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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended February 28, 2003
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, $.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 ___
As of August 30, 2002, the aggregate market value of the shares of voting
stock of the registrant held by non-affiliates was approximately $316.9 million,
based on the closing price of the registrant's common stock on the Nasdaq
National Market on such date. As of March 31, 2003, there were 16,731,621 shares
of the registrant's common stock outstanding.
Documents Incorporated By Reference
Portions of the registrant's 2003 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 2003 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 28, 2003
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
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. Controls and Procedures
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.
The Company is a designer and worldwide supplier of advanced digital,
mixed-signal and analog semiconductor solutions for a broad range of high-speed
communications and computing applications in the areas of Advanced Input/Output
(I/O), Universal Serial Bus (USB) connectivity, environmental monitoring and
control, networking and embedded control systems. The Company is a fabless
semiconductor supplier whose products are manufactured by world-class,
third-party semiconductor foundries and assemblers. To ensure the highest
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 sells its products to a worldwide customer base, which includes most
of the world's leading personal computer and personal computer motherboard
manufacturers, and their subcontractors. Motherboards are the primary circuit
boards within a computer or similar application. The Company's Advanced I/O
circuits reside on the motherboards of personal computer products sold by Dell,
Fujitsu, Gateway, Hewlett-Packard/Compaq, IBM, Intel, NEC, Sony, Toshiba and
most other leading manufacturers. The Company also sells its products through
electronics distributors, who provide value-added access to a broad base of
smaller personal computer suppliers, as well as to many customers who use the
Company's products in diverse networking, connectivity and embedded systems
applications.
The Company's headquarters are in Hauppauge, New York, and it operates design
and validation centers in New York, Austin, Texas, Tucson, Arizona and Phoenix,
Arizona, and has sales offices in the United States, Europe, Taiwan, China and
Korea. The Company conducts most of its business in the Japanese market through
its majority-owned subsidiary, SMSC Japan.
Principal Products of the Company
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The Company provides Real World Connectivity(TM) solutions for high-speed
communication and computing applications. Through the integration of its
leading-edge digital, mixed-signal and analog functionality and software
expertise, the Company delivers complete solutions that monitor and manage
computing systems and connect peripherals to computers and to one another.
The Company continually works to broaden its product offerings and has made
significant investments in the development of new products in all of its product
families. Many of the Company's newer products have increasing amounts of analog
circuitry content, complementing the Company's traditional strength in digital
circuitry. The June 2002 acquisition of Gain Technology Corporation
significantly enhanced the Company's analog design capabilities, and the Company
believes that the market for analog applications offers a significant growth
opportunity for fiscal 2004 and beyond.
Advanced Input/Output (I/O) Controllers
Advanced Input/Output (I/O) Controllers integrate multiple communication
functions between the PC, or similar host device, and peripheral devices onto a
single chip. Generally required in every PC and other related computing
applications, basic I/O functionality (or legacy I/O) historically included such
functions as floppy disk control, keyboard control and BIOS, and parallel and
serial port control. As PC designs have evolved and expanded, the role of the
I/O controller has increased to include a variety of other functions beyond
legacy I/O functions, and it now provides leading-edge system management
solutions encompassing flash memory, infrared communications support, a
real-time clock and power management. The Company's ability to incorporate
greater functionality in its Advanced I/O Controllers through higher levels of
integration enables designers to implement required features at low cost on a
system-dependent basis.
The Company is the world's leading supplier of Advanced I/O Controllers used in
desktop and notebook personal computers. The Company sold more than 50 million
Advanced I/O Controllers in fiscal 2003, and believes that, by the end of
calendar 2002, it had secured an estimated share of more than 45% of the world's
market for Advanced I/O devices. The Company offers its customers dozens of
Advanced I/O products, providing solutions to the communication and computing
design requirements of virtually all of the world's prominent personal computer
and system design suppliers.
