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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended February 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
Commission File No. 0-7422
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STANDARD MICROSYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-2234952
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 Arkay Drive, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
(516) 435-6000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each Exchange on
None which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
As of April 30, 1997, 15,448,820 shares of the registrant's common stock
were outstanding and the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $132,242,000.
Documents Incorporated Reference
The documents incorporated by reference into this Form 10-K and the Parts
hereof into which such documents are incorporated are listed below:
Document Part
Those portions of the registrant's 1997 annual report to shareholders
(the Annual Report") which are specifically identified herein as
incorporated by reference into this Form 10-K. II
Those portions of the registrant's proxy statement for the registrant's
1997 Annual Meeting (the "Proxy Statement") which are specifically
identified herein as incorporated by reference into this Form 10-K. III
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PART I
Item 1. Business.
GENERAL
Standard Microsystems Corporation (the "Company", the "Registrant", or "SMC(R)")
is a Delaware corporation, organized in 1971. As used herein, the term "Company"
includes the Company's subsidiaries except where the context otherwise requires.
The address of the principal executive office of the Company is 80 Arkay Drive,
Hauppauge, New York 11788, and its telephone number at that address is
516-435-6000. Toyo Microsystems Corporation, a majority-owned subsidiary located
in Tokyo, Japan, markets and sells SMC products in Japan. Through wholly owned
subsidiaries listed below, SMC operates branch offices to market and sell its
products in the following locations:
Subsidiary Location
Standard Microsystems Corporation (Asia) Taipei, Taiwan
SMC Australia Pty. Ltd. Sydney, Australia
Standard Microsystems Corporation (Canada) Oakville, Ontario, Canada
Standard Microsystems (Europe) Ltd. London, England
SMC France, Inc. St. Germain-en-Laye, France
Standard Microsystems GmbH Munich, Germany
SMC Massachusetts, Inc. Andover, Massachusetts
SMC de Mexico SA de CV Mexico DF, Mexico
SMC North America, Inc. Various States
SMC Singapore, Inc. Singapore
SMC International Ltd. Christ Church, Barbados
BUSINESS AND PRODUCT DESCRIPTION
Standard Microsystems conducts its operations primarily through two divisions,
the System Products Division and the Component Products DIvision. The System
Products Division designs, produces and markets products that connect personal
computers (PCs) to, and allow communications over, local area networks (LANs).
The Component Products Division designs, produces and markets
very-large-scale-integrated (VLSI) circuits primarily for PC input/output (I/O)
control, computer and industrial network control. The Division also sells
non-semiconductor devices that are produced in the Company's own semiconductor
foundry. As a separate profit center, Toyo Microsystems Corporation (TMC), sells
the Company's component and system products into the Japanese market.
The Company's fiscal 1997 revenues increased to $354.1 million, from $341.9
million in fiscal 1996, after declining from $378.7 million in fiscal 1995. As a
percentage of consolidated revenues, system products declined to 44.5% in fiscal
1997 from 54.6% in fiscal 1996 and
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67.7% in fiscal 1995. In contrast, as a percentage of consolidated revenues,
component products' revenues increased to 50.6% from 40.5% and 29.2% and TMC's
revenues increased to 4.9% from 4.9% and 3.1%.
Revenues By Product Line ($millions)
For the years ended February 28 or 29, % change % change
1997 97/96 1996 96/95 1995
System products
Adapter revenues $120.3 -17% 144.5 -29% $204.9
Hub and switch revenues 37.2 -11 42.0 19 51.5
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Total system products revenues $157.5 -16% 186.5 -27% $256.4
% of revenues 44.5 % 54.6% 67.7%
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Component products
Integrated circuit revenues $164.3 34% 123.0 15% $106.9
Foundry device revenues 14.7 -6 15.6 320 3.7
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Revenues $179.0 29% 138.6 25% $110.6
% of revenues 50.6% 40.5% 29.2%
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Toyo Microsystems Corporation
Revenues $17.6 5% $16.8 44% $11.7
% of revenues 4.9% 4.9% 3.1%
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Standard Microsystems Corporation
Revenues $354.1 4% $341.9 -10% $378.7
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Business Acquisitions and Divestiture: In November 1996, the Company acquired
the Cardbus (PCMCIA) technology and product line of Databook, Inc. of Danvers,
Mass. This technology is used in portable and desktop PC's, and has possible new
markets such as set-top boxes with cable modems and slots for Ethernet and other
PCMCIA cards. Prior to this acquisition, SMC had been a licensee of Databook's
Cardbus technology and was a second source for Databook's first Cardbus product,
a Cardbus host controller chip with "no compromise" Zoom Video features, the
DB87114 "Patriot" chip . This device is now called the SMC34C90 Cardbus Host
controller.
