies' collaboration and sales, facilitated
by Intel, of certain future new products of the Company.
7. Business Restructuring
In December 2001, the Company announced a restructuring plan for its exit
from the PC chipset business.
The Company's reserve related to this restructuring declined from $1.0
million at February 29, 2004 to $0.7 million at August 31, 2004, reflecting
payments against previously reserved non-cancelable lease obligations,
which will continue through their respective lease terms through August
2008.
8. Discontinued Operations
The Company had been involved in an arbitration proceeding with Accton
Technology Corporation (Accton) and SMC Networks, Inc. (Networks), relating
to claims associated with the October 1997 purchase of a majority interest
in Networks by Accton from SMSC. This divestiture was accounted for as a
discontinued operation, and accordingly, costs associated with this action,
net of income taxes, were reported within Loss from discontinued operations
on the Consolidated Statements of Operations. These costs were negligible
for the three-month period ended August 31, 2003, and totaled $0.2 million
for the six-month period ended August 31, 2003, after applicable income tax
benefits. This action was settled during the fourth quarter of fiscal 2004.
9. Goodwill and Intangible Assets
The Company's June 2002 acquisition of Tucson, Arizona-based Gain
Technology Corporation included the acquisition of $7.1 million of
finite-lived intangible assets and $29.4 million of goodwill, after
adjustments. In accordance with the provisions of SFAS No. 142, this
goodwill is not amortized, but is tested for impairment in value annually,
as well as when an event or circumstance occurs indicating a possible
impairment in its value.
All finite-lived intangible assets are being amortized on a straight-line
basis over their estimated useful lives. Existing technologies were
assigned an estimated useful life of six years. Customer contracts were
assigned useful lives of between one and ten years (with a weighted average
life of approximately seven years), and non-compete agreements were
assigned useful lives of two years. The weighted average useful life of all
intangible assets is approximately six years.
As of August 31, 2004 and February 29, 2004, the Company's finite-lived
intangible assets consisted of the following (in thousands):
August 31, 2004 February 29, 2004
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Accumulated Accumulated
Cost Amortization Cost Amortization
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Existing technologies $ 6,179 $ 2,317 $ 6,179 $ 1,802
Customer contracts 326 73 326 57
Non-compete agreements - - 410 359
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$ 6,505 $ 2,390 $ 6,915 $ 2,218
===========================================================================
Estimated future intangible asset amortization expense for the remainder of
fiscal 2005 and thereafter is as follows (in thousands):
Period Amount
-------------------------------------------
Remainder of fiscal 2005 $ 531
Fiscal 2006 1,063
Fiscal 2007 1,063
Fiscal 2008 1,062
Fiscal 2009 290
Fiscal 2010 and thereafter 106
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10. Real Estate Transactions
During the quarter ended May 31, 2003, the Company sold certain portions of
its Hauppauge, New York real estate holdings, for aggregate proceeds of
$7.0 million, net of transaction costs. These transactions resulted in an
aggregate gain of $1.7 million, $1.4 million of which related to property
in which the Company has no continued interest and was recognized within
the Company's fiscal 2004 first quarter operating results, and $0.3 million
of which related to property that the Company has leased back from the
purchaser and was therefore deferred. This deferred gain is being
recognized within the Company's operating results as a reduction in rent
expense on a straight-line basis over a 30-month period beginning in June
2003, consistent with the term of the lease. As of August 31, 2004, the
Company's remaining rent obligation over the term of this lease is
approximately $0.4 million.
11. Retirement Plans
The Company maintains an unfunded Supplemental Executive Retirement Plan to
provide senior management with retirement, disability and death benefits.