The product life cycle for Advanced I/O Controllers is typically short, usually
less than two years. The Company's Advanced I/O product line is continually
changing, with ongoing refreshes of existing designs and introductions of new
designs, encompassing new features and functionality as demanded by the
ever-changing communications and computing environments. Several of the many new
Advanced I/O products introduced by the Company during fiscal 2003 include:
o The LPC47N253 Integrated Advanced Notebook I/O Controller, Embedded
Controller and Keyboard Controller for full-featured notebook PC's, which
combines I/O functionality, a high-performance 8051 microprocessor for
keyboard control and system management, and a shared flash interface.
o The LPC47N237 Controller, an LPC (Low Pin Count)-based I/O device targeted
for notebook PC port replicators and docks, which serves as a companion
product to the Company's line of notebook PC keyboard and system control
products that feature the LPC PortSwitch(TM) interface.
Keyboard and System Control Products
Traditionally, the Company has offered keyboard and system control functionality
integrated within its Advanced I/O Controller products. With the growing demand
for legacy-free computing applications, the Company has introduced products,
which provide stand-alone keyboard and system control, and believes that this
market segment will provide opportunities for growth in fiscal 2004 and beyond.
The applications for these solutions reach beyond the traditional PC domain and
offer significant growth opportunities in a wide range of markets such as
servers, personal digital assistants, smart displays and other hybrid
communication devices.
The Company's products in Keyboard and System Control include the LPC47N350
Keyboard and System Controller with LPC PortSwitch(TM) Interface for legacy-free
notebook PC's. This device features a unique, hot-switchable external interface
that enables the design of cost-effective, full-featured port replication and
docking solutions.
Environmental Monitoring and Control Products
The Company's line of Environmental Monitoring and Control products, including
the EMC6D100 and EMC6D102 devices, provide solutions for critical temperature
and voltage monitoring requirements, which are essential to the stability and
reliability of PCs and other computing systems. These ACPI compliant devices
provide hardware monitoring for up to eight voltages and three thermal zones,
measure the speed of up to four fans, and control the speed of multiple DC fans
using three Pulse Width Modulators (PWM). The automatic fan speed control
capability of these products provides thermal protection even when the operating
system (OS) is not running. The Company anticipates introducing additional
products in this area during fiscal 2004.
These important analog designs leverage the Company's technical competencies
beyond the PC space, and mark an expansion of the Company's leading role as a
designer of digital integrated circuits.
USB Connectivity Devices
USB technology is a rapidly-growing communication standard which provides an
expandable, hot-plugable plug and play serial interface connection between host
devices and peripheral devices such as keyboards, mice, printers, scanners,
joysticks, storage devices, modems and cameras. The current generation of USB
2.0 technology supports data transfer rates of up to 480 Mbps, about 40 times
the speed of the previous generation of USB 1.1 technology.
During fiscal 2003, the Company introduced a variety of USB 2.0 products
designed to address the needs of peripheral devices in high-performance,
low-power USB systems. Further expansion of this product line will continue into
fiscal 2004 and beyond. These products address many consumer markets, including
mass storage for portable devices, card readers to support a wide range of flash
media cards such as those used in digital cameras, and controllers for external
disk drives such as CD-ROM, CD-R, CD-R/W, DVD, and DVD-RAM.
The Company's USB Connectivity products for peripheral devices include:
o The USB97C242, a low cost, single-chip, high-speed USB flash drive
controller, designed for use in flash drives which are portable,
solid-state storage devices small enough to hang on a key chain.
o The USB97C202 second generation USB 2.0 mass storage class controller, a
USB bridge chip designed for use in external hard disks, CD-R/W drives and
DVD drives.
o The USB97C210, the world's first high-speed USB 2.0 multi-format memory
card controller. With its high-speed USB 2.0 interface and patent-pending
architecture, the USB97C210 rapidly transfers large amounts of data, such
as MP3 and MPEG files, to memory cards.
The Company's acquisition of Gain Technology Corporation during fiscal 2003
further expanded its USB 2.0 product offerings with the addition of several USB
2.0 physical layer (PHY) products, including the GT3200 discrete device and the
GT3100 I.P. core. Designed to address the needs of high performance, low-power
USB systems, these products provide best-in-class power dissipation and are the
market's leading solutions available today for running high-speed (480 Mbps)
systems using only the power provided on the USB bus cable.
