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UNITED STATES
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
For the Fiscal Year Ended February 29, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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)
(631) 435-6000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
Preferred Stock Purchase Rights
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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. ( )
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes x No ___
The aggregate market value of the shares of voting stock of the registrant
held by non-affiliates, based upon the last sale price of the registrant's
common stock on August 29, 2003, as reported by the Nasdaq Stock Market's
National Market, was approximately $351.7 million. As of March 31, 2004, there
were 18,397,864 shares of the registrant's common stock outstanding.
Documents Incorporated By Reference
Portions of the registrant's 2004 Annual Report to Shareholders are
incorporated by reference into Part II of this report on Form 10-K, and portions
of the registrant's Proxy Statement for the 2004 Annual Meeting of Shareholders
are incorporated by reference into Part III of this report on Form 10-K.
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Standard Microsystems Corporation
Form 10-K
For the Fiscal Year Ended February 29, 2004
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Portions of this Form 10-K contain forward-looking statements concerning various
aspects of the Company's business, including its strategy, product development
efforts, and litigation. These statements involve numerous risks and
uncertainties including those discussed throughout this document. For a further
explanation and details of some of these risks, please refer to "Other Factors
That May Affect Future Operating Results" within Part I, Item 1.
PART I
Item 1. Business.
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General Description of the Business
Standard Microsystems Corporation (the Company, the Registrant, or SMSC) is a
Delaware corporation, organized in 1971. As used herein, the terms Company,
Registrant and SMSC include the Company's subsidiaries, except where the context
otherwise requires.
SMSC provides semiconductor systems solutions for high-speed communication and
computing applications. Through the integration of its leading-edge 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 USB 2.0 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.
Principal Products of the Company
The Company supplies semiconductor devices in three major product platforms:
Connectivity Solutions, Networking Products, and Computing Platform Solutions.
Connectivity Solutions - These products provide system level semiconductor
solutions incorporating USB 2.0 and other high-speed serial interfaces, enabling
interoperability and connectivity in consumer electronics, multimedia computing
and mobile storage applications. This product family addresses the marketplace's
increasing requirements for high-speed data transfer of information between
diverse systems platforms, utilizing standardized interface protocols. SMSC's
products participate in several product areas within the USB connectivity
market, including flash card readers, pen drives, read/write and optical storage
devices and hubs. USB connectivity technology has been very successful in
replacing legacy serial and parallel interfaces in computing, consumer
electronics and industrial applications. Designers are attracted to its
plug-and-play features as well as its strong software support and predictable
software development requirements.
Product offerings within SMSC's connectivity solutions product line include:
o Flash card reader products, including the USB97C2223/2224, which is a
bus-powered USB 2.0 flash media controller supporting 10 different flash
memory card formats in a single device.
o Pen drive controller products, including the USB97C242, which is a USB 2.0
flash drive controller providing a single chip solution for SmartMedia and
NAND flash memory devices.
o Disk and optical storage drive controller products, including the
USB97CFDC, a USB floppy disk controller, and the USB97C202, a USB ATA/ATAPI
device contoller.
o Hub products, including the USB20H04, a high-performance 4-port USB 2.0 hub
controller.
o Transceiver products, including the GT3200, a USB 2.0 physical layer (PHY)
circuit, providing an interface between a USB cable and a peripheral-side
USB controller.
Networking Products - In business environments, on factory floors and in the
home, there continues to be a rapidly expanding demand for computers, machinery,
appliances and other applications to be networked together. The Company's
networking products provide Ethernet and ARCNET based solutions offering design
flexibility and optimized throughput for embedded networking applications in
business, industrial and consumer markets.
Ethernet has emerged as an effective and pervasive protocol in networking
technology. The Company's Ethernet solutions are non-PCI based, allowing
designers to effectively incorporate Ethernet connectivity without the need for
a PCI bus, thereby eliminating the additional cost and overhead associated with
using and supporting the PCI bus. SMSC supplies Ethernet connectivity solutions
for embedded applications in consumer electronics, industrial equipment and
enterprise hardware.
ARCNET and CircLink(TM), an ARCNET derivative, provide connectivity solutions
that are versatile and easy to use, allowing embedded system designers to easily
interconnect various sub-systems inside embedded applications. By replacing
traditionally slow, wire intensive, hard to use serial communications, ARCNET
and CircLink(TM) solutions allow designers to reduce wiring and micro-controller
costs, and create a more flexible and modular systems architecture. These
products target networking applications requiring a high level of determinism
and predictable behavior, such as telecom equipment, robotics and medical
equipment, as well as those applications seeking high throughput, such as
digital copiers and printers and transportation systems.
Product offerings within the Company's networking product line include:
o Ethernet products, including the LAN91C111, a 10/100 Non-PCI Ethernet
single chip media access controller and physical layer device (MAC and
PHY), and the LAN83C183, a 10/100 Mbps TX/FX/10BT Fast Ethernet PHY.
o Embedded communications products, including the COM20020I, a universal
ARCNET local area network (LAN) controller with 2K x 8 on-board RAM, the
COM20022I, a 10mbps ARCNET controller with 2K x 8 on-board RAM, and the
TMC20073, a CircLink(TM) real-time communication controller targeted
towards industrial and commercial applications.
Computing Platform Solutions - SMSC is the world's leading supplier of advanced
Input/Output (I/O) products for PC-related computing applications supplied by
major original equipment manufacturers (OEMs) and motherboard manufacturers. The
Company's broad LPC-based and ISA-based product portfolio provides a variety of
integration levels for designers, with unique configurations of serial ports,
parallel ports, keyboard controllers, hardware monitoring, infrared ports, real
time clocks, general purpose I/O pins, logic integration and power management.
The Company is the market leader in providing I/O solutions and embedded
controllers for the rapidly expanding mobile PC market, and in supplying I/O
solutions for desktop PC applications, featuring I/O and USB hubs, and
environmental monitoring and fan control.
SMSC has leveraged its analog design expertise to develop a line of stand-alone
environmental monitoring and control (EMC) products, providing thermal
management, hardware monitoring and voltage supervision, all of which are
critical to ensuring the stability and reliability of computing systems. The
Company's EMC sensor and fan control products are specifically designed to
safeguard today's high-heat, small form factor system designs.
The Company's computing platform solutions products also extend into the
PC-based server market. Advanced I/O products for server applications build on
SMSC's broad I/O and system management expertise and include timers, flash
memory interfaces, thermal management and other requirements of server
configurations.