The Company's subsidiary, SMSC Japan, also maintains an unfunded retirement
plan, which provides its employees and directors with separation benefits,
consistent with customary practices in Japan. Benefits under these defined
benefit plans are based upon various service and compensation factors. The
Company is the beneficiary of life insurance policies that have been
purchased as a method of partially financing benefits under the
Supplemental Executive Retirement Plan. The following table sets forth the
components of the consolidated net periodic pension expense for the three
and six months ended August 31, 2004 and 2003, respectively (in thousands):
Three Months Ended Six Months Ended
August 31, August 31,
----------------------------------------
2004 2003 2004 2003
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Service cost - benefits earned $ 71 $ 65 $ 143 $ 131
Interest cost on projected benefit
obligations 107 101 213 203
Net amortization and deferral 73 68 145 136
---------------------------------------------------------------------------
Net periodic pension expense $ 251 $ 234 $ 501 $ 470
===========================================================================
12. Litigation
In June 2003, SMSC was named as a defendant in a patent infringement
lawsuit filed by Analog Devices, Inc. (ADI) in the United States District
Court for the District of Massachusetts (Analog Devices, Inc. v. Standard
Microsystems Corporation, Case Number 03 CIV 11216). The Complaint, as
amended, alleges that some of the Company's products infringe one or more
of three of ADI's patents, and seeks injunctive relief and unspecified
damages. In September 2003, the Company filed an Answer in the lawsuit,
denying ADI's allegations and raising affirmative defenses and
counterclaims. The Company is vigorously defending the lawsuit and
collecting evidence to support its defenses to infringement and its
allegations of patent invalidity and unenforceability. Although it is
premature to assess the outcome of the litigation, the Company believes
that the allegations against it are without merit.
13. Common Stock Repurchase Program
The Company maintains a common stock repurchase program, as approved by its
Board of Directors, which authorizes the Company to repurchase up to three
million shares of its common stock on the open market or in private
transactions. Under this program, the Company repurchased approximately
22,000 shares of its common stock at a cost of $0.3 million during the
second quarter of fiscal 2005. The Company currently holds repurchased
shares as treasury stock. As of August 31, 2004, the Company has
repurchased a total of approximately 1.8 million shares of its common
stock, at a cost of $23.8 million, under this program.
14. Subsequent Event - Stock Appreciation Rights Plan
In September 2004, the Company's Board of Directors approved a Stock
Appreciation Rights (SAR) Plan (the Plan), the purpose of which is to
attract, retain, reward and motivate employees and consultants to promote
the Company's best interests and to share in its future success. The Plan
authorizes the Board's Compensation Committee to grant up to two million
SAR awards to eligible officers, employees and consultants. Each award,
when granted, provides the participant with the right to receive payment in
cash, upon exercise, for the appreciated market value of a share of SMSC
common stock over the award's exercise price. The exercise price of a SAR
is equal to the closing market price of SMSC stock on the date of grant.
SAR awards will generally vest over four or five-year periods, and will
expire no later than ten years from the date of grant. The Company will
recognize compensation expense for the appreciation of a SAR award's market
value over its exercise price over the term of the award.
15. Recent Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board (FASB) revised
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." The revised SFAS No. 132 requires additional
disclosures about plan assets, benefit obligations, cash flows, benefit
costs and other relevant information related to pensions and other
postretirement benefits. It also requires certain disclosures related to
pensions and other postretirement benefits to be included in quarterly
filings, which are included within Note 11 to the Condensed Consolidated
Financial Statements included within this report.
In March 2004, the FASB approved the consensus reached on the Emerging
Issues Task Force Issue No. 03-1 (EITF 03-1), "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments". The objective of this issue is to provide guidance for
identifying impaired investments. EITF 03-1 also provides new disclosure
requirements for investments that are deemed to be temporarily impaired.
The accounting provisions of EITF 03-1 are effective for all reporting
periods beginning after June 15, 2004, while the disclosure requirements
are effective for annual periods ending after June 15, 2004. In September
2004, the EITF delayed the effective date to apply EITF 03-1 on certain
impaired debt securities. The adoption of this pronouncement did not impact
the Company's results of operations or financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and notes thereto contained in
this report.
Portions of this report may contain forward-looking statements about
expected future events and financial and operating results that involve
risks and uncertainties. These include the timely development and market
acceptance of new products; the impact of competitive products and pricing;
the effect of changing economic conditions in domestic and international
markets; changes in customer order patterns, including loss of key
customers, order cancellations or reduced bookings; and excess or obsolete
inventory and variations in inventory valuation, among others. Words such
as "believe," "expect," "anticipate" and similar expressions identify
forward-looking statements. Such statements are qualified in their entirety
by the inherent risks and uncertainties surrounding future expectations and
may not reflect the potential impact of any future acquisitions, mergers or
divestitures.