The Company has recently entered another segment of the USB 2.0 marketplace with
the introduction of the USB20H04 device, its first USB 2.0 hub product, which
enables the design of bus-powered, standalone hubs, LCD monitor hubs, docking
station hubs, USB 2.0 laptop port replicators, bus-powered hub/flash drive/card
reader combinations, and other power sensitive applications for USB 2.0 port
expansion that require a 480 Mbps data rate.
Networking and Embedded Control System Devices
Networking and Embedded Control System devices enable personal computers and
peripheral devices to be connected to networks and permit communications among
network users. Connection to a network permits a user to send messages to and
receive messages from other network users and share common resources such as
printers, disk drives, files and programs.
Among a very broad line of products, the Company's flagship networking product
is the LAN91C111 single-chip MAC/PHY non-PCI Ethernet controller. The LAN91C111
allows OEMs to meet the evolving needs of Ethernet networks, particularly as the
need for network speed continues to increase for multimedia and World Wide Web
applications. The LAN91C111 integrates the IEEE 802.3-compliant Fast Ethernet
Media Access Controller (MAC), the 10/100 Mbps Ethernet Physical Layer (PHY) and
transmit and receive buffer memory (SRAM) into a single device to deliver full
functionality in a high performance compact design, reducing cost and board
space. It is designed to facilitate the implementation of a third generation of
Fast Ethernet connectivity solutions for embedded applications. The LAN91C111
can be used in a broad range of embedded devices, such as set-top boxes, ATMs,
switching hubs, printers, motherboards, adapter cards, security systems, network
appliances and game consoles.
The Company also offers a complete line of Arcnet-based embedded networking
devices that provide solutions in industrial and embedded machine-to-machine
communication applications. They are used in such diverse applications as
cellular phone base stations, passenger elevator systems, ATM machines, HVAC
control systems, factory automation, point-of-sale systems, and a wide variety
of other applications where the reliability of communications between machines
is of paramount importance. While Ethernet has become the dominant LAN protocol
in office networking, the Arcnet protocol offers many characteristics that make
it ideal for industrial and embedded networking environments, including its high
reliability and fault tolerance, and its adaptability to a wide variety of
cabling media and configurations.
Competition
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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 the Company 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. The Company 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.
Research and Development
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The semiconductor industry, and the individual markets in which the Company
currently competes, are highly competitive, and the Company believes that the
continued investment in research and development (R&D) is essential to
maintaining and improving its competitive position.
The Company's research and development activities are performed by a team of
highly-skilled and experienced engineers and technicians, and are primarily
directed towards the design of new integrated circuits, the development of new
software design tools and blocks of logic, as well as ongoing cost reductions
and performance improvements in existing products.
In fiscal 2003, as noted earlier, the Company acquired Gain Technology
Corporation (Gain), a developer and supplier of high-speed, high-performance
analog and mixed-signal communications integrated circuits and proprietary
intellectual property cores, based in Tucson, Arizona. Gain now operates as SMSC
Analog Technology Center, Inc. (ATC). Through this acquisition, the Company
significantly enhanced its analog and mixed-signal capabilities, adding 35
highly skilled engineers and designers, acquiring several new products, and
expanding its intellectual property portfolio.
During fiscal 2002, the Company announced its exit from the PC chipset business,
and reorganized its engineering and development resources. With this
reorganization, the Company redirected its engineering resources towards its
core and new technologies, focusing on the development of products serving
higher growth, higher margin businesses.
Manufacturing
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The Company provides semiconductor solutions using a fables 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 allows 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 good die are
separated into individual chips that are then encapsulated into plastic
packages. As is the case with the Company's wafer supply requirements, the
Company 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 the Company 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.,
Siliconware Precision Industries Co., 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 the Company'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 occurs in the Pacific
Rim region.