In October 1996, the Company acquired a 19.9% equity interest in privately held
Accelerix Incorporated of Carp, Ontario, Canada. The Company and Accelerix also
entered into an agreement providing the Company with rights to market, second
source and enhance Accelerix' application specific memory technology.
In January 1996, SMC and SMC Enterprise Networks, Inc., a wholly-owned
subsidiary, sold substantially all the net assets and technology of the
Enterprise Networks Business Unit (ENBU) to Cabletron Systems, Inc., for $74.0
million in cash. ENBU had developed, manufactured and sold enterprise-wide
switching products for computer networks. The business unit, which was included
in SMC's operations for approximately ten months in
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fiscal 1996, accounted for approximately 4% of consolidated revenues in fiscal
1996 and 6% in fiscal 1995.
In February 1996, SMC acquired the assets and technology of EFAR Microsystems,
Inc. of Santa Clara, CA. The transaction was valued at $5.6 million based on the
issuance of 240,000 SMC common shares, the assumption of certain liabilities and
transaction fees. Nearly all of the purchase price represented purchased
in-process technology and was charged to SMC's operations in fiscal 1996. SMC
may issue to EFAR additional common stock with a market value of up to $20
million through February 1999, contingent on achieving certain operating
results.
BUSINESS AND PRODUCT DESCRIPTION: SYSTEM PRODUCTS DIVISION
The System Products Division sells LAN products that enable personal computers
to be connected to networks and permit communications among LAN users.
Connection to a LAN permits a PC user to send messages to and receive messages
from other LAN users and share common resources such as printers, disk drives,
files and programs. LANs offer individuals the advantages of working at their
own PCs and, at the same time, provide an organization with the benefits of
connectivity and productivity by allowing multiple users to communicate and
share resources. Internetworking, or connecting LANs to each other, allows users
to communicate and share resources over a wider sphere.
SMC's LAN products include network interface cards (adapters), wiring hubs and
switches, associated software and transceivers that operate over a variety of
media including, unshielded twisted pair, shielded twisted pair, coaxial, and
optical fiber cabling. The Company provides LAN products for major protocols or
technologies used for PC-based LANs: Ethernet, Fast Ethernet, Token Ring,
ARCNET(R) and PC Card. After the end of fiscal 1996, SMC introduced its first
high-speed asynchronous transfer mode (ATM) adapters. SMC's low-cost, workgroup
Ethernet switches accelerate bandwidth by segmenting the network into smaller
portions, each of which receives full network bandwidth.
LAN technologies combine hardware and software to control traffic signaling and
message passage between PCs and peripheral devices. End users differentiate LAN
technologies chiefly based upon speed and volume of data transmitted,
installation procedures and equipment cost.
Network Interface Cards (adapters): Installed in a personal computer or
workstation, an adapter is a printed circuit board that provides a connection to
a LAN over telephone -- unshielded twisted pair (UTP) or shielded twisted pair
(STP) -- wire, coaxial or fiber optic cables. The Company's adapters connect to
the communications links or buses internal to a PC. These buses, which allow for
transmission of signals in a computer, are known
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as industry standard architecture (ISA), extended industry standard architecture
(EISA), micro-channel architecture (MCA) and peripheral component interconnect
(PCI). An adapter provides a connector for a cable that plugs into a wall
outlet, much as a telephone cable connects to a wall outlet. For its Ethernet,
Fast Ethernet and Token Ring adapters, SMC provides software for communicating
over and diagnosing a network, installing an adapter and collecting data for
managing a network.
During fiscal 1997, SMC entered the ATM (Asynchronous Transfer Mode) market with
its 155 Mbps ATM Power155TM adapters. These adapters support PCI, SBus and EISA
Bus workstations and desktop computers.
In fiscal 1997, Ethernet (including PC Card and Fast Ethernet) adapters
accounted for approximately 93% of SMC's adapter revenues, compared to 92% in
fiscal 1996. Token Ring adapters fell to approximately 5% of adapter revenues in
fiscal 1997 from 6% in fiscal 1995. ARCNET adapters accounted for the remainder
of revenues.
Wiring Hubs and LAN Switches: LAN cables, beginning at the adapter connector,
are usually linked to a centrally located wiring hub. The hub passes along and
boosts signals from one computer or port on a LAN to one or more other ports.
Wiring hubs are called concentrators for Ethernet and Fast Ethernet,
multi-station access units (MAUs) for Token Ring and hubs for ARCNET. SMC hubs
are suited to workgroup or departmental LANs.
In addition to physical signaling, intelligent hubs incorporate software for
managing a network. SMC produces both conventional and intelligent hubs and the
software to support network management.
In fiscal 1997, hubs accounted for approximately 86% of SMC's hub and LAN switch
revenues, compared to 70% in fiscal 1996. Approximately 94% of SMC's hub
revenues were Ethernet (including Fast Ethernet) hubs, compared to 94% in fiscal
1996.