SMSC competes in the semiconductor industry, which has historically been
characterized by intense competition, rapid technological change, cyclical
market patterns, price erosion and periods of mismatched supply and demand.
In addition, sales of many of the Company's products depend largely on
sales of personal computers (PCs) and peripheral devices, and reductions in
the rate of growth of the PC, consumer electronics and embedded markets
could adversely affect its operating results. SMSC conducts business
outside the United States and is subject to tariff and import regulations
and currency fluctuations, which may have an effect on its business. All
forward-looking statements speak only as of the date hereof and are based
upon the information available to SMSC at this time. Such information is
subject to change, and the Company may not inform, or be required to
inform, investors of such changes. These and other risks and uncertainties,
including potential liability resulting from pending or future litigation,
are detailed from time to time in the Company's reports filed with the SEC.
Investors are advised to read the Company's Annual Report on Form 10-K and
quarterly reports on Form 10-Q filed with the SEC, particularly those
sections entitled "Other Factors That May Affect Future Operating Results,"
for a more complete discussion of these and other risks and uncertainties.
Overview
--------
Description of Business
SMSC provides semiconductor systems solutions for high-speed communication
and computing applications. Through the integration of its digital,
mixed-signal and analog design capabilities and software expertise, SMSC
delivers complete solutions that monitor and manage computing systems and
connect peripherals to computers and to one another.
The Company addresses computing, communications and consumer electronics
markets through world-leading positions in Input/Output and non-PCI
Ethernet products, innovations in USB2.0 and other high-speed serial
solutions, and integrated networking products employed in a broad range of
applications.
SMSC is a fabless semiconductor supplier, whose products are manufactured
by world-class third-party semiconductor foundries and assemblers. To
ensure the highest product quality, the Company conducts a significant
portion of its final testing requirements in the Company's own
state-of-the-art testing operation.
The Company is based in Hauppauge, New York with operations in North
America, Taiwan, Japan, Korea, China and Europe. SMSC operates engineering
design centers in New York, Arizona and Texas.
New Brand Identity and Corporate Image
On April 26, 2004, SMSC was honored to open the Nasdaq stock market and
concurrently unveiled a new global brand identity, including a new logo,
tagline - "Success by Design," and website design at its www.smsc.com
homepage. Through its communication initiatives, the Company is placing
renewed emphasis on building awareness of its market leadership position
and capabilities to serve its customers. The new "Success by Design"
tagline underscores the Company's mission of being an essential ingredient
that fuels its customers' success. This tagline highlights SMSC's culture,
which is deliberate in the manner in which it seeks to ensure success for
its customers and stakeholders.
Critical Accounting Policies and Estimates
------------------------------------------
This discussion and analysis of the Company's financial condition and
results of operations is based upon the unaudited condensed consolidated
financial statements included in this report, which have been prepared in
accordance with accounting principles for interim financial statements
generally accepted in the United States. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amount of sales and revenues and expenses during the reporting
period.
The Company believes that the critical accounting policies and estimates
listed below are important to the portrayal of the Company's financial
condition and operating results, and require critical management judgments
and estimates about matters that are inherently uncertain. Although
management believes that its judgments and estimates are appropriate and
reasonable, actual future results may differ from these estimates, and to
the extent that such differences are material, future reported operating
results may be affected.
o Revenue recognition
o Inventory valuation
o Determination of the allowance for doubtful accounts receivable
o Valuation of long-lived assets
o Accounting for deferred income tax assets
o Legal contingencies
Further information regarding these policies appears within the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's annual report on Form 10-K for the
fiscal year ended February 29, 2004 filed with the SEC on May 14, 2004.
During the three-month period ended August 31, 2004, there were no
significant changes to any critical accounting policies or to the related
estimates and judgments involved in applying these policies.
Results of Operations
---------------------
Sales and Revenues
Sales and revenues for the three months ended August 31, 2004 were $50.2
million, consisting of $47.3 million of product sales and $2.9 million of
intellectual property revenues, compared to sales and revenues of $48.3
million for the prior-year's corresponding quarter, consisting of $48.0
million of products sales and $0.3 million of intellectual property
revenues. Sales and revenues for the six months ended August 31, 2004 were
$103.2 million, consisting of $97.6 million of product sales and $5.6
million of intellectual property revenues, compared to sales and revenues
of $91.0 million, consisting of $90.4 million of product sales and $0.6
million of intellectual property revenues, for the year earlier period.