Customers demand semiconductors of the highest quality and reliability for
incorporation into their products. The Company 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. During
fiscal 2003, the Company achieved an upgrade to the ISO 9001:2000 quality
certification, demonstrating the Company's ongoing commitment to maintaining a
world-class quality management system. According to recently published
statistics, as of mid-February 2003, less than 15% of the total number of ISO
quality registrations in North America have been upgraded to the ISO 9001:2000
standard. The Company was previously registered to the ISO 9002 quality standard
as of August 1996.
Sales, Marketing and Customer Service
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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. During fiscal 2003, the Company's sales
and marketing resources were reorganized to allow better pursuit of worldwide
OEM-focused sales opportunities, and to now further emphasize a sales strategy
driven by the pursuit of design-wins.
Sales managers are dedicated to key OEM customers to ensure the highest level of
customer service and to promote close cooperation and communication. 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, the Company 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. The
Company'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.
The Company 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 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 majority-owned 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 revenues from international
sales. 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, 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 the Asia and Pacific Rim region, will
continue to represent a significant portion of its revenues.
The table below summarizes revenues by geographic region for the fiscal year
ended February 28, 2003 (dollars in thousands):
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Amount Percent
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Asia and Pacific Rim ................ $ 131,903 84.8 %
North America ....................... 14,712 9.5 %
Europe .............................. 8,823 5.7 %
Rest of World ....................... 79 - %
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$ 155,517 100.0 %
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Intellectual Property
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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.
The Company has patent cross-licensing agreements with more than thirty
companies, including such semiconductor manufacturers as IBM, Intel, Micron
Technology, NEC and Toshiba. Almost all of the Company's cross-licensing
agreements give the Company 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
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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 revenues. Revenues from significant customers, stated as
percentages of total sales and revenues, are summarized as follows:
For the years ended February 28, 2003 2002 2001
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Customer A .......................... 19.6% 15.2% *
Customer B .......................... 12.1% * *
Customer C .......................... * 29.0% 11.2%
Customer D .......................... 14.3% * *
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* Less than 10% of sales and revenues
The Company expects that its key customers will continue to account for a
significant portion of its sales and revenues in fiscal 2004 and for the
foreseeable future.
Employees
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At February 28, 2003, the Company employed 499 individuals, including 100 in
sales, marketing and customer support, 132 in manufacturing and manufacturing
support, 176 in research and product development and 91 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
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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 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 with the SEC, including our 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
often experiences 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.
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. Despite the ongoing economic slump, the Company's fiscal 2003
orders showed a significant improvement over fiscal 2002, driven by new design
wins. Concerns remain regarding the timing, strength and duration of any
economic recovery, and its effect, if any, on the semiconductor industry. 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. The recent
reduction in overall demand for semiconductor products has financially stressed
certain of the Company's subcontractors. If the financial resources of the
Company's independent subcontractors are further 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 or adopt a competitor's solutions, 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 fiscal 2003
product sales were 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. This
concentration of manufacturing and selling activity in Asia 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 within Asian communities. Portions of the Asian community are
currently experiencing 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. 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.
While the September 1999 earthquake did not materially adversely affect the
Company's business, future earthquakes or other natural disasters in this region
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.
Investments in Other Companies - The Company maintains several equity
investments in both publicly and privately held companies, some of which operate
in the semiconductor or personal computer industries, resulting from strategic
business relationships or other investment opportunities that were deemed
beneficial to the Company. These companies are subject to many of the same risks
and uncertainties faced by the Company. During fiscal 2003, the Company recorded
charges totaling $16.3 million to recognize impairments in value, considered to
be other than temporary, on two of these investments. The Company's remaining
$2.9 million investment in Chartered Semiconductor Manufacturing Ltd.
(Chartered) represents the only material investment in equity securities of
other companies on the Company's February 28, 2003 Consolidated Balance Sheet.
Further write-downs of this investment in the future are possible, dependent
upon the ongoing performance of Chartered's stock price.
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 recently experienced extreme price and
volume volatility. 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.
- --------------------------------------------------------------------------------
Standard Microsystems and SMSC are registered trademarks, and Real World
Connectivity is a trademark, of Standard Microsystems Corporation. Product names
and company names are the trademarks of their respective holders.
Item 2. Properties.
- --------------------
The Company'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 alternatives for
its future use, lease or disposal are being evaluated.