Supporting Software: The Company's products include supporting software drivers
which enable network hardware to communicate over a LAN by linking the network
protocol and the network operating system (NOS). The NOS suppliers regularly
update their software, requiring SMC to regularly alter its drivers. SMC also
upgrades drivers to improve performance over a network.
Design Criteria: SMC's System Products Division designs and develops critical
integrated circuits that control the operation of its Ethernet and Token Ring
adapters. The Company believes that this vertical integration provides an
advantage in terms of control over costs, performance, quality and
time-to-market, when compared to competitors who buy critical integrated
circuits from merchant semiconductor manufacturers.
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New Products: The following schedule summarizes new products recently introduced
by the System Products Division.
EtherPower II(TM) 10/100 - 10/100 Mbps Fast Ethernet Adapter Card. This adapter
card uses the 83C170/ (Epic/100) Fast Ethernet controller.
TigerStack(TM) 100 FamilyStackable Hubs - With 4 Segments of Fast Ethernet
Switching
TigerSwitch(TM) 100 Family - High performance, cost effective, Fast Ethernet
switch which offers 8 port.
10/100 LAN Extender FX(TM) - Two port Fast Ethernet Switch
SMC EZ Switch(TM) 8 - An 8 port Ethernet switch
SMC EZ HUB(TM) 100 - Fast Ethernet hub which can be used alone or in cascaded
pairs. TigerSwitch(TM) ATM workgroup switch - ATM workgroup switch
ATM Power25(TM) and Power155(TM) network cards - ATM network adapter cards
BUSINESS AND PRODUCT DESCRIPTION: COMPONENT PRODUCTS DIVISION
The Component Products Division (CPD) designs, develops and manufactures
very-large-scale-integrated (VLSI) circuitry. SMC maintains its SuperCell(TM)
library of complex circuit functions, shortening the design cycle for VLSI
circuits. Component products are focused on the personal computer input/output
(PC I/O) and networking markets. In fiscal 1997, approximately 89% of the
Division's revenues were from PC I/O devices, compared to approximately 80% in
fiscal 1996.
SMC's PC I/O controllers are integrated circuits with multiple functions for
controlling and interfacing various peripheral and communications functions in a
PC. Features include digital data separation, vertical or horizontal recording,
control of serial and parallel ports, interfaces with the game port and hard
disk drive, and other functions for floppy disk control.
PC I/O controllers first introduced by SMC during fiscal 1993 and 1994 are known
as super I/O devices. In a single package, these circuits combine many of the
connectivity functions listed above that have become required features for PCs.
SMC's super I/O class of devices are pin compatible, offering customers the
flexibility to design one circuit board layout, modifying characteristics by
inserting one or another of SMC's devices.
During fiscal 1997, 1996 and 1995, SMC announced PC I/O devices with enhanced
features including interfaces for infrared (IR) wireless communications, support
of PnP and low electrical power usage for laptop and handheld PCs. SMC also
announced and began to ship a class of PC I/O controllers known as ultra I/O. On
a single chip, these devices add keyboard and mouse control, system clock
generator and a real time clock to the super I/O level of functionality.
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Network circuits are sold to vendors of ARCNET, Ethernet and Fast Ethernet
equipment. Versions of ARCNET devices are optimized for use in industrial
control and transportation markets.
New Products: The following schedule summarizes new products recently introduced
by the Component Products Division.
83C170/ (EPIC/100) - A 10/100 Mbps Fast Ethernet controller
FDC37C957FR - With Fast IR (Infrared) communications and advanced power and
system management for portable PC applications.
FDC37C93xFR - With Fast IR (Infrared) communications and advanced power
management.
FDC37C669FR - Similar to the FDC37C957FR and FDC37C93xFR
without the integrated real-time clock or keyboard controller
FDC37C951 - With power and system management
capabilities for portable computer I/O (Input/ Output) applications
FDC37C67x
and the FDC37C68x - A pair of "Enhanced" Super I/O chips designed specifically
to work with Intel's Triton TX.
FDC37C93xAPM - ACPI-compliant PC I/O Controller
with advanced power management
The Foundry Business Unit, a business unit of the Component Products Division,
manufactures specialty silicon wafer-based products. In addition to volume
production of silicon devices for ink-jet print cartridges, it also manufactures
thin-film RC (resistor-capacitor) networks and MicroElectroMechanical Systems
(MEMS). Foundry devices accounted for approximately 4.2% of SMC's consolidated
revenues, and 8.2% of Component Products revenues, in fiscal 1997, compared to
approximately 4.5% and 11.3%, respectively, in fiscal 1996.
BUSINESS AND PRODUCT DESCRIPTION: WARRANTY POLICY
Depending upon the product, the Company generally warranties against defects in
material and workmanship for periods varying from one year to the lifetime of a
product. Estimated warranty costs are accrued when products are sold.
