SMSC REPORTS THIRD QUARTER FISCAL 2005 RESULTS
Hauppauge, NY - December 20, 2004 - SMSC (Nasdaq: SMSC) today announced that
revenues for the third quarter ended November 30, 2004 were $50.8 million,
compared to $72.7 million in the third quarter of fiscal 2004, and $50.2 million
in the second quarter of fiscal 2005. Excluding intellectual property revenues,
the Company reported $48.0 million of product sales for the third quarter of
fiscal 2005 versus $52.3 million in last year's third quarter, and $47.2 million
in the second quarter of fiscal 2005.
The lower than expected revenues in the third quarter resulted from accounts
receivable collectibility concerns with a Taiwan-based distributor that have
just become apparent. Generally accepted accounting principles preclude the
recognition of revenue in cases where collectibility is not reasonably assured.
SMSC has concluded that this standard had not been met with respect to shipments
to this distributor that remained uncollected at November 30, 2004. Had these
collectibility concerns not arisen, SMSC would have reported an additional $4.2
million of product revenues in the third quarter of fiscal 2005. In the event
that the distributor recovers its financial stability, SMSC will recognize the
appropriate portions of the additional $4.2 million of revenues as payments are
received or if collectibility otherwise becomes reasonably assured.
Gross profit percentage on total revenues was 45.9% for the third quarter of
fiscal 2005, compared to 58.3% in the previous year's third quarter. Gross
profit percentage on product sales was 42.8% in this year's third quarter
compared to 41.9% a year ago.
Research and development expenses for the third quarter were $10.4 million,
compared to $10.2 million in the year-ago quarter, and selling, general and
administrative expenses were $13.0 million, compared to $11.6 million in last
year's third quarter. The year-over-year increase in operating expenses includes
an expense provision of $0.8 million to mark Stock Appreciation Rights to market
as a result of the increase in SMSC's share price in the quarter. In addition,
litigation costs were $0.9 million higher than in the third quarter of fiscal
2004.
The provisions for, or benefits from, income taxes in the quarters ended
November 30, 2004 and 2003 included tax benefits related to prior years of $0.3
million and $0.8 million, respectively. These benefits were primarily due to
better than expected settlements of open tax audits.
Net income for the third quarter of fiscal 2005 was $0.6 million, or $0.03 per
share, compared to $14.8 million, or $0.77 per share, in the third quarter of
fiscal 2004. Net income included $0.09 per share and $0.66 per share from
intellectual property revenues in the quarters ended November 30, 2004 and 2003,
respectively.
Cash and liquid investments at November 30, 2004 were $180.9 million as compared
to $182.0 million at August 31, 2004. Inventories at November 30, 2004 totaled
$38.0 million, up $10.2 million from August 31, 2004. This increase was a result
of the replenishment of buffer stocks, as well as accelerated purchases of
high-volume parts in response to apparent shortages in the supply chain earlier
in the year. SMSC estimates that inventories will be below $35 million by the
end of the fiscal year and should return to normal turnover levels by the end of
the first quarter of fiscal 2006. The Company has no bank debt, and book value
per share was $14.58 as of November 30, 2004.
"Exclusive of the potential distributor collectibility issue, demand for SMSC's
PC I/O and non-PC I/O products grew sequentially. This is encouraging following
a period of industry-wide inventory adjustment in SMSC's second quarter," said
Steven J. Bilodeau, Chairman and Chief Executive Officer.
Mr. Bilodeau added, "During the third quarter, SMSC introduced the industry's
broadest line of USB2.0 hubs, USB2.0 card readers, mobile Super I/O and embedded
Ethernet controllers for consumer and commercial connectivity applications.
Supported by these industry first and second-generation solutions, we are
providing designers of consumer electronics flexible, low-cost ways to drive
performance enhancements and maximize the end user experience.
"The expansion of these product groups is in line with our commitment to further
diversify our business in consumer electronics and embedded applications.
Looking ahead, we expect to leverage the strength of a broad product portfolio
into continued revenue growth."
Business Outlook:
For the fourth quarter of fiscal 2005, SMSC expects revenues to be between $51
million and $55 million. Gross profit percentage is expected to be between 45%
and 46%. Research and development expenses are expected to be between $10.5
million and $11.5 million, and selling, general and administrative expenses are
expected to be between $11.5 million and $13.0 million. Amortization of acquired
intangibles is expected to be approximately $0.3 million. The effective tax rate
is estimated to be approximately 25%, and the Company expects fourth quarter net
income to be between $0.03 and $0.07 per share.
The revenue estimate for the quarter excludes approximately $3 million of
revenue associated with expected shipments of products by the above-referenced
distributor to end customers. Those products were purchased from SMSC before the
current collectibility issue became apparent. SMSC will not recognize any
revenue from those products until payment begins or collectibility otherwise
becomes reasonably assured. If that happens before the end of the fourth
quarter, the revenue expectation for that quarter could increase by up to $7.2
million, representing the $3 million discussed in this projection plus the $4.2
million of revenue that could not be recognized in the third quarter. If some
portion of the amount due is paid but collectibility of the full amount owed to
SMSC does not become reasonably assured, then an appropriate portion of the
potential $7.2 million of revenue would be recognized.
As of November 30, 2004, Other current assets included a $4.6 million receivable
from the above-referenced distributor, of which $1.3 million has been recovered
subsequently. SMSC's current expectation is that the remaining $3.3 million will
be recovered.
About SMSC:
Many of the world's most successful global technology companies rely upon SMSC
as a go-to resource for integrated circuits and semiconductor system solutions
that span analog, digital and mixed-signal technologies. SMSC delivers products
that solve the challenges of space, cost and time-to-market for high-speed
computing, connectivity and embedded networking applications.