The Company previously owned the facility that it is now leasing in Hauppauge.
The Company sold this property in May 2003, and is now using the facility under
a three-year lease. Concurrently, the Company also sold a separate Hauppauge
facility that was being leased to a third party. The sale of these facilities is
not expected to materially impact the Company's future operating expenses. The
Company is currently evaluating its various Hauppauge facilities, and is
considering alternatives to more efficiently use its existing Hauppauge real
estate.
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, China and Seoul, South Korea. These
leases expire at various times through August 2008.
As of the end of fiscal 2003, and as of this filing, the Company believes that
its properties are suitable for its foreseeable needs.
Item 3. Legal Proceedings.
- ---------------------------
The Company is subject to various lawsuits and claims in the ordinary course of
business. While the outcome of these matters cannot be determined, management
believes that their ultimate resolution will not have a material effect on the
Company's operations or financial position.
In October 1997, the Company sold an 80.1% interest in SMC Networks, Inc., a
then-newly formed subsidiary comprised of its former local area networking
division, to an affiliate of Accton Technology Corporation (Accton). In
consideration for the sale, the Company received $38.2 million in cash, plus an
additional $2.0 million which was placed in an interest-bearing escrow account
as security for the Company's indemnity obligations under the agreement, and
which was scheduled for release to the Company in January 1999. The Company's
19.9% minority interest in SMC Networks, Inc. carried an original cost of $8.5
million.
In December 1998, Accton notified the Company and the escrow agent of Accton's
intention to seek indemnification and damages from the Company in excess of
$10.0 million by reason of alleged misrepresentations and inadequate disclosures
relating to the transaction and other alleged breaches of covenants and
representations in the related agreements. Based upon those allegations, the
escrow account was not released to the Company as scheduled in January 1999. In
January 1999, SMSC filed an action in the Supreme Court of New York (the Action)
against Accton, SMC Networks, Inc. and other parties, seeking the release of the
escrow account to the Company on the grounds that Accton's allegations are
without merit, and seeking payment of approximately $1.6 million owed to the
Company by SMC Networks, Inc. In November 1999, the Court issued an order
staying the Action and directed the parties to arbitration under the arbitration
provisions of the original transaction agreements. The parties are proceeding
with arbitration and, in July 2000, the Company asserted various claims against
Accton and its affiliates, including claims for fraud, improper transfer of
profits, mismanagement, breach of fiduciary duties and payment default.
The Company remains confident that it negotiated and fully performed its
obligations under the Agreements with Accton in good faith and considers the
claims against it to be without merit. The Company is vigorously defending
itself against the allegations made by Accton and, although it is not possible
at this time to assess the likelihood of any liability being established,
expects that the outcome will not be material to the Company. Furthermore, the
Company is vigorously pursuing recovery of damages and other relief from Accton
pursuant to the Company's claims, but the likelihood of any such recovery also
cannot currently be established.
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, 2003 are as
follows:
Name Age Position
- --------------------------------------------------------------------------------------------
Steven J. Bilodeau 44 Chairman of the Board, President and Chief Executive Officer
Andrew M. Caggia 54 Senior Vice President and Chief Financial Officer
George W. Houseweart 61 Senior Vice President, General Counsel and Secretary
Robert E. Hollingsworth 54 Senior Vice President, Sales and Marketing
Peter S. Byrnes 45 Vice President, Operations
Eric M. Nowling 46 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.
In February 2000, he assumed responsibility as Chairman of the Board. Prior to
joining SMSC, Mr. Bilodeau held various senior management positions during his
13 years of service with Robotic Vision Systems Inc. (RVSI), most recently as
President of RVSI's Semiconductor Equipment Group from 1996 through 1998, and as
a member of RVSI's Board of Directors from 1997 through 1998.
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 was appointed as Senior Vice President - Sales and
Marketing, and was elected an officer of the Company, in January 2003.
Previously, 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 the Company's Vice President - Operations since
June 2000. 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.