MARKETS AND COMPETITION
Network products of the System Products Division are used chiefly in conjunction
with personal computers which are connected to local area networks. Integrated
circuits of the Component Products Division are used primarily in personal
computers.
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Competition is characterized by rapid technological change and significant unit
price reductions which may not always correspond to a decrease in production
costs. Product line differentiation may be determined by breadth, diversity,
performance characteristics such as speed, quality and reliability and prices.
Among the competitors, important distinctions are timeliness of shipments, depth
of customer support and technical service. The principal methods SMC uses to
compete include new products, servicing customers and reducing manufacturing
costs. While past performance can be a guide, there is no assurance that the
Company can improve or maintain gross profit margins.
MARKETS AND COMPETITION: SYSTEM PRODUCTS DIVISION
The available worldwide market for the Company's LAN products is determined by
the installed base of PCs, sales of new PCs and the portion of PCs connected to
local area networks. SMC agrees with market analysts who believe that the number
of PCs shipped and the percentage of PCs connected to LANs has increased over
recent years. Competitors include domestic and foreign manufacturers, many of
whom possess substantially greater resources than SMC.
SMC's Ethernet, Fast Ethernet, Token Ring and ARCNET adapters accounted for 76%
of System Products Division (SPD) revenues, or 34% of Company revenues, during
fiscal 1997, compared to approximately 78% and 42%, respectively, in fiscal
1996.
Because many competitors sell products that perform similar functions, SPD's
strategy is to provide superior price/performance solutions for the PC LAN
market, along with a high level of customer support, technical service and
embedded software. SMC has combined its comprehensive product line with services
under its Buyer Assurance program that include 3-year to lifetime product
warranties, 7-day/24-hour phone technical support, cross-shipment product
replacement and 30-day money-back privileges. Market share for each competitor
is based on a combination of price, performance, service, promotional and
advertising activity and strength of the marketing channels.
Competition is provided by domestic and foreign manufacturers in U.S. and
international markets. Some companies concentrate on aggressive pricing as the
principal competitive tool. On the other hand, many leading manufacturers
supplement price strategies with performance, service and acceleration of new
product design cycles.
MARKETS AND COMPETITION: COMPONENT PRODUCTS DIVISION
The Division's strategy is to concentrate its product development, sales and
marketing resources into the PC I/O, networking and PC systems logic chipset
markets. These markets represent a small portion of the total semiconductor
market. Competitors include
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both domestic and foreign manufacturers, many of whom possess substantially
greater resources than SMC.
Within the PC I/O market, SMC believes the variety of performance features and
the design flexibility provided to customers has led to strong acceptance of its
family of PC I/O devices and allowed SMC to become a market leader. The Division
has continually added devices with enhanced features. Principal customers for PC
I/O devices are most major producers of PCs.
In the market for 10Mbps and 10/100Mbps single chip Ethernet control devices,
the Division has emphasized LAN products for laptop computers. SMC's principal
customers have been producers of PC Card-bus adapters. A family of low-cost
industrial ARCNET controllers addresses industrial network solutions,
characterized by long design-in cycles. A broad base of industrial companies
apply these devices to their machine-to-machine networking applications.
While many companies offer semiconductor foundry services worldwide, SMC has
been willing to undertake engineering programs for prospective customers and
deliver non-standard devices that require semiconductor fabrication techniques.
The size of the contracts that SMC's foundry business undertakes might be
considered too small to be economically viable by many wafer fabrication
facilities that deliver high-volume, advanced technology VLSI circuits.
SALES AND DISTRIBUTION
SMC's system products are sold, worldwide, primarily to distributors of computer
products as well as to system integrators and original equipment manufacturers
(OEMs). Component products are sold, worldwide, primarily to OEMs and also to
distributors of semiconductor devices. The Company maintains a reserve for
anticipated product returns and price protection.
SALES AND DISTRIBUTION: SYSTEM PRODUCTS DIVISION
Standard Microsystems sells LAN products primarily through LAN and microcomputer
distributors. The distributors sell products to thousands of resellers who offer
products to end users. The Division provides service and support and promotional
programs to encourage resellers to buy SMC products from distributors. In
addition, the Company sells to strategic accounts, who may be PC producers who
ship their PCs with SMC adapters, or system integrators, who include SMC
adapters when bidding for government or commercial contracts.
In accordance with industry practice, distributor inventory is protected with
respect to price on inventories that the distributor may have on hand at the
time of a change in the
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published list price, and with respect to the rotation of slow moving inventory
in exchange for other inventory of equal value. Distributor contracts may be
terminated by written notice by either party. The contracts specify terms
covering the return of inventories. Returns of product pursuant to termination
of these agreements have not been material. Reserves are estimated based on
information provided by distributors on sales to their customers and on their
inventory levels.