During the quarter ended August 31, 2004, consistent with a trend
experienced across much of the semiconductor industry, the Company
experienced a general slowdown in orders across its businesses, with the
larger decline occurring within PC I/O products. The Company attributes
this, in part, to certain original design manufacturers (ODMs) adjusting
their inventories to reflect both shortened lead times and revised launch
schedules of Intel chipset products. As such, second quarter product sales
of $47.3 million declined sequentially from $50.4 million achieved in the
first quarter of fiscal 2005, and were about 2% below the prior year's
second quarter.
Compared to the prior year's second quarter, in which non-PC I/O products
contributed 26% of total product sales, the Company has experienced strong
growth in its non-PC I/O products, which contributed 41% of product sales
for the three months ended August 31, 2004. Non-PC I/O products include
networking, connectivity and other products. During the six months ended
August 31, 2004, non-PC I/O products contributed 41% of total product
revenue, compared to 30% for the year earlier period. These mix changes
reflect the impact of new non-PC I/O design-wins, broader product
offerings, and the Company's ongoing focus on aggressively identifying and
pursuing market opportunities in its non-PC I/O product lines, and is
consistent with the Company's diversification goals.
Product sales to customers outside of North America accounted for
approximately 84% and 86% of the Company's product sales for the three and
six-month periods ended August 31, 2004, respectively, the largest portion
of which was to the Asia and Pacific Rim region. The comparable percentages
for the three and six-month periods in the prior fiscal year were 93% and
92%, respectively. The Company expects that international shipments,
particularly to the Asia and Pacific Rim region, will continue to represent
a significant portion of its product sales.
Intellectual property revenues for the three and six-month periods ended
August 31, 2004 were $2.9 million and $5.6 million, respectively, compared
to $0.3 million and $0.6 million, respectively, for the corresponding
prior-year periods. Intellectual property revenues for the current fiscal
year include payments of $2.5 million from Intel Corporation in each of the
first and second quarters, as more fully described within Note 6 to the
Condensed Consolidated Financial Statements.
Gross Profit
Gross profit for the quarter ended August 31, 2004 was $23.9 million, or
47.6% of sales and revenues, compared to $21.5 million, or 44.5% of sales
and revenues, for the three months ended August 31, 2003. Excluding
intellectual property revenues, gross profit from product sales was $21.0
million, or 44.4% of product sales, for the quarter ended August 31, 2004,
compared to $21.2 million, or 44.2% of product sales, for quarter ended
August 31, 2003.
For the six-month period ended August 31, 2004, gross profit was $50.6
million, or 49.0% of sales and revenues, compared to $42.2 million, or
46.3% of sales and revenues, for the six-month period ended August 31,
2003. Excluding intellectual property revenues, gross profit from product
sales was $44.9 million, or 46.1% of product sales, for the current year
six-month period, compared to $41.6 million, or 46.0% of product sales, for
prior year six-month period.
During fiscal 2005, the Company has experienced a change in its product
mix, with more of its product sales being derived from non-PC I/O products,
as compared to the year-earlier periods. While in the past, non-PC I/O
products traditionally produced higher gross profit margins than PC I/O
products, the Company has introduced new USB2.0 products into a very
competitive market which currently generate lower gross profit margins than
other non-PC I/O products. Accordingly, the Company is not currently
realizing the overall increased gross profit percentage that would
otherwise be expected from a higher product sales mix of non-PC I/O
products. The Company is working on increasing its margins through design
changes, enhanced product features, and cost saving initiatives, as it
continues expanding its new product offerings in these competitive markets.
Research and Development Expenses
Research and development (R&D) expenses consist primarily of salaries and
related costs of employees engaged in research, design and development
activities, costs related to engineering design tools and computer
hardware, subcontracting costs and prototyping costs. 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.