Product offerings within the Company's computing platform solutions product line
include:
o Stand-alone desktop I/O products, including the LPC47M10x and the
LPC47B27x, which are both 100-pin enhanced Super I/O controllers with LPC
interfaces, targeting consumer applications.
o Integrated desktop I/O products, including the LPC47M14x, which is a
128-pin enhanced Super I/O controller with an LPC interface and a USB hub,
and the LPC47M192, an LPC-based Super I/O controller with hardware
monitoring.
o Stand-alone mobile I/O products, including the LPC47N227, which is a
100-pin Super I/O controller with LPC interface for notebook PC
applications, and the LPC47N237, a 3.3-volt I/O controller for port
replicators and docking stations.
o Integrated mobile I/O products, including the LPC47N253, a 3.3-volt
advanced mobile systems controller with serial peripheral interface (SPI).
o Mobile keyboard controllers, including the LPC47N350, an advanced I/O with
SPI and LPC docking interface.
o Environmental monitoring and control products, including the EMCT03, a
triple SMBus temperature monitor, and the EMC6D103, a fan control device
with high frequency PWM (pulse width modulation) support and hardware
monitoring features.
o Server I/O products, including the LPC47S422, an enhanced Super I/O
controller with LPC interface for server applications.
Competition
The Company competes in the semiconductor industry, servicing and providing
solutions for a variety of high-speed communication and computer applications.
Many of the Company's larger customers conduct business in the personal computer
and related peripheral devices industries. Intense competition, rapid
technological change, cyclical market patterns, price erosion and periods of
mismatched supply and demand have historically characterized these industries.
The Company faces competition from several large semiconductor manufacturers,
some of which have greater size and financial resources than the Company. The
Company's principal competitors in the advanced I/O controller market include
National Semiconductor Corporation, Winbond Electronics Corporation and
Integrated Technology Express, Inc. (ITE).
As SMSC continues to broaden its product offerings, it will likely face new
competitors in other markets. Many of the Company's potential competitors have
the ability to invest larger dollar amounts into research and development, and
some have their own manufacturing facilities, which may give them a cost
advantage on large volume products.
The principal methods that the Company uses to compete include the introduction
of innovative new products, providing industry-leading product quality and
customer service, adding new features to its products, improving product
performance, striving to ensure availability of product and reducing
manufacturing costs. SMSC also cultivates strategic relationships with certain
key customers who are technology leaders in its target markets, which provide
insight into market trends and opportunities for the Company to better support
those customers' needs.
The Company believes that it currently competes effectively in the areas
discussed in the previous paragraph to the extent they are within its control.
However, given the pace at which change occurs in the semiconductor, personal
computer and other high-technology industries, SMSC's current competitive
capabilities are not a guarantee of future success.
Research and Development
The semiconductor industry, and the individual markets in which the Company
currently competes, are highly competitive, and the Company believes that
continued investment in research and development (R&D) is essential to
maintaining and improving its competitive position. SMSC has strategic
relationships with many of its customers and tailors its solutions to these
specific customers' needs. Serving a wide array of world class OEMs, the
Company's continued success will be based, among other things, on its ability to
meet the individual needs of these customers and to help them speed their own
products to market.
SMSC's R&D activities are performed by a team of highly-skilled engineers and
technicians, and are primarily directed towards the design of new integrated
circuits in both mainstream and emerging technologies, the development of new
software design tools and blocks of logic, as well as ongoing cost reductions
and performance improvements in existing products.
In recent years, SMSC has migrated from an organization with a traditional
strength and rich history in digital design, to become a supplier with broad
engineering and design expertise in digital, analog and mixed-signal solutions.
Electronic signals fall into one of two categories - analog or digital. Digital
signals are used to represent the "ones" and "zeros" of binary arithmetic, and
are either on or off. Analog, or linear, signals represent real-world phenomena,
such as temperature, pressure, sound, speed and motion. These signals can be
detected and measured using analog sensors, which represent real-world phenomena
by generating varying voltages and currents. Mixed-signal products combine
digital and analog circuitry into a single device. Mixed-signal solutions can
significantly reduce package sizes by integrating system interfaces, reducing
external component requirements and lowering power consumption, all of which
reduce system costs. Nearly half of SMSC's currently shipping products are
mixed-signal devices.
SMSC employs engineers with a wide range of experience in digital, mixed-signal
and analog MOS/VLSI circuit design, from experienced industry veterans to new
engineers recently graduated from top universities. Their activities are
supported by state-of-the-art hardware, software, and other product design tools
procured from world-class suppliers. The Company's engineering design centers
are strategically located in New York, Texas and Arizona to take full advantage
of the technological expertise found in each area, and to closely cater to a
widespread base of customers located across the country.
Manufacturing
SMSC provides semiconductor solutions using a fabless manufacturing model, which
is increasingly common in the semiconductor industry. Third party contract
foundries and package assemblers are engaged to fabricate the Company's products
onto silicon wafers, cut these wafers into die and assemble the die into
finished packages. This strategy allows the Company to focus its resources on
product design and development, marketing and quality assurance. It also reduces
fixed costs and capital requirements, and provides the Company access to the
most advanced manufacturing capabilities.
The Company's primary wafer suppliers are Chartered Semiconductor Manufacturing,
Ltd. in Singapore and Taiwan Semiconductor Manufacturing Company, Ltd. (TSMC) in
Taiwan. The Company may negotiate additional foundry supply contracts and
establish other sources of wafer supply for its products as such arrangements
become useful or necessary, either economically or technologically.
Processed silicon wafers are shipped to various third party assembly suppliers,
most of which are located in the Pacific Rim region, where they are separated
into individual chips that are then encapsulated into plastic packages. As is
the case with the Company's wafer supply requirements, SMSC employs a number of
independent suppliers for assembly purposes. This enables the Company to take
advantage of the subcontractor's high volume manufacturing, related cost
savings, speed and supply flexibility. It also provides SMSC with timely access
to cost-effective advanced process and package technologies. The Company
purchases most of its assembly services from Advanced Semiconductor Engineering,
Inc., ST Assembly Test Services, Ltd., Orient Semiconductor Electronics, Ltd.,
and Amkor Technology, Inc.