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 2003 Annual Report to Shareholders (the "2003 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 2003 Annual Report is incorporated by
reference into this report, nor is the 2003 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 2003 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 2003 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 2003 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 Public
Accountants thereon and quarterly financial data appearing in the 2003 Annual
Report are incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- --------------------------------------------------------------------------------
On April 30, 2002, the Company's Audit Committee, with the approval of its Board
of Directors, dismissed Arthur Andersen LLP (Arthur Andersen) as the Company's
independent public accountants and, on May 7, 2002, engaged
PricewaterhouseCoopers LLP (PwC) to serve as the Company's independent public
accountants for the fiscal year ended February 28, 2003. The appointment of PwC
was ratified by stockholders at the Company's 2002 Annual Meeting of
Shareholders.
Arthur Andersen's reports on the Company's consolidated financial statements for
each of the years ended February 28, 2002 and 2001 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.
During the years ended February 28, 2002 and 2001 and through April 30, 2002,
there were no disagreements with Arthur Andersen on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Arthur Andersen's satisfaction, would have
caused them to make reference to the subject matter in connection with their
report on the Company's consolidated financial statements for such years; and
there were no reportable events as defined in Item 304(a)(1)(v) of Regulation
S-K.
The Company provided Arthur Andersen with a copy of the foregoing disclosures. A
copy of Arthur Andersen's letter, dated May 7, 2002, stating its agreement with
such statements, is incorporated by reference to Exhibit 16 filed with the
Report on Form 8-K on May 7, 2002.
During the years ended February 28, 2002 and 2001 and through May 7, 2002, the
Company did not consult with PwC with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.
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 2003 Proxy Statement related to the 2003 Annual Meeting of
Stockholders (the "2003 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 2003
Proxy Statement.
Item 11. Executive Compensation.
- ---------------------------------
The information appearing in the 2003 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 2003 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 2003 Proxy
Statement is also incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The information appearing in the 2003 Proxy Statement under the caption "Certain
Relationships and Related Transactions" is incorporated herein by this
reference.
Item 14. Controls and Procedures.
- ---------------------------------
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the
reports filed under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
Within the 90 days prior to the filing of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon and as of the date of that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective to ensure
that information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required.
(b) Changes in Internal Controls
There were no changes in the Company's internal controls or in other factors
that could have significantly affected those controls subsequent to the date of
the Company's most recent evaluation.
Part 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 Public
Accountants thereon have been incorporated by reference from the 2003
Annual Report pursuant to Part II, Item 8 of this report:
Consolidated Statements of Operations for the three years ended
February 28, 2003
Consolidated Balance Sheets as of February 28, 2003 and 2002
Consolidated Statements of Shareholders' Equity for the three
years ended February 28, 2003
Consolidated Statements of Cash Flows for the three years ended
February 28, 2003
Notes to Consolidated Financial Statements
Reports of Independent Public Accountants
(a) 2. Financial Statement Schedules:
The following financial statement schedule and Report of Independent
Public Accountants 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.
(a) 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
The Company did not file any reports on Form 8-K during the three month
period ended February 28, 2003.
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 29, 2003
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 29, 2003
----------------------
Steven J. Bilodeau
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ ERIC M. NOWLING May 29, 2003
-------------------
Eric M. Nowling
Vice President, Controller and
Chief Accounting Officer
(Principal Accounting Officer)
/s/ JAMES J. BOYLE May 29, 2003
------------------
James J. Boyle
Director
/s/ ROBERT M. BRILL May 29, 2003
-------------------
Robert M. Brill
Director
/s/ PETER F. DICKS May 29, 2003
------------------
Peter F. Dicks
Director
/s/ IVAN T. FRISCH May 29, 2003
------------------
Ivan T. Frisch
Director
CERTIFICATION
-------------
I, Steven J. Bilodeau, certify that:
1. I have reviewed this annual report on Form 10-K of Standard
Microsystems Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 29, 2003
/s/ STEVEN J. BILODEAU
------------------
Steven J. Bilodeau
Chairman of the Board, President
and Chief Executive Officer
CERTIFICATION
-------------
I, Andrew M. Caggia, certify that:
1. I have reviewed this annual report on Form 10-K of Standard
Microsystems Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 29, 2003
/s/ ANDREW M. CAGGIA
--------------------
Andrew M. Caggia
Senior Vice President- Finance
and Chief Financial Officer
Schedule II - Valuation and Qualifying Accounts
For the Three Years Ended February 28, 2003
(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 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
Year Ended February 28, 2001
Allowance for Doubtful Accounts $ 480 $ ---- $ (118) (a) $ ---- $ 362
Reserve for Product Returns $ 600 $ 1,325 $ ---- $ (1,365) (b) $ 560
- -------------------------------------------------------------------------------------------------------
(a) Represents adjustment of reserve balance based upon evaluation of accounts receivable collectibility.