R&D expenses were $11.2 million, or approximately 22% of sales and
revenues, for the three months ended August 31, 2004, compared to $9.3
million, or approximately 19% of sales and revenues, for the three months
ended August 31, 2003. For the six months ended August 31, 2004, R&D
expenses were $22.1 million, or approximately 21% of sales and revenues,
compared to $18.4 million, or approximately 20% of sales and revenues, for
the six months ended August 31, 2003. This dollar increase reflects the
impact of engineering staff additions, investments in advanced
semiconductor design tools, higher costs associated with development
programs in advanced semiconductor technologies, and higher costs for
contract design services.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $11.9 million, or
approximately 24% of sales and revenues, for the quarter ended August 31,
2004, compared to $10.0 million, or approximately 21% of sales and
revenues, for the quarter ended August 31, 2003. For the current six-month
period, selling, general and administrative expenses were $23.7 million, or
approximately 23% of sales and revenues, compared to $19.5 million, or
approximately 21% of sales and revenues, in the prior year six-month
period. The dollar increases in both the three and six-month periods,
compared to the prior year periods, reflect the impact of additional staff
added to expand the Company's sales and marketing capabilities, associated
recruitment and relocation costs, as well as expenses associated with
projects to achieve compliance with provisions of the Sarbanes-Oxley Act of
2002. During the current year periods, the Company also incurred higher
professional fees associated with litigation than in the corresponding
prior-year periods, and incurred additional costs associated with its April
2004 launch and promotion of its new global brand identity and corporate
image campaign.
Amortization of Intangible Assets
For the three and six-month periods ended August 31, 2004, the Company
recorded amortization expenses of $0.3 million and $0.6 million,
respectively, for intangible assets associated with the June 2002
acquisition of Gain. Comparable amortization expense was $0.3 million and
$0.7 million for the three and six-month periods ended August 31, 2003.
Gains on Real Estate Transactions
During the quarter ended May 31, 2003, the Company sold certain portions of
its Hauppauge, New York real estate holdings, for aggregate proceeds of
$7.0 million, net of transaction costs. These transactions resulted in an
aggregate gain of $1.7 million, $1.4 million of which related to property
in which the Company has no continued interest and was recognized within
the Company's fiscal 2004 first quarter operating results, and $0.3 million
of which related to property that the Company has leased back from the
purchaser and was therefore deferred. This deferred gain is being
recognized within the Company's operating results as a reduction in rent
expense on a straight-line basis over a 30-month period beginning in June
2003, consistent with the term of the lease. As of August 31, 2004, the
Company's remaining rent obligation over the term of this lease is
approximately $0.4 million.
Other Income and Expense
During the quarter ended May 31, 2003, the Company sold its remaining
equity investment in Chartered Semiconductor Manufacturing, Ltd., realizing
losses of $0.7 million, which are included within Other expense, net, for
the six-month period ended August 31, 2003.
Provision For Income Taxes
The Company's effective income tax rate primarily reflects statutory
Federal and state income tax rates, adjusted for the impact of tax-exempt
interest income and anticipated income tax credits.
The Company's $1.4 million provision for income taxes for the six months
ended August 31, 2004 reflects an expected fiscal 2005 effective tax rate
of 26.5%, a reduction from the 28.5% effective rate expected at May 31,
2004. This reduction in the anticipated fiscal 2005 effective income tax
rate reflects a higher proportionate impact of income tax credits against a
reduced pre-tax income projection. The $0.2 million provision for income
taxes for the three months ended August 31, 2004 reflects the cumulative
impact of this lower expected effective income tax rate.
The $1.7 million provision for income taxes for the six months ended August
31, 2003 reflected an effective tax rate of 32.5% for that period. The
higher expected fiscal 2004 effective tax rate at August 31, 2003, compared
to the expected fiscal 2005 effective income tax rate, reflected a lower
proportionate impact from expected income tax credits in fiscal 2004. In
addition, operating results for the first six months of fiscal 2004
included unusual and infrequently occurring real estate and equity security
sale transactions that, net, provided $0.7 million of pre-tax income. Taxes
on those transactions were provided for at the Company's approximate 36.0%
incremental income tax rate.