Following assembly, each of the packaged units receives final testing, marking
and inspection prior to shipment to customers. Final testing for most of the
Company's products is performed at SMSC's own state-of-the-art testing operation
in Hauppauge, New York. Final testing services of independent test suppliers are
also utilized as necessary, most of which occur in the Pacific Rim region.
Customers demand semiconductors of the highest quality and reliability for
incorporation into their products. SMSC focuses on product reliability from the
initial stages of the design cycle through each specific design process,
including production test design. In addition, designs are subject to in-depth
circuit simulation at temperature, voltage and processing extremes before
initiating the manufacturing process. The Company prequalifies each of its
assembly and foundry subcontractors. This prequalification process consists of a
series of industry standard environmental product stress tests, as well as an
audit and analysis of the subcontractor's quality system and manufacturing
capability. Wafer foundry production and assembly services are closely monitored
to ensure consistent overall quality, reliability and yield levels.
New Brand Identity
On April 26, 2004, SMSC unveiled a new global brand identity, including a new
logo, a new tagline - "Success by Design," and a new website design at its
www.smsc.com homepage. Through its communications initiatives, the Company is
placing a new emphasis and focus on building awareness of its significant
accomplishments and unique capabilities to serve customers. The new "Success by
Design" tagline underscores the Company's mission of being an essential
ingredient that fuels its customers' success and highlights its culture which is
deliberate in the manner in which it ensures success for its customers,
investors, suppliers, employees and other partners.
Sales, Marketing and Customer Service
SMSC has historically been a successful supplier of Application-Specific Custom
Products (ASCPs), tailored to the specific needs of its customers. To address
its customers' aggressive cost and time-to-market objectives, the Company is
increasingly designing and delivering Application-Specific Standard Products
(ASSPs), while remaining focused on retaining its expertise of providing
innovative, yet diverse, product features for its customers.
The Company's sales and marketing strategy is to achieve design wins with
technology leaders in targeted markets through superior sales, field
applications and engineering support. Sales managers are dedicated to key OEM
customers to ensure the highest level of customer service and to promote close
cooperation and communication. The success of its customers is a cornerstone of
SMSC's corporate strategy.
The Company also serves its customers with a worldwide network of field
application engineers. These engineers assist customers in the selection and
proper use of its products and are available to answer customer questions and
resolve technical issues. The field application engineers are supported by
factory application engineers, who work with both the customer's and the
Company's factory design and product engineers to develop the requisite support
tools and facilitate the smooth introduction of new products.
The Company strives to make the design-in of its products as easy as possible
for its customers. To facilitate this, SMSC offers a wide variety of support
tools, including evaluation boards, sample BIOS, diagnostics programs, sample
schematics and PCB layout files, driver programs, data sheets, industry standard
specifications and other documentation. These tools are readily available from
the Company's sales offices and sales representatives. SMSC's home page on the
World Wide Web (www.smsc.com) provides customers with immediate access to its
latest product information. In addition, the Company maintains an electronic
bulletin board so that registered customers can download software updates as
needed. Customers are also provided with reference platform designs for many of
the Company's products, which enable easier and faster transitions from the
initial prototype designs through final production releases.
SMSC markets and sells its products in the United States through a direct sales
force, electronics distributors and manufacturers' representatives. Two
independent distributors are currently engaged to serve the majority of the
North American market. Internationally, products are marketed and sold through
regional sales offices located in Germany, Taiwan, China and Korea as well as
through a network of independent distributors and representatives. The Company
serves the Japanese marketplace primarily through its Tokyo, Japan-based
subsidiary, SMSC Japan.
In accordance with industry practices, most distributors have certain rights of
return and price protection privileges on unsold products until the distributor
sells the product. Distributor contracts may be terminated by written notice by
either party. The contracts specify the terms for the return of inventories.
Returns of product pursuant to termination of these agreements have not been
material. Shipments made by SMSC Japan to distributors in Japan are made under
agreements that permit limited or no stock return privileges and generally no
price protection or other sales price rebates.
The Company generates a significant portion of its sales and revenues from
international customers. While the demand for the Company's products is
primarily driven by the worldwide demand for personal computers, peripheral
devices, and embedded systems applications sold by U.S.-based suppliers, a
significant portion of the Company's products are sold to manufacturing
subcontractors of those U.S.-based suppliers, and to distributors who serve to
feed the high technology manufacturing pipeline, located in Asia and the Pacific
Rim. The majority of the world's personal computer, personal computer
motherboard and other high technology manufacturing activity occurs in that
region. The Company expects that international shipments, particularly to Asia
and the Pacific Rim regions, will continue to represent a significant portion of
its sales and revenues.
The information below summarizes sales and revenues to unaffiliated customers
for fiscal 2004, 2003 and 2002 by geographic region (in thousands):
For the years ended February 29 or 28, 2004 2003 2002
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North America $ 37,138 $ 14,712 $ 42,913
Asia and the Pacific Rim 168,380 131,903 106,123
Europe 10,335 8,823 10,157
Rest of World 20 79 105
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$215,873 $155,517 $159,298
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Intellectual Property
The Company believes that intellectual property is a valuable asset that has
been, and will continue to be, important to the Company's success. The Company
has received numerous United States patents relating to its technologies and
additional patent applications are pending. It is the Company's policy to
protect these assets through reasonable means. To protect these assets, the
Company relies upon nondisclosure agreements, contractual provisions, and patent
and copyright laws.
SMSC has patent cross-licensing agreements with more than thirty companies,
including such semiconductor manufacturers as IBM, Intel, Micron Technology, NEC
and Toshiba, providing access to more than 40,000 U.S. patents. Almost all of
the Company's cross-licensing agreements give SMSC the right to use,
royalty-free, patented intellectual property of the other companies. In
situations where the Company needs to acquire strategic intellectual property
not covered by cross-licenses, the Company enters into agreements to purchase or
license the required intellectual property.
Backlog and Customers
The Company's business, and to a large extent much of the semiconductor
industry, is characterized by short-term order and shipment schedules, rather
than volume purchase contracts. 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, and at times,
several months. Typical of industry practice, the Company's backlog may be
canceled or rescheduled by the customer on short notice without significant
penalty. As a result, the Company's backlog may not be indicative of actual
sales and therefore should not be used as a measure of future revenue.