SMSC addresses computing, communications and consumer electronics markets
through 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. Leveraging
substantial intellectual property and a comprehensive global infrastructure,
SMSC thrives at the intersection of silicon, software and customized OEM
applications.
SMSC is based in Hauppauge, New York with operations in North America, Taiwan,
Japan, Korea, China and Europe. Engineering design centers are located in
Arizona, New York and Texas. Additional information is available at
www.smsc.com.
Forward Looking Statements:
Except for historical information contained herein, the matters discussed in
this announcement are forward-looking statements about expected future events
and financial and operating results that involve risks and uncertainties. These
include the timely development and market acceptance of new products; the impact
of competitive products and pricing; the effect of changing economic conditions
in domestic and international markets; changes in customer order patterns,
including loss of key customers, order cancellations or reduced bookings; and
excess or obsolete inventory and variations in inventory valuation, among
others. Such statements are qualified in their entirety by the inherent risks
and uncertainties surrounding future expectations and may not reflect the
potential impact of any future acquisitions, mergers or divestitures.
SMSC competes in the semiconductor industry, which has historically been
characterized by intense competition, rapid technological change, cyclical
market patterns, price erosion and periods of mismatched supply and demand. In
addition, sales of many of the Company's products depend largely on sales of
personal computers and peripheral devices, and reductions in the rate of growth
of the PC, consumer electronics and embedded markets could adversely affect its
operating results. SMSC conducts business outside the United States and is
subject to tariff and import regulations and currency fluctuations, which may
have an effect on its business. All forward-looking statements speak only as of
the date hereof and are based upon the information available to SMSC at this
time. Such information is subject to change, and the Company may not necessarily
inform, or be required to inform, investors of such changes. These and other
risks and uncertainties, including potential liability resulting from pending or
future litigation, are detailed from time to time in the Company's reports filed
with the SEC. Investors are advised to read the Company's Annual Report on Form
10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange
Commission, particularly those sections entitled "Other Factors That May Affect
Future Operating Results" for a more complete discussion of these and other
risks and uncertainties.
SMSC is a registered trademark of Standard Microsystems Corporation. Product
names and company names are trademarks of their respective holders.
Contact:
Carolynne Borders
Director of Corporate Communications
SMSC
Voice: 631-435-6626
Fax: 631-273-5550
carolynne.borders
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
November 30, November 30,
---------------------------------- ----------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Sales and revenues:
Product sales $ 48,026 $ 52,282 $ 145,611 $ 142,751
Intellectual property revenues 2,729 20,467 8,354 21,008
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50,755 72,749 153,965 163,759
Cost of goods sold 27,483 30,350 80,128 79,192
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Gross profit 23,272 42,399 73,837 84,567
Operating expenses (income):
Research and development 10,390 10,244 32,472 28,625
Selling, general and administrative 12,989 11,570 36,693 31,048
Amortization of intangible assets 265 317 848 994
Gain on real estate transaction - - - (1,444)
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Income (loss) from operations (372) 20,268 3,824 25,344
Interest income 704 617 1,726 1,451
Other expense, net (20) (145) (58) (890)
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Income before provision for income taxes
and minority interest 312 20,740 5,492 25,905
Provision for (benefit from) income taxes (301) 5,910 1,072 7,590
Minority interest in net income of subsidiary - 43 - 139
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 613 14,787 4,420 18,176
Loss from discontinued operations (net of
income tax benefits of $2 and $108) - (3) - (193)
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 613 $ 14,784 $ 4,420 $ 17,983
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Basic net income per share:
Income from continuing operations $ 0.03 $ 0.84 $ 0.24 $ 1.06
Loss from discontinued operations - - - (0.01)
- -----------------------------------------------------------------------------------------------------------------------
Basic net income per share $ 0.03 $ 0.84 $ 0.24 $ 1.05
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Diluted net income per share:
Income from continuing operations $ 0.03 $ 0.77 $ 0.23 $ 1.00
Loss from discontinued operations - - - (0.01)
- -----------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ 0.03 $ 0.77 $ 0.23 $ 0.99
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Weighted average common shares outstanding:
Basic 18,395 17,577 18,321 17,120
Diluted 19,035 19,242 19,375 18,143
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
November 30, February 29,
2004 2004
---- ----
Assets
Current assets:
Cash and cash equivalents $ 119,767 $ 135,161
Short-term investments 61,113 23,136
Accounts receivable, net 16,782 21,946
Inventories 38,009 23,162
Deferred income taxes 14,648 15,064
Other current assets 8,840 8,549
- ------------------------------------------------------------------------------
Total current assets 259,159 227,018
- ------------------------------------------------------------------------------
Property, plant and equipment, net 22,767 23,430
Long-term investments - 15,600
Goodwill 29,435 29,595
Intangible assets, net 3,849 4,697
Deferred income taxes 5,971 6,493
Other assets 3,707 3,192
- ------------------------------------------------------------------------------
$ 324,888 $ 310,025
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 19,783 $ 14,679
Deferred income on shipments to
distributors 6,808 7,972
Accrued expenses, income taxes
and other liabilities 14,367 13,168
- ------------------------------------------------------------------------------
Total current liabilities 40,958 35,819
- ------------------------------------------------------------------------------
Other liabilities
11,967 12,104
Shareholders' equity:
Preferred stock - -
Common stock 2,050 2,019
Additional paid-in capital 187,239 181,830
Retained earnings 103,430 99,010
Treasury stock, at cost (23,799) (23,454)
Deferred stock-based compensation (2,163) (1,962)
Accumulated other comprehensive income 5,206 4,659
- ------------------------------------------------------------------------------
Total shareholders' equity 271,963 262,102
- ------------------------------------------------------------------------------
$ 324,888 $ 310,025
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