Discontinued Operations
The Company had been involved in an arbitration proceeding with Accton
Technology Corporation (Accton) and SMC Networks, Inc. (Networks), relating
to claims associated with the October 1997 purchase of a majority interest
in Networks by Accton from SMSC. The divestiture was accounted for as a
discontinued operation, and accordingly, costs associated with this action,
net of income taxes, were reported within Loss from discontinued operations
on the Consolidated Statements of Operations. These costs were negligible
for the quarter ended August 31, 2003, and totaled $0.2 million for the
six-month period ended August 31, 2003, after applicable income tax
benefits. This action was settled during the fourth quarter of fiscal 2004.
Liquidity and Capital Resources
-------------------------------
The Company currently finances its operations through a combination of
existing resources and cash generated by operations.
The Company's cash, cash equivalents and liquid investments (including
marketable securities with maturities in excess of one year) were $182.0
million at August 31, 2004, compared to $173.9 million at February 29,
2004, an increase of $8.1 million. The Company's operating activities
provided $14.3 million of cash during the first six months of fiscal 2005,
including income tax refunds of $6.7 million, net of income taxes paid.
Operating activities for the first six months of fiscal 2004 generated $5.0
million of cash.
The Company's inventories were $27.8 million at August 31, 2004, an
increase of $4.6 million compared to $23.2 million at February 29, 2004.
Inventories at the Company's distributors also increased during the period,
as evidenced by the increase in Deferred income on shipments to
distributors from $8.0 million at February 29, 2004 to $12.9 million at
August 31, 2004. This increase in both the Company's and its distributors'
inventories reflects the impact of a general slowdown in orders across the
Company's businesses, as well as higher anticipated product demand during
the upcoming third quarter. Management considers inventories to be
appropriate for expected demand.
Accounts receivable increased from $21.9 million at February 29, 2004 to
$27.7 million at August 31, 2004, an increase of $5.8 million. This
increase in receivables reflects a reduction in unclaimed pricing credits
by distributors during the period. SMSC accrues a liability for distributor
pricing credits when the distributor ships the Company's products and earns
such credits, but the issuance of the actual credit memo to the distributor
is dependent upon the distributor's submission of an appropriate claim to
SMSC. Delays in distributors' claims for these credits typically results in
lower than expected accounts receivable balances, since the delays result
in full collections for certain invoices against which the distributor is
actually entitled to, but has not yet claimed, a pricing credit. It has
been the Company's experience that all such pricing credits are claimed,
although the timing of the claims varies by distributor. Pricing credits
are recorded as a reduction of product sales when accrued. Overall, the
Company's accounts receivable portfolio remains almost entirely current.
Capital expenditures for the six-month period ended August 31, 2004 were
$6.2 million, and were predominantly for production test equipment and
investments in intellectual property used in product design activities.
Capital expenditures for the six-month period ended August 31, 2003 were
$6.7 million, including $4.3 million in advanced design tools, $2.1 million
of which was financed on a short-term basis by the supplier with payment
terms which extended throughout fiscal 2004. The $2.1 million obligation
was reported within Accounts payable at August 31, 2003.
The Company anticipates that capital expenditures in fiscal 2005 will
exceed those incurred during fiscal 2004, due in part to the Company's plan
to begin construction of an addition to its primary facility in Hauppauge,
New York, during the second half of fiscal 2005. The current plan is to
expand the facility from its current 80,000 square feet to approximately
200,000 square feet, allowing consolidation of the Company's Hauppauge
operations into a single facility during fiscal 2006. The Company is
awaiting final regulatory approval for this project. The Company currently
expects that the cost of this expansion will be between $15 million and $20
million. There were no material commitments for capital expenditures as of
August 31, 2004.
During the quarter ended August 31, 2004, the Company filed claims for $7.3
million of Federal income tax refunds which resulted from the carry back of
several capital losses realized during fiscal 2004 against capital gains
reported in previous fiscal years. Refunds of $6.9 million were received
against these claims during the second quarter, and receipt of the
remaining $0.4 million refund is dependent upon completion of the related
I.R.S. audit.
For federal income tax purposes, the Company has $8.3 million of net
operating loss carryforwards that are available to offset ordinary taxable
income generated in fiscal 2005 and beyond.