From time to time, several key customers can account for a significant portion
of the Company's sales and revenues. Sales and revenues from significant
customers for fiscal 2004, 2003 and 2002, stated as percentages of total sales
and revenues, are summarized as follows:
For the years ended February 29 or 28, 2004 2003 2002
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Customer A 16% 20% 15%
Customer B 16% 14% 6%
Customer C 12% 10% 29%
Customer D 12% 12% 6%
The Company expects that its key customers will continue to account for a
significant portion of its sales and revenues in fiscal 2005 and for the
foreseeable future.
Employees
At February 29, 2004, the Company employed 546 individuals, including 122 in
sales, marketing and customer support, 130 in manufacturing and manufacturing
support, 199 in research and product development and 95 in administrative
support and building maintenance activities.
The Company's future success depends in large part on the continued service of
key technical and management personnel and on its ability to continue to attract
and retain qualified employees, particularly those highly skilled design,
product and test engineers involved in manufacturing existing products and the
development of new products. The competition for such personnel is intense.
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 good.
Additional Information
The Company's annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to reports filed or furnished
pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended, are available free of charge on the Company's web site at www.smsc.com,
as soon as reasonably practicable after the filing of such reports with the
Securities and Exchange Commission. Information contained on the Company's web
site is not part of this report.
Other Factors That May Affect Future Operating Results
Before deciding to invest in the Company, or to maintain or increase your
investment, you should carefully consider the risks described below, in addition
to the other information contained in this report and in the Company's other
reports filed or furnished with the SEC, including the Company's reports on
Forms 10-Q and 8-K. The risks and uncertainties described below are not the only
ones facing the Company. Additional risks and uncertainties not presently known
or that are currently deemed immaterial may also affect the Company's
operations. Any of the risks, uncertainties, events or circumstances described
below could cause the Company's financial condition or results of operations to
be adversely affected.
The Semiconductor Industry - The Company competes in the semiconductor industry,
which has historically been characterized by intense competition, rapid
technological change, cyclical market patterns, price erosion and periods of
mismatched supply and demand. The semiconductor industry has experienced
significant economic downturns at various times in the past, characterized by
diminished product demand and accelerated erosion of selling prices. In
addition, many of the Company's competitors in the semiconductor industry are
larger and have significantly greater financial and other resources than the
Company.
The Personal Computer Industry - Sales of many of the Company's products depend
largely on sales of personal computers and peripheral devices. Reductions in the
rate of growth of the PC market could adversely affect the Company's operating
results. In addition, as a component supplier to PC manufacturers, the Company
may experience greater demand fluctuation than its customers themselves
experience. Also, some of the Company's products are used in PCs for the
consumer market, which can be more volatile than other segments of the PC
marketplace.
The PC industry is characterized by ongoing product changes and improvements,
much of which is driven by several large companies whose own business strategies
play significant roles in determining PC architectures. Future shifts in PC
architectures may not always be anticipated or be consistent with the Company's
product roadmaps.
Worldwide Economic Environment - Calendar 2001 and 2002 were characterized by
slower economic activity, decreased consumer confidence, reduced corporate
profits and capital spending and liquidity concerns which, along with
international conflicts and terrorist and military activity, resulted in a
downturn in worldwide economic conditions. As a result of these unfavorable
economic conditions, the Company experienced a slowdown in customer orders in
fiscal 2002. The Company's fiscal 2003 and fiscal 2004 order input showed
sequential improvement, driven by new design wins and an overall general
economic recovery. In addition, recent political and social turmoil related to
international conflicts and terrorist acts may place further pressure on
economic conditions in the U.S. and worldwide. These unstable political, social
and economic conditions make it challenging for the Company, its customers and
its suppliers to forecast and plan future business activities.
Product Development and Technological Change - The Company's prospects are
highly dependent upon the successful development and timely introduction of new
products at competitive prices and performance levels, with acceptable margins.
The success of new products depends on various factors, including timely
completion of product development programs, market acceptance of the Company's
and its customers' new products, securing sufficient foundry capacity for volume
manufacturing of wafers, achieving acceptable wafer fabrication yields by the
Company's independent foundries and the Company's ability to offer these new
products at competitive prices. In order to succeed in having the Company's
products incorporated into new products being designed by its customers, the
Company must anticipate market trends and meet performance, quality and
functionality requirements of such customers and must successfully develop and
manufacture products that adhere to these requirements. In addition, the Company
must meet the timing and price requirements of its customers and must make such
products available in sufficient quantities. There can be no assurance that the
Company will be able to identify market trends or new product opportunities,
develop and market new products, achieve design wins or respond effectively to
new technological changes or product announcements by others.
The Company's future growth will depend, among other things, upon its ability to
continue to expand its product lines. To the extent that the Company attempts to
compete in new markets, it may face competition from suppliers that have
well-established market positions and products that have already been proven to
be technologically and economically competitive. There can be no assurance that
the Company will be successful in displacing these suppliers in the targeted
applications.
Price Erosion - The semiconductor industry is characterized by intense
competition. Historically, average selling prices in the semiconductor industry
generally, and for the Company's products in particular, have declined
significantly over the life of each product. While the Company expects to reduce
the average selling prices of its products over time as it achieves
manufacturing cost reductions, competitive and other pressures may require the
reduction of selling prices more quickly than such cost reductions can be
achieved. If not offset by reductions in manufacturing costs or by a shift in
the mix of products sold toward higher-margin products, declines in the average
selling prices could reduce gross margins.
Reliance upon Subcontract Manufacturing - The vast majority of the Company's
products are manufactured and assembled by independent foundries and subcontract
manufacturers. This reliance upon foundries and subcontractors involves certain
risks, including potential lack of manufacturing availability, reduced control
over delivery schedules, the availability of advanced process technologies,
changes in manufacturing yields and potential cost fluctuations. During
downturns in the semiconductor economic cycle, reduction in overall demand for
semiconductor products could financially stress certain of the Company's
subcontractors. If the financial resources of such independent subcontractors
are stressed, the Company may experience future product shortages, quality
assurance problems, increased manufacturing costs or other supply chain
disruptions.
Forecasts of Product Demand - The Company generally must order inventory to be
built by its foundries and subcontract manufacturers well in advance of product
shipments. Production is often based upon either internal or customer-supplied
forecasts of demand, which can be highly unpredictable and subject to
substantial fluctuations. Because of the volatility in the Company's markets,
there is risk that the Company may forecast incorrectly and produce excess or
insufficient inventories. This inventory risk is increased by the trend for
customers to place orders with shorter lead times and the customers' ability to
cancel or reschedule existing orders.