SALES AND DISTRIBUTION: COMPONENT PRODUCTS DIVISION
Sales of component products are primarily to OEMs. Producers of PCs are the
Division's largest customer group. In addition, some products are sold to
electronic component distributors. In accordance with industry practice,
distributor inventory is protected with respect to price on inventories which
the distributor may have on hand at the time of a change in the published list
price. Also, in accordance with industry practice, slow moving inventory may be
exchanged for other inventory of equal value. Distributor contracts may be
terminated by written notice by either party. The contracts specify the terms
for the return of inventories.
GEOGRAPHIC INFORMATION:
The information below summarizes the Companies sales for fiscal 1997, 1996 and
1995, by geographic region. Export sales are made in United States dollars.
Sales by Toyo Microsystems, which are not classified as export sales, are
denominated in Japanese yen. SMC's competitive position in international markets
may be impacted by currency fluctuations.
For the years ended February 28 or 29, %change %change
1997 97/96 1996 96/95 1995
United States $159.9 7% $149.4 -26% $201.5
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Export
Asia and Pacific Rim 112.0 29 87.0 62 53.7
Europe 51.9 -25 69.3 -20 86.5
Canada 7.5 -31 10.8 -29 15.3
Other 5.2 -40 8.6 -13 9.9
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Export revenues $176.6 1 $175.7 6 $165.5
Japan (TMC) 17.6 5 16.8 44 11.7
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Revenues outside the U.S. 194.2 1 192.5 9 177.1
Total revenues $354.1 4% $341.9 -10% $378.7
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BACKLOG
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The Company schedules production based upon a forecast of demand for its
products. Sales are made primarily pursuant to purchase orders generally
requiring delivery within one month. In light of industry practice and
experience, the Company believes that backlog is not a particularly meaningful
indicator of future sales.
MANUFACTURING
Products of the System Products Division are assembled by turnkey subcontractors
at plants located in the United States and Ireland. Design and assembly of these
products primarily utilize surface mount technology. SMC provides the
subcontract manufacturer with detailed documentation necessary to build a board
to required quality specifications. This documentation includes board schematics
and drawings, bill of materials, quality specifications and packaging, handling
and shipping details.
The subcontract manufacturer is then responsible for component and printed
circuit board procurement, incoming test of components, mounting components on a
printed circuit board and the burn-in and final testing of the boards. SMC
requires that assembled boards be manufactured to Interconnecting and Packaging
and Electronic Circuit (IPC) standards.
SMC utilizes semiconductor foundries and assembly contractors in the U.S.,
Southeast Asia and Western Europe to provide state-of-the-art integrated circuit
manufacturing and assembly capacity. These foundries manufacture most of the
integrated circuits required by the Component Products Division and proprietary
circuits used by the System Products Division. During fiscal 1997, 92% of the
revenues of the Component Products Division resulted from the sale of product
manufactured by subcontractor foundries, compared to 89% in 1996.
The Company has developed relationships with several suppliers who represent the
primary source for certain components, raw material and finished product. Most
components and other materials purchased by SMC and its subcontractors are
generally available from multiple suppliers. However, certain components and
other materials are available only from a single source. The inability to obtain
certain components or materials could lead to an interruption in shipments of
certain SMC products. SMC and its subcontract assemblers have generally been
able to obtain both sole and multiple-sourced materials without interrupting
production schedules. However, the inability to
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obtain certain components, materials or finished products from a supplier or
subcontractor could cause a temporary interruption in the sale of the Company's
products.
RESEARCH AND DEVELOPMENT
The technology involved in designing and manufacturing SMC's products is complex
and is constantly being refined. Accordingly, the Company is committed to a
program of research and development oriented toward improving and refining its
existing capabilities and developing new techniques, designs and technologies
for producing component and system products.
During the fiscal year which ended February 28, 1997, SMC spent $26.3 million on
research and development, which equaled 7.4% of revenues. This compares with
$31.7 million, or 9.3% of revenues, spent during fiscal 1996, and $28.3 million,
or 7.5% of revenues, during fiscal 1995. Of these amounts, $9.8 million was
spent by the divested Enterprise Networks Business Unit in fiscal 1996 compared
to $7.6 million in fiscal 1995.
Engineering groups, developing both system products and component products,
utilize semiconductor design techniques to minimize chip area and utilize
advanced wafer processing and packaging methods. The goal is to improve
features, performance and reliability while minimizing integrated circuit
manufacturing costs.
PATENTS AND LICENSE AGREEMENTS
The Company has received numerous United States patents, and the corresponding
Foreign equivalents, relating to its technologies and additional patent
applications are pending.