The Company has considered in the past, and will continue to consider,
various possible transactions to secure necessary foundry manufacturing
capacity, including equity investments in, prepayments to, or deposits with
foundries, in exchange for guaranteed capacity or other arrangements which
address the Company's manufacturing requirements. The Company may also
consider utilizing cash to acquire or invest in complementary businesses or
products or to obtain the right to use complementary technologies. From
time to time, in the ordinary course of business, the Company may evaluate
potential acquisitions of or investment in such businesses, products or
technologies owned by third parties.
The Company expects that its cash, cash equivalents, short-term
investments, cash flows from operations and its borrowing capacity will be
sufficient to finance the Company's operating and capital requirements for
at least the next 12 months and for the foreseeable future thereafter.
Recent Accounting Pronouncements
--------------------------------
In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." The revised SFAS 132
requires additional disclosures about plan assets, benefit obligations,
cash flows, benefit costs and other relevant information related to
pensions and other postretirement benefits. It also requires certain
disclosures related to pensions and other postretirement benefits to be
included in quarterly filings, which are included within Note 11 to the
Condensed Consolidated Financial Statements included within this report.
In March 2004, the FASB approved the consensus reached on the Emerging
Issues Task Force Issue No. 03-1 (EITF 03-1), "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments". The objective of this issue is to provide guidance for
identifying impaired investments. EITF 03-1 also provides new disclosure
requirements for investments that are deemed to be temporarily impaired.
The accounting provisions of EITF 03-1 are effective for all reporting
periods beginning after June 15, 2004, while the disclosure requirements
are effective for annual periods ending after June 15, 2004. In September
2004, the EITF delayed the effective date to apply EITF 03-1 on certain
impaired debt securities. The adoption of this pronouncement did not impact
the Company's results of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Market Risks
----------------------
Interest Rate Risk - The Company's exposure to interest rate risk relates
primarily to its investment portfolio. The primary objective of SMSC's
investment portfolio management is to invest available cash while
preserving principal and meeting liquidity needs. In accordance with the
Company's investment policy, investments are placed with high
credit-quality issuers and the amount of credit exposure to any one issuer
is limited.
As of August 31, 2004, the Company's $22.4 million of short-term and
long-term investments consisted primarily of investments in corporate,
government and municipal obligations with maturities of between three and
fifteen months. If market interest rates were to increase immediately and
uniformly by 10 percent from levels at August 31, 2004, the Company
estimates that the fair value of these short-term and long-term investments
would decline by an immaterial amount. The Company generally expects to
hold these investments until maturity and, therefore, would not expect
operating results or cash flows to be affected to any significant degree by
a sudden change in market interest rates.
Equity Price Risk - The Company has no material investments in equity
securities of other companies on its Consolidated Balance Sheet as of
August 31, 2004.
Foreign Currency Risk - The Company has international sales and
expenditures and is, therefore, subject to certain foreign currency rate
exposure. The Company conducts a significant amount of its business in Asia
and the Pacific Rim region. In order to reduce the risk from fluctuation in
foreign exchange rates, most of the Company's product sales and all of its
arrangements with its foundry, test and assembly vendors are denominated in
U.S. dollars. Most transactions in the Japanese market made by the
Company's subsidiary, SMSC Japan, are denominated in Japanese yen. SMSC
Japan purchases a significant amount of its products for resale from SMSC
in U.S. dollars, and from time to time has entered into forward exchange
contracts to hedge against currency fluctuations associated with these
product purchases. No such contracts were executed during either fiscal
2004 or the first six months of fiscal 2005, and there are no obligations
under any such contracts as of August 31, 2004.
The Company has never received a cash dividend (repatriation of cash) from
SMSC Japan.
Other Factors That May Affect Future Operating Results
------------------------------------------------------
As a supplier of semiconductors, the Company competes in a challenging
business environment, which is characterized by intense competition, rapid
technological change and cyclical business patterns. Except for the
historical information contained herein, the matters discussed in this
report are forward-looking statements. The Company faces a variety of risks
and uncertainties in conducting its business, some of which are out of its
control, and any of which, were they to occur, could impair the Company's
operating performance. For a more detailed discussion of risk factors,
please refer to the Company's annual report on Form 10-K for the fiscal
year ended February 29, 2004 filed with the Securities and Exchange
Commission on May 14, 2004.
ITEM 4. CONTROLS AND PROCEDURES
The Company has carried out an evaluation under the supervision and with
the participation of the Company's management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures.