Strategic Relationships with Customers - The Company's future success depends in
significant part on strategic relationships with certain of its customers. If
these relationships are not maintained, or if these customers develop their own
solutions, adopt a competitor's solution, or choose to discontinue their
relationships with SMSC, the Company's operating results could be adversely
affected.
In the past, the Company has relied on its strategic relationships with certain
customers who are technology leaders in its target markets. The Company intends
to pursue and continue to form these strategic relationships in the future.
These relationships often require the Company to develop new products that
typically involve significant technological challenges. The customers frequently
place considerable pressure on the Company to meet their tight development
schedules. Accordingly, the Company may have to devote a substantial portion of
its resources to these strategic relationships, which could detract from or
delay completion of other important development projects.
Customer Concentration - A limited number of customers account for a significant
portion of the Company's sales and revenues. The Company's sales and revenues
from any one customer can fluctuate from period to period depending upon market
demand for that customer's products, the customer's inventory management of the
Company's products and the overall financial condition of the customer.
Shipments to Distributors - A significant portion of the Company's product sales
are made through distributors. The Company's distributors generally offer
products of several different suppliers, including products that may be
competitive with the Company's products. Accordingly, there is risk that these
distributors may give higher priority to products of other suppliers, thus
reducing their efforts to sell the Company's products. In addition, the
Company's agreements with its distributors are generally terminable at the
distributor's option. No assurance can be given that future sales by
distributors will continue at current levels or that the Company will be able to
retain its current distributors on acceptable terms. A reduction in sales
efforts by one or more of the Company's current distributors or a termination of
any distributor's relationship with the Company could have an adverse effect on
the Company's operating results.
Business Concentration in Asia - A significant number of the Company's foundries
and subcontractors are located in Asia. Many of the Company's customers also
manufacture in Asia or subcontract manufacturing to Asian companies. A
significant portion of the world's personal computer component and circuit board
manufacturing, as well as personal computer assembly, occurs in Taiwan, and many
of the Company's suppliers and customers are based in, or do significant
business in, Taiwan. This concentration of manufacturing and selling activity in
Asia, and in Taiwan in particular, poses risks that could affect the supply and
cost of the Company's products, including currency exchange rate fluctuations,
economic and trade policies and the political environment in Taiwan and other
Asian communities. Portions of the Asian community have recently experienced
health risks associated with the SARS virus, the economic impact of which is
still unclear. The Pacific Rim region is also subject to the risk of
earthquakes. For example, in September 1999, a major earthquake caused
widespread damage and business interruptions in Taiwan. While the September 1999
earthquake did not materially adversely affect the Company's business, future
earthquakes or other natural disasters in this region, if they occur, could
adversely effect the Company's operating results.
Protection of Intellectual Property - The Company has historically devoted
significant resources to research and development activities and believes that
the intellectual property derived from such research and development is a
valuable asset that has been, and will continue to be, important to the
Company's success. The Company relies upon nondisclosure agreements, contractual
provisions and patent and copyright laws to protect its proprietary rights. No
assurance can be given that the steps taken by the Company will adequately
protect its proprietary rights. During its history, the Company has executed
patent cross-licensing agreements with many of the world's largest semiconductor
suppliers, under which the Company receives and conveys various intellectual
property rights. Many of these agreements are still effective. The Company could
be adversely affected should circumstances arise which cause certain of these
agreements to terminate prematurely.
Infringement and Other Claims - Companies in the semiconductor industry often
aggressively protect and pursue their intellectual property rights. From time to
time, the Company has received notices claiming that the Company has infringed
upon or misused other parties' proprietary rights. The Company has also in the
past received, and may again in the future receive, notices of claims related to
business transactions conducted with third parties, including asset sales and
other divestitures. Although the Company defends itself vigorously in these
actions, and has not incurred material liabilities under such claims in the
past, it is possible that the Company may not prevail in such actions, or in any
other such actions, if any, in the future. Any damages resulting from such
actions may materially and adversely affect the Company's business, financial
condition and results of operations. In addition, even if claims against the
Company are not valid or successfully asserted, defense against the claims could
result in significant costs and a diversion of management and resources.
Dependence on Key Personnel - The success of the Company is dependent in large
part on the continued service of its key management, engineering, marketing,
sales and support employees. Competition for qualified personnel is intense in
the semiconductor industry, and the loss of current key employees, or the
inability of the Company to attract other qualified personnel, including the
inability to offer competitive stock-based and other compensation, could hinder
the Company's product development and ability to manufacture, market and sell
its products.
The Company believes that stock option grants are critical to its ability to
attract and retain personnel. Stock option plans are generally subject to
shareholder approval. From time to time, the Company seeks approval of new stock
option plans from its shareholders, and plans to seek a new approval for a new
option plan at its 2004 Annual Shareholder's Meeting. SMSC's ability to hire or
retain highly qualified personnel may be adversely impacted by an inability to
provide competitive stock option grants or other stock-based compensation if
shareholder approval for such plans is not obtained in a timely manner, or at
all.
Volatility of Stock Price - The market price of the Company's common stock can
fluctuate significantly on the basis of such factors as the Company's or its
competitors' announcements of new products, quarterly fluctuations in the
Company's financial results or in the financial results of other semiconductor
companies, changes in the expectations of market analysts or investors, or
general conditions in the semiconductor industry or in the financial markets. In
addition, stock markets in general have experienced extreme price and volume
volatility in recent years. This volatility has often had a significant impact
on the stock prices of high technology companies, at times for reasons that
appear unrelated to the company's performance.
Environmental Regulation - Environmental regulations and standards are
established worldwide to control discharges, emissions, and solid wastes from
manufacturing processes. Within the United States, federal, state and local
agencies establish these regulations. Outside of the United States, individual
countries and local governments establish their own individual standards. The
Company believes that its activities conform to present environmental
regulations and the effects of this compliance have not had a material effect on
the Company's capital expenditures, operating results, or competitive position.
While to date the Company has not experienced any material adverse impact from
environmental issues, no assurances can be given as to the impact of future
environmental compliance requirements. Should environmental regulations be
amended or an unforeseen circumstance occur, it could subject the Company to
fines, require the Company to acquire expensive remediation equipment or to
incur other expenses to comply with environmental regulations.
- --------------------------------------------------------------------------------
SMSC is a registered trademark, and CircLink is a trademark, of Standard
Microsystems Corporation. Product names and company names are the trademarks of
their respective holders.
Item 2. Properties.