The Company has entered into non-exclusive patent licensing and
patent/technology licensing agreements which have entitled the licensees to
utilize the Company's patents or technologies, in exchange for which the Company
has received, in various combinations, lump-sum payments, royalty payments, the
right to utilize other patents or technologies of the licensees or other
consideration, including the right to manufacture, market and sell specific
products designed by the licensees. These agreements have typically provided for
bi-directional licenses under certain patents, utility models and design
patents, existing at the effective date of the particular agreement and patent
applications filed within a specified period of years after the effective date
of the agreement. The licenses usually continue for the life of the particular
patent.
The Company has, from time to time, been informed of claims that it may be
infringing patents owned by others. When the Company deems it appropriate, the
Company may seek licenses under certain of such patents. However, no assurance
can be given that satisfactory license agreements will be obtained if sought by
the Company or that failure to obtain any such licenses would not adversely
affect the Company's future operations.
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ENVIRONMENTAL REGULATION
Federal, state and local regulations impose various controls on the discharge of
certain chemicals and gases used in semiconductor processing. The Company's
facilities have been designed to comply with these regulations. However,
increasing public attention has focused on the environmental impact of
electronics manufacturing operations and, accordingly, there is no assurance
that future regulations will not impose significant costs on the Company.
EMPLOYEES
As of February 28, 1997, of the Company's 793 employees, 179 were engaged in
engineering, including research and development, 196 in marketing and sales, 165
in executive and administrative activities and 253 in manufacturing and
manufacturing support. This compared to February 29, 1996, when, of the
Company's 864 employees, 168 were engaged in engineering, including research and
development, 287 in marketing and sales, 165 in executive and administrative
activities and 244 in manufacturing and manufacturing support
Many employees are highly skilled and SMC's success depends upon its ability to
retain and attract such employees. The Company has never had a work stoppage. No
employees are represented by a labor organization and the Company considers its
employee relations to be satisfactory.
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SMC and Standard Microsystems are registered trademarks of Standard Microsystems
Corporation. Product names and company names are the trademarks of their
respective holders.
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Item 2. Properties.
The Company owns five facilities, totaling approximately 249,000 square feet of
plant and office space, located on approximately 28 acres in Hauppauge, New
York, where research, development, manufacturing, product testing, warehousing,
shipping, marketing, selling and administrative functions are conducted.
The Company occupies a 50,000 square foot facility in Irvine, California, where
SMC's System Products Division conducts most of the research, development and
marketing for adapter products. The lease expires in 2002.
In addition, the Company maintains offices in leased facilities in: San Jose,
California; Boca Raton, Bradenton and Miami, Florida; Atlanta, Georgia; Oakbrook
Terrace, Illinois; Andover and Danvers, Massachusetts; Kettering, Ohio; Austin,
Dallas and Houston, Texas; Falls Church, Virginia; Melbourne and Sydney,
Australia; Oakville, Ontario, Canada; London, England; St. Germain-en-Laye,
France; Munich, Germany; Tokyo, Japan; Singapore; Johannesburg, South Africa and
Taipei, Taiwan.
As of February 28, 1997, the Company owned machinery and equipment, property and
leasehold improvements with an original cost of $157.7 million and accumulated
depreciation and amortization of $94.9 million.
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Item 3. Legal Proceedings.
In June 1995, several actions were filed against the Company and certain of its
officers and directors. These complaints have been consolidated into a class
action on behalf of the purchasers of the Company's common stock between
September 19, 1994, and June 2, 1995. The consolidated complaint asserts claims
under federal securities laws and alleges that the price of the Company's common
stock was artificially inflated during the class action period by false and
misleading statements and the failure to disclose certain information. While it
is not possible to assess the likelihood of any liability being established, nor
predict the amount of damages that might be awarded in the event of a successful
claim, the Company has answered the consolidated complaint, has accrued the
estimated cost of legal fees to defend against these claims, and intends to
defend against these claims vigorously.
In May 1997, Cabletron Systems, Inc. and Cabletron Systems Acquisition, Inc.
(together, Cabletron) commenced legal action in the Superior Court for the
Commonwealth of Massachusetts, against the Company claiming violation of the
non-competition clause included in the January 1996 Asset Purchase Agreement
among the Company and Cabletron. Such clause prohibits the Company from
competing with Cabletron in a particular segment of the local
area networking marketplace through January 1999, following the
January 1996 sale of the Company's Enterprise Networks Business Unit to
Cabletron. The action seeks an injunction and unspecified damages. The Company
firmly believes that this claim is without merit and intends to vigorously
defend against it.
15
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
The executive officers of the registrant as of April 30, 1997, are as follows:
Served as an
Name Position Age officer since
Paul Richman Chairman and 54 1971
Chief Executive Officer
Arthur Sidorsky Executive Vice President 63 1980
Component Products Division
Lance Murrah Senior Vice President and 41 1994
General Manager System
Products Division
Eric Nowling Vice President and Controller 40 1995
All officers serve at the pleasure of the Company's Board of Directors.