(b) Represents returns of product from customers.
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors and Shareholders of Standard Microsystems Corporation:
Our audit of the consolidated financial statements referred to in our report
dated April 2, 2003 appearing in the February 28, 2003 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
16(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 2, 2003
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 * 1991 Restricted Stock Bonus Plan, incorporated by reference to
Exhibit A to the registrant's Proxy Statement dated June 21, 1991.
10.5 * 1994 Director Stock Option Plan, incorporated by reference to
Exhibit A to the registrant's Proxy Statement dated May 31, 1995.
10.6 * 2001 Director Stock Option Plan, incorporated by reference to
Exhibit B to the registrant's Proxy Statement dated July 11, 2001.
10.7 * 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.
10.8 * Resolutions of the Board of Directors adopted February 18, 1992,
amending the Director Stock Option Plan, the 1991 Restricted Stock
Bonus Plan and the 1989 Stock Option Plan, incorporated by
reference to Exhibit 10 (m) to the registrant's Form 10-K for the
fiscal year ended February 29, 1992.
10.9 * 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.
10.10 * 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.
10.11 * 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.
10.12 * 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.
10.13 * 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.
10.14 * 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.
10.15 * Amendment to the Executive Retirement Plan, dated January 28,
2003, filed herewith.
10.16 * 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.
10.17 * 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.
10.18 * 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.
10.19 * 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.
10.20 * 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.
10.21 * 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.
10.22 * 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.
10.23 * 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.
10.24 * 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.
10.25 * Amendment to the Plan for Deferred Compensation in Common Stock
for Outside Directors, dated July 10, 2002, filed herewith.
10.26 * 2002 Inducement Stock Option Plan, filed herewith.
10.27 Common Stock and Warrant Purchase Agreement, among SMSC and Intel
Corporation, dated March 18, 1997, incorporated by reference to
Item 7, Exhibit 1 to Intel Corporation's Schedule 13D, filed March
27, 1997.
10.28 Investor Rights Agreement, among SMSC and Intel Corporation, dated
March 18, 1997, incorporated by reference to Item 7, Exhibit 3 to
Intel Corporation's Schedule 13D, filed March 27, 1997.
10.29 Share Purchase Agreement, among SMSC and Intel Corporation, dated
March 17, 2000, incorporated by reference to Exhibit 1 to Intel
Corporation's Schedule 13D/A, filed March 22, 2000.
10.30 Stock Purchase Agreement, dated September 30, 1997, among Accton
Technology Corporation, Global Business Investments (B.V.I.)
Corp., Standard Microsystems Corporation, the Seller Subsidiaries,
and AJJA Inc., incorporated by reference to Exhibit 10.1 to the
registrant's Form 8-K filed on October 7, 1997.
10.31 Stockholders Agreement, dated October 7, 1997, among Standard
Microsystems Corporation, Accton Technology Corporation, Global
Business Investments (B.V.I.) Corp., Standard Microsystems
Corporation, and AJJA Inc., incorporated by reference to Exhibit
10.2 to the registrant's Form 8-K filed on October 7, 1997.
10.32 Intellectual Property License Agreement, dated October 7, 1997,
between Standard Microsystems Corporation and AJJA Inc.,
incorporated by reference to Exhibit 10.4 to the registrant's Form
8-K filed on October 7, 1997.
10.33 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 28, 2003, 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.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
* Indicates a management contract or compensatory plan or arrangement.