- ---------------------
SMSC's headquarters are in Hauppauge, New York, where it owns two facilities,
and leases a third facility, totaling approximately 175,000 square feet of plant
and office space, located on approximately 18 acres of land. Two of these
facilities, including the leased facility, totaling 130,000 square feet on 14
acres of land, are used to conduct research, development, product testing,
warehousing, shipping, marketing, selling and administrative activities. The
Company's other facility in Hauppauge is currently vacant, and the Company has
executed a contract to sell the facility. Closing of this sale is expected to
occur before the end of calendar 2004.
The Company plans to begin construction of an addition to its headquarters
facility in Hauppauge, New York, during 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.
In addition, the Company maintains offices in leased facilities in San Jose,
California; Austin, Texas; Phoenix, Arizona; Tucson, Arizona; Munich, Germany;
Tokyo, Japan; Taipei, Taiwan; Shanghai and Hong Kong, China and Seoul, South
Korea. These leases expire at various times through August 2008.
Item 3. Legal Proceedings.
- ----------------------------
From time to time as a normal incidence of doing business, various claims and
litigation may be asserted or commenced against the Company. Due to
uncertainties inherent in litigation and other claims, the Company can give no
assurance that it will prevail in any such matters, but management believes that
their ultimate resolution is not likely to have a material adverse effect on the
Company's consolidated financial position. Nevertheless, an adverse outcome of
any significant matter could have a material adverse effect on the Company's
consolidated results of operations or cash flows in the quarter or annual period
in which one or more of these matters are resolved.
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.
The Company was involved in an arbitration with Accton Technology Corporation
(Accton) and SMC Networks, Inc. (Networks) related to claims associated with the
purchase of an 80.1% interest in Networks by Accton from SMSC in October 1997.
In September 2003, the arbitration panel issued its decision in this action,
which directed the release of an escrow account to SMSC and awarded certain
other payments among the parties. In December 2003, the parties reached a final
settlement of the award, resulting in SMSC receiving $2.7 million in cash,
including the escrow account, and realizing a pre-tax gain of $0.3 million.
Item 4. Submission of Matters to a Vote of Security Holders.
- --------------------------------------------------------------
None.
Executive Officers of the Registrant
The Company's executive officers and their ages as of April 30, 2004 are as
follows:
Name Age Position
- ------------------------ ------ ----------------------------------------------
Steven J. Bilodeau 45 Chairman of the Board, President and Chief
Executive Officer
Andrew M. Caggia 55 Senior Vice President and Chief Financial
Officer
George W. Houseweart 62 Senior Vice President, General Counsel and
Secretary
Robert E. Hollingsworth 55 Senior Vice President and General Manager,
Connectivity Solutions Group
Peter S. Byrnes 46 Vice President and General Manager, Computing
Platform Solutions Group
Mitchell A. Statham 45 Vice President, Worldwide Sales
Eric M. Nowling 47 Vice President, Controller and Chief
Accounting Officer
Steven J. Bilodeau has served as the Company's President and Chief Executive
Officer, and as a member of the Company's Board of Directors, since March 1999.
Andrew M. Caggia has served as the Company's Senior Vice President and Chief
Financial Officer since February 2000, and as a member of the Company's Board of
Directors since February 2001. He previously served as Senior Vice President and
Chief Financial Officer of General Semiconductor, Inc., from July 1997 through
February 2000.
George W. Houseweart has served as the Company's Senior Vice President, General
Counsel and Secretary since October 2002. Previously, he served as Senior Vice
President and General Counsel from January 1999 to October 2002, and as Senior
Vice President - Law and Intellectual Property from November 1996 to January
1999. Mr. Houseweart has been an officer of the Company since 1988.
Robert E. Hollingsworth has served as Senior Vice President and General Manager,
Connectivity Solutions Group since November 2003. Previously, he served as
Senior Vice President - Sales and Marketing, from January 2003 through November
2003. He was elected an officer of the Company in January 2003. He served as
Senior Vice President and General Manager - Advanced I/O Products from June 2002
to January 2003; as Senior Vice President - Sales and Marketing - PC Products
from September 1999 to June 2002; and as Divisional Vice President - Component
Products Marketing from January 1997 to September 1999.
Peter S. Byrnes has served as Vice President and General Manager, Computing
Platforms Solutions Group since November 2003. Previously, he served as Vice
President - Operations from June 2000 through November 2003. Prior to that, he
served as Vice President - Product Assurance and Manufacturing Engineering from
May 1999 to June 2000, and as Vice President - Product Assurance from July 1998
to May 1999. Mr. Byrnes has been an officer of the Company since 1998.
Mitchell A. Statham has served as the Company's Vice President, Worldwide Sales
since November 2003. Previously, he served as Vice President, Sales from January
2003 through November 2003, and as Vice President, Worldwide Sales, Advanced I/O
Products from joining SMSC in June 2002 through January 2003. He was elected an
officer of the Company in April 2004. Prior to joining SMSC, he served in
various sales management positions with NEC Electronics from February 1999 to
March 2002.
Eric M. Nowling has served as the Company's Vice President, Controller and Chief
Accounting Officer since February 2000. Prior to that, he served as the
Company's Vice President - Finance and Chief Financial Officer from September
1997 through February 2000, and as Vice President and Controller (and acting
Chief Financial Officer) from February 1997 to September 1997. Mr. Nowling has
been an officer of the Company since 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- --------------------------------------------------------------------------------
The information captioned "Market price per share" and the last two paragraphs
appearing in the Company's 2004 Annual Report to Shareholders (the "2004 Annual
Report") within Note 18 to the Consolidated Financial Statements, entitled
"Quarterly Financial Data (Unaudited)", are incorporated herein by this
reference. Except as specifically set forth herein and elsewhere in this Form
10-K, no information appearing in the 2004 Annual Report is incorporated by
reference into this report, nor is the 2004 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 2004 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 2004 Annual Report under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is incorporated herein by this reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- ---------------------------------------------------------------------
The information appearing in the 2004 Annual Report under the caption "Financial
Market Risks" is incorporated herein by this reference.
Item 8. Financial Statements and Supplementary Data.
- ------------------------------------------------------
The financial statements, notes thereto, Reports of Independent Auditors thereon
and quarterly financial data appearing in the 2004 Annual Report are
incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
Not applicable.
Item 9A. 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 February 29, 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 III
Item 10. Directors and Executive Officers of the Registrant.