16
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
The information captioned "Market price" and the last two paragraphs appearing
in the Annual Report under the heading "Quarterly Financial Data" are
incorporated herein by this reference. Except as specifically set forth herein
and elsewhere in this Form 10-K, no information appearing in the Annual Report
is incorporated by reference into this report nor is the Annual Report deemed to
be filed, as part of this report or otherwise, pursuant to the Securities
Exchange Act of 1934.
Item 6. Selected Financial Data.
The information appearing in the Annual Report under the caption "Selected
Financial Data" is incorporated herein by this reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information appearing in the Annual Report under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" is
incorporated herein by this reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements, notes thereto, Report of Independent Public
Accountants thereon and quarterly financial data appearing in the Annual Report
are incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Inapplicable.
17
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information appearing in the Proxy Statement under the caption "Election of
Directors" is incorporated herein by this reference.
Item 11. Executive Compensation.
The information appearing in the Proxy Statement under the caption "Executive
Compensation" is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management.
The information appearing in the Proxy Statement under the captions "Election of
Directors" and "Voting Securities of Certain Beneficial Owners and Management"
is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions.
The information appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" is incorporated herein by this
reference.
18
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a) 1. Financial Statements
The following consolidated financial statements of the Company
and its subsidiaries have been incorporated by reference from
the Annual Report pursuant to Part II, Item 8:
Consolidated Statements of Income for the three years
ended February 28, 1997
Consolidated Balance Sheets, February 28, 1997 and
February 29, 1996
Consolidated Statements of Shareholders' Equity for the
three years ended February 28, 1997
Consolidated Statements of Cash Flows for the three years
ended February 28, 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
Schedules are omitted because of the absence of conditions
requiring them or because the required information is shown on
the consolidated financial statements or the notes thereto.
3. Exhibits, which are listed on the Exhibit Index, are filed as
part of this report and such Exhibit Index is incorporated by
reference. Exhibits 10(a) through 10(m) listed on the
accompanying Exhibit Index identify management contracts or
compensatory plans or arrangements required to be filed as
exhibits to this report, and such listing is incorporated
herein by reference.
(b) No report on Form 8-K was filed during the last quarter of the period
covered by this report.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STANDARD MICROSYSTEMS CORPORATION
(Registrant)
By S/ERIC M. NOWLING
ERIC M. NOWLING
Vice President and Controller
(Principal Financial and Accounting Officer)
Date: May 23, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
Signature and Title Date
PAUL RICHMAN May 23, 1997
Paul Richman, Chairman,
Chief Executive Officer and Director
(Principal Executive Officer)
EVELYN BEREZIN May 23, 1997
Evelyn Berezin
Director
20
JAMES R. BERRETT May 23, 1997
James R. Berrett
Director
ROBERT M. BRILL May 23, 1997
Robert M. Brill
Director
PETER F. DICKS May 23, 1997
Peter F. Dicks
Director
KATHLEEN B. EARLEY May 23, 1997
Kathleen B. Earley
Director
HERMAN FIALKOV May 23, 1997
Herman Fialkov
Director
IVAN T. FRISCH May 23, 1997
Ivan T. Frisch
Director
21
EXHIBIT INDEX
Incorporated By Exhibit
Reference To: No. Exhibit
Exhibit 3(a) [9] 3.1 Restated Certificate of Incorporation
* 3.2 By-Laws as amended
Exhibit 1 [5] 3.3 Rights Agreement dated January 7,
1988, with Securities Trust Company as
Rights Agent
Exhibit 3 [6] 3.4 Amendment No. 1 to Rights Agreement
Exhibit 10.1[14] 10.1 Employment Agreement dated
March 1, 1995, with Paul Richman
Exhibit 10.2 [16] 10.2 Amendment thereto dated July 10, 1995
* 10.3 Employment Agreement dated
March 1, 1996, with Arthur Sidorsky
Registrant's Proxy 10.4 1984 Stock Option Plan for Officers
Statement dated May and Key Employees
16, 1984, Exhibit A
Exhibit 10(g) [4] 10.5 Amendment to 1984 Stock Option Plan for