There are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human
error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only
provide reasonable assurance of achieving their control objectives. Based
upon the Company's evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that, as of August 31, 2004, the
disclosure controls and procedures are effective to provide reasonable
assurance that information required to be disclosed in the reports the
Company files under the Exchange Act is recorded, processed, summarized and
reported as and when required.
There has been no change in the Company's internal control over financial
reporting during the Company's fiscal quarter covered by this report that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
In June 2003, SMSC was named as a defendant in a patent infringement
lawsuit filed by Analog Devices, Inc. (ADI) in the United States District
Court for the District of Massachusetts (Analog Devices, Inc. v. Standard
Microsystems Corporation, Case Number 03 CIV 11216). The Complaint, as
amended, alleges that some of the Company's products infringe one or more
of three of ADI's patents, and seeks injunctive relief and unspecified
damages. In September 2003, the Company filed an Answer in the lawsuit,
denying ADI's allegations and raising affirmative defenses and
counterclaims. The Company is vigorously defending the lawsuit and
collecting evidence to support its defenses to infringement and its
allegations of patent invalidity and unenforceability. Although it is
premature to assess the outcome of the litigation, the Company believes
that the allegations against it are without merit.
ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
(e) Purchases of Equity Securities by the Issuer
In October 1998, the Company's Board of Directors approved a plan
authorizing the repurchase up to one million shares of the Company's common
stock in the open market or in private transactions. The Board of Directors
increased the authorization from one million shares to two million shares
in July 2000, and from two million shares to three million shares in July
2002. The plan has no specified expiration date. Shares of common stock
purchased pursuant to the repurchase plan are held as treasury stock.
Activity under this plan during the period covered by this report was as
follows (shares in thousands):
Total Average Total Number of Maximum Number of
Number of Price Shares Purchased Shares that May Yet
Shares Paid per as Part of Publicly Be Purchased Under
Period Purchased Share Announced Plans the Plans or Programs
---------------------------------------------------------------------------
June 2004 - - - 1,180
July 2004 - - - 1,180
August 2004 22 $ 15.80 22 1,158
-----------------------------------------------------
22 $ 15.80 22
=====================================================
All purchases during this period were open market transactions.
ITEM 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of security holders at the
registrant's July 14, 2004 annual meeting of shareholders.
(1) The following were elected directors, each receiving the number of
votes set opposite their respective names:
Broker
Votes Received Votes Withheld Non-votes
-------------- -------------- ---------
Andrew M. Caggia 15,227,175 1,287,363 --
Timothy P. Craig 15,372,560 1,141,978 --
Ivan T. Frisch 15,351,314 1,163,224 --
Each of the following directors, who were not up for reelection at the July
14, 2004 annual meeting of shareholders, will continue to serve as
directors: Steven J. Bilodeau, Robert M. Brill, James A. Donahue and Peter
F. Dicks.
(2) The 2004 Stock Option Plan was not approved by the following vote:
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
2,366,550 11,786,623 431,698 1,929,667
(3) The 2004 Restricted Stock Plan was not approved by the following vote:
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
4,470,293 9,681,324 433,254 1,929,667
(4) The 2004 Director Stock Option Plan was not approved by the following
vote:
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
4,526,467 9,624,550 433,854 1,929,667
(5) The selection of PricewaterhouseCoopers LLP as the Company's auditors
for the fiscal year ended February 28, 2005 was ratified by the following
vote:
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
16,405,172 84,633 24,733 --
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 * - Amendments to Stock Option Plans and Restricted Stock Plans, dated
April 7, 2004.
10.2 * - January 1, 2005 Amendment to the Standard Microsystems Corporation
Executive Retirement Plan.
31.1 - Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
(17 CFR 240.13a-14(a)), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 - Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
(17 CFR 240.13a-14(a)), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 - Certifications of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
* Indicates a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
On June 15, 2004, SMSC filed a report on Form 8-K pursuant to which it
furnished a press release announcing the Company's operating results for the
first quarter of fiscal 2005.
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: October 12, 2004 By: /s/ Andrew M. Caggia
-------------------------
(Signature)
Andrew M. Caggia
Senior Vice President - Finance
(duly authorized officer) and
Chief Financial Officer
(principal financial officer)