- -------------------------------------------------------------
The information concerning the Company's executive officers required by this
item is incorporated herein by reference to the section within Item I of this
report entitled "Executive Officers of the Registrant".
The information concerning the Company's directors required by this item is
incorporated herein by reference to the section entitled "Election of Directors"
appearing in the 2004 Proxy Statement related to the 2004 Annual Meeting of
Stockholders (the "2004 Proxy Statement").
The information concerning the Company's Section 16(a) beneficial ownership
reporting compliance is incorporated herein by reference to the section entitled
"Section 16(a) Beneficial Ownership Reporting Compliance" appearing in the 2004
Proxy Statement.
The information concerning the Company's code of ethics is incorporated herein
by reference to the section entitled "Code of Business Conduct and Ethics"
appearing in the 2004 Proxy Statement.
Item 11. Executive Compensation.
- ---------------------------------
The information appearing in the 2004 Proxy Statement under the caption
"Executive Compensation" is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
- --------------------------------------------------------------------------------
The information concerning (a) the only persons that have reported beneficial
ownership of more than 5% of the common stock of the Company, (b) the ownership
of the Company's common stock by the Chief Executive Officer and the four other
most highly compensated executive officers, and all executive officers and
directors as a group, and (c) ownership of the Company's common stock by each of
the directors, contained under the caption "Voting Securities of Certain
Beneficial Owners and Management" appearing in the 2004 Proxy Statement, is
incorporated herein by this reference. The information concerning securities
authorized for issuance under equity compensation plans contained under the
caption "Equity Compensation Plan Information" appearing in the 2004 Proxy
Statement is also incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
The information appearing in the 2004 Proxy Statement under the caption "Certain
Relationships and Related Transactions" is incorporated herein by this
reference.
Item 14. Principal Accounting Fees and Services.
- -------------------------------------------------
The information appearing in the 2004 Proxy Statement under the caption
"Principal Accounting Fees and Services" is incorporated herein by this
reference.
PART IV
Item 15. 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, notes thereto, and Reports of Independent Auditors thereon have
been incorporated by reference from the 2004 Annual Report pursuant to Part II,
Item 8 of this report:
Consolidated Balance Sheets as of February 29, 2004 and February 28, 2003
Consolidated Statements of Operations for the three years ended February
29, 2004
Consolidated Statements of Shareholders' Equity for the three years ended
February 29, 2004
Consolidated Statements of Cash Flows for the three years ended February
29, 2004
Notes to Consolidated Financial Statements
Reports of Independent Auditors
2. Financial Statement Schedules:
The following financial statement schedule and Report of Independent Auditors
thereon are filed as part of this report on Form 10-K and should be read in
conjunction with the Consolidated Financial Statements and notes thereto.
Schedule Title
- -------- ----------------------------------
II Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not applicable,
not required, or the information required to be set forth therein is included in
the Consolidated Financial Statements or notes thereto.
3. Exhibits:
Exhibits, which are listed on the Index to Exhibits, are filed as part of this
report and such Index to Exhibits is incorporated by reference.
(b) Reports on Form 8-K
On January 14, 2004, SMSC furnished a report on Form 8-K, relating to its
announcement that it had redeemed the minority interest in SMSC Japan from
Sumitomo Metal Industries, Ltd., as presented in its press release dated January
14, 2004.
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/ ANDREW M. CAGGIA
---------------------
Andrew M. Caggia
Senior Vice President and
Chief Financial Officer, and Director
(Principal Financial Officer)
Date: May 14, 2004
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
------------------- ----
/s/ STEVEN J. BILODEAU May 14, 2004
----------------------
Steven J. Bilodeau
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ ERIC M. NOWLING May 14, 2004
-------------------
Eric M. Nowling
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
/s/ ROBERT M. BRILL May 14, 2004
-------------------
Robert M. Brill
Director
/s/ TIMOTHY P. CRAIG May 14, 2004
--------------------
Timothy P. Craig
Director
/s/ JAMES A. DONAHUE May 14, 2004
--------------------
James A. Donahue
Director
/s/ PETER F. DICKS May 14, 2004
------------------
Peter F. Dicks
Director
/s/ IVAN T. FRISCH May 14, 2004
------------------
Ivan T. Frisch
Director
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended February 29, 2004
(in thousands)
- ----------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
- ----------------------------------------------------------------------------------------------------------------------
Year Ended February 29, 2004
Allowance for Doubtful Accounts $ 460 $ 5 $ - $ (27) $ 438
Reserve for Product Returns $ 200 $ 113 $ - $ (248) (b) $ 65
Year Ended February 28, 2003
Allowance for Doubtful Accounts $ 450 $ 10 $ - $ - $ 460
Reserve for Product Returns $ 438 $ 208 $ - $ (446) (b) $ 200
Year Ended February 28, 2002
Allowance for Doubtful Accounts $ 362 $ 110 $ (22) (a) $ - $ 450
Reserve for Product Returns $ 560 $1,446 $ - $ (1,568) (b) $ 438
(a) Represents adjustment of reserve balance based upon evaluation of accounts
receivable collectibility.
(b) Represents returns of product from customers.
Report of Independent Auditors on
Financial Statement Schedule
To the Board of Directors and Shareholders of Standard Microsystems Corporation:
Our audits of the consolidated financial statements referred to in our report
dated April 9, 2004 appearing in the February 29, 2004 Annual Report to
Shareholders of Standard Microsystems Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, NY
April 9, 2004
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
Report of Independent Accountants on
Financial Statement Schedule
To Standard Microsystems Corporation:
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Standard Microsystems
Corporation and subsidiaries, incorporated by reference in this Form 10-K, and
have issued our report thereon dated April 4, 2002. Our audits were made for the
purpose of forming an opinion on these statements taken as a whole. The
accompanying schedule is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
New York, NY
April 4, 2002
INDEX TO EXHIBITS
-----------------
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation of Standard Microsystems Corporation,
as amended and restated, incorporated by reference to Exhibit 3 (a)
to the registrant's Form 10-K for the fiscal year ended February 28,
1991.
3.2 By-Laws of Standard Microsystems Corporation, as amended and
restated, incorporated by reference to Exhibit 3.1 to the
registrant's Form 8-K filed on April 10, 2002.
4.1 Rights Agreement with ChaseMellon Shareholder Services L.L.C., as
Rights Agent, dated January 7, 1998, incorporated by reference to
Exhibit 1 to the registrant's Registration Statement on Form 8-A
filed January 15, 1998.