Officers and Key Employees
Registrant's Proxy 10.6 1986 Stock Option Plan for
Statement dated May Officers and Key Employees
22, 1986, Exhibit A
Exhibit 10(i) [4] 10.7 Amendment to 1986 Stock Option Plan for
Officers and Key Employees
Exhibit 10(m) [1] 10.8 Amendment to 1986 Stock Option Plan
for Officers and Key Employees dated
March 29, 1990
Registrant's Proxy 10.9 1989 Stock Option Plan
Statement dated June
6, 1989, Exhibit A
Registrant's Proxy 10.10 1991 Restricted Stock Bonus Plan
Statement dated July
17, 1991, Exhibit A
Registrant's Proxy 10.11 Director Stock Option Plan
Statement dated May
29, 1990, Exhibit A
Registrant's Proxy 10.12 1994 Director Stock Option Plan
Statement dated May
31, 1995, Exhibit A
Exhibit 10(m) [11] 10.13 Resolutions adopted February 18, 1992,
amending Director Stock Option Plan,
1991 Restricted Stock Bonus Plan,
1989 Stock Option Plan,
1986 Stock Option Plan and
1984 Stock Option Plan
Exhibit 10.14 [14] 10.14 Retirement Plan for Directors
Registrant's Proxy 10.15 1993 Stock Option Plan for Officers
Statement dated May and Key Employees
25, 1993, Exhibit A
Exhibit 10(x) [13] 10.16 Executive Retirement Plan
Registrant's Proxy 10.17 1994 Stock Option Plan for Officers
Statement dated May and Key Employees
26, 1994, Exhibit A
Exhibit 10.18 [14] 10.18 Resolutions adopted October 31, 1994,
amending the Retirement Plan for
Directors and the Executive Retirement
Plan
Exhibit 10.19 [14] 10.19 Resolutions adopted January 3, 1995,
amending the 1994, 1993, 1989, 1986, and
1984 Stock Option Plans and the
1991 Restricted Stock Plan
Exhibit 10.2 [2] 10.20 Patent and Trade Secrets Agreement
dated March 12, 1983, with Paul
Richman
Exhibit 10.22 [14] 10.21 Consulting Agreement dated
March 1, 1995, with Herman Fialkov
Exhibit 10(t) [7] 10.22 Form of Severance Pay Agreement
(renewed annually through
December 31, 1996)
Exhibit 2(b) [10] 10.23 Technology Transfer Agreement
between SMC and Western Digital
Corporation dated September 27, 1991
Exhibit 2(c) [10] 10.24 Noncompetition Agreement between
SMC and Western Digital Corporation
dated September 27, 1991
Exhibit 10.27 [14] 10.25 Credit Agreement dated
January 13, 1995
Exhibit 10.26 [16] 10.26 First Amendment dated March 28, 1995
Exhibit 10.27 [16] 10.27 Second Amendment dated
October 13, 1995
Exhibit 10.28 [16] 10.28 Third Amendment dated
March 28, 1996
Exhibit 2 [15] 10.29 Asset Purchase Agreement dated
January 9, 1996, among Cabletron
Systems, Inc., and SMC Enterprise
Networks, Inc
Exhibit 10.30 [16] 10.30 Agreement for Purchase and Sale of
Assets among SMC, EFAR
Microsystems, Inc., and the Key Officers
identified therein dated
February 26, 1996
Registrant's Proxy 10.31 1996 Stock Option Plan for Officers
Statement dated July and Key Employees
22, 1996, Exhibit A
Item 7, Exhibit 1[17] 10.32 Common Stock and Warrant Purchase
Agreement, among SMC and Intel
Corporation, dated March 18, 1997
Item 7, Exhibit 2[17] 10.33 Warrant to Purchase Shares of Common
Stock of Standard Microsystems
Corporation, among SMC and Intel
Corporation, dated March 18, 1997
Item 7, Exhibit 3[17] 10.34 Investor Rights Agreement, among SMC
and Intel Corporation, dated March 18, 1997
* 13 Portions of Annual Report to
Stockholders for year ended February 28,
1997, incorporated by reference
* 21 Subsidiaries of the registrant
* 23 Consent of Arthur Andersen LLP
* 27 Financial Data Schedule
- -------------------------
* Filed herewith.
[1] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1990.
[2] Registrant's Quarterly Report on Form 10-Q for the quarter ended August 31,
1983.
[3] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1985.
[4] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1987.
[5] Registrant's Registration on Form 8-A dated January 11, 1988.
[6] Registrant's Amendment No. 2 on Form 8 dated April 14, 1988 to Registration
on Form 8-A.
[7] Registrant's Annual Report on Form 10-K for fiscal year ended February 29,
1988.
[8] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1989.
[9] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1991.
[10] Registrant's Current Report on Form 8-K filed October 31, 1991.
[11] Registrant's Annual Report on Form 10-K for fiscal year ended February 29,
1992.
[12] Registrant's Current Report on Form 8-K filed January 13, 1993.
[13] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1994.
[14] Registrant's Annual Report on Form 10-K for fiscal year ended February 28,
1995.
[15] Registrant's Current Report on Form 8-K dated January 26, 1996.
[16] Registrant's Annual Report on Form 10-K for fiscal year ended February 29,
1996.
[17] Schedule 13D filed by Intel Corporation, dated March 27, 1997.