4.2 Amendment No. 1 to Rights Agreement with ChaseMellon Shareholder
Services L.L.C., as Rights Agent, dated January 23, 2001,
incorporated by reference to Exhibit 4.2 to the registrant's Form
10-K for the fiscal year ended February 28, 2001.
4.3 Amendment No. 2 to Rights Agreement with ChaseMellon Shareholder
Services L.L.C., as Rights Agent, dated April 9, 2002, incorporated
by reference to Exhibit 3 to the registrant's Registration Statement
on Form 8-A/A filed April 10, 2002.
10.1* Employment Agreement with Steven J. Bilodeau, dated March 18, 1999,
incorporated by reference to Exhibit 10.5 to the registrant's Form
10-K for the fiscal year ended February 28, 1999.
10.2* Employment Agreement with Andrew M. Caggia, dated January 7, 2000,
incorporated by reference to Exhibit 10.5 to the registrant's Form
10-K for the fiscal year ended February 29, 2000.
10.3* Amendments to Employment Agreements with Steven J. Bilodeau and
Andrew M. Caggia, incorporated by reference to Exhibit 10.3 to the
registrant's Form 10-K for the fiscal year ended February 28, 2002.
10.4* 1994 Director Stock Option Plan, incorporated by reference to
Exhibit A to the registrant's Proxy Statement dated May 31, 1995.
10.5* 2001 Director Stock Option Plan, incorporated by reference to
Exhibit B to the registrant's Proxy Statement dated July 11, 2001.
10.6* Amendment to the 2001 Director Stock Option Plan, dated April 4,
2002, incorporated by reference to Exhibit 10.7 to the registrant's
Form 10-K for the fiscal year ended February 28, 2002.
10.7* Amendment to the 1994 Director Stock Option Plan, adopted July 14,
1998, incorporated by reference to information appearing on page 11
of the registrant's Proxy Statement dated June 1, 1998.
10.8* Retirement Plan for Directors, incorporated by reference to
Exhibit 10.14 to the registrant's Form 10-K for the fiscal year
ended February 28, 1995.
10.9* Amendment to the Retirement Plan for Directors, incorporated by
reference to Exhibit 10.11 to the registrant's Form 10-K for the
fiscal year ended February 28, 2002.
10.10* 1993 Stock Option Plan for Officers and Key Employees,
incorporated by reference to Exhibit A to the registrant's Proxy
Statement dated May 25, 1993.
10.11* Executive Retirement Plan, incorporated by reference to Exhibit
10(x) to the registrant's Form 10-K for the fiscal year ended
February 28, 1994.
10.12* Amendment to the Executive Retirement Plan, incorporated by
reference to Exhibit 10.14 to the registrant's Form 10-K for the
fiscal year ended February 28, 2002.
10.13* Amendment to the Executive Retirement Plan, dated January 28,
2003, incorporated by reference to Exhibit 10.15 to the registrant's
Form 10-K for the fiscal year ended February 28, 2003.
10.14* 1994 Stock Option Plan for Officers and Key Employees,
incorporated by reference to Exhibit A to the registrant's Proxy
Statement dated May 26, 1994.
10.15* Resolutions adopted October 31, 1994, amending the Retirement Plan
for Directors and the Executive Retirement Plan, incorporated by
reference to Exhibit 10.18 to the registrant's Form 10-K for the
fiscal year ended February 28, 1995.
10.16* Resolutions adopted January 3, 1995, amending the 1994, 1993 and
1989 Stock Option Plans and the 1991 Restricted Stock Plan,
incorporated by reference to Exhibit 10.19 to the registrant's Form
10-K for the fiscal year ended February 28, 1995.
10.17* 1996 Restricted Stock Bonus Plan, incorporated by reference to
Exhibit 10.18 to the registrant's Form 10-K for the fiscal year
ended February 28, 2002.
10.18* 1998 Stock Option Plan for Officers and Key Employees,
incorporated by reference to Exhibit A to the registrant's Proxy
Statement dated June 1, 1998.
10.19* 1999 Stock Option Plan for Officers and Key Employees,
incorporated by reference to Exhibit A to the registrant's Proxy
Statement dated June 9, 1999.
10.20* 2000 Stock Option Plan for Officers and Key Employees,
incorporated by reference to Exhibit A to the registrant's Proxy
Statement dated June 6, 2000.
10.21* 2001 Stock Option and Restricted Stock Plan for Officers and Key
Employees, incorporated by reference to Exhibit C to the
registrant's Proxy Statement dated June 11, 2001.
10.22* Plan for Deferred Compensation in Common Stock for Outside
Directors, dated March 7, 1997, as amended, incorporated by
reference to Exhibit 10.23 to the registrant's Form 10-K for the
fiscal year ended February 28, 2002.
10.23* Amendment to the Plan for Deferred Compensation in Common Stock
for Outside Directors, dated July 10, 2002, incorporated by
reference to Exhibit 10.25 to the registrant's Form 10-K for the
fiscal year ended February 28, 2003.
10.24* 2002 Inducement Stock Option Plan, incorporated by reference to
Exhibit 10.26 to the registrant's Form 10-K for the fiscal year
ended February 28, 2003.
10.25* 2003 Director Stock Option Plan, incorporated by reference to
Exhibit C to the registrant's Proxy Statement dated July 9, 2003.
10.26* 2003 Stock Option and Restricted Stock Plan, incorporated by
reference to Exhibit B to the registrant's Proxy Statement dated
July 9, 2003.
10.27* 2003 Inducement Stock Option Plan, incorporated by reference to
Exhibit 4.3 to the registrant's Form S-8 filed September 15, 2003.
10.28 Agreement and Plan of Merger among Standard Microsystems
Corporation, SMSC Sub, Inc., and Gain Technology Corporation, dated
April 29, 2002, incorporated by reference to Exhibit 2.1 to the
registrant's Form 8-K filed on June 19, 2002.
13 Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended February 29, 2004, filed herewith.
21 Subsidiaries of the Registrant, filed herewith.
23.1 Consent of PricewaterhouseCoopers LLP, filed herewith.
23.2 Notice regarding consent of Arthur Andersen LLP, filed herewith.
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
of the Securities Exchange Act, filed herewith.
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
of the Securities Exchange Act, filed herewith.
32.1 Certification 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, filed herewith.