Exhibit 99.2
SMSC REPORTS FOURTH QUARTER AND FISCAL 2005 RESULTS
Hauppauge, NY - April 18, 2005 - SMSC (Nasdaq: SMSC) today announced that
revenues for the fourth quarter ended February 28, 2005 were $54.8 million, an
increase of approximately 5% from last year's fourth quarter revenues of $52.1
million, and an increase of 8% from $50.8 million in the third quarter of fiscal
2005.
SMSC previously disclosed a collectibility concern related to a Taiwan-based
distributor, which prevented SMSC from recognizing $4.2 million of product sales
in its third quarter of fiscal 2005. SMSC has not shipped product to this
distributor since this issue first arose and there was no disruption of supply
to SMSC's end customers as shipments were rerouted through alternate channels.
Although SMSC initially believed that the distributor was on a path to
recovering its financial stability, conditions deteriorated in the latter part
of SMSC's fourth fiscal quarter, and the distributor recently filed a petition
for reorganization. Since there can be no assurance that SMSC will receive the
remaining balance owed by the distributor, SMSC has recorded a charge of $2.7
million in the fourth quarter, fully reserving its remaining balance sheet
exposure on this issue. The $2.7 million charge is included in Cost of goods
sold, as it represents the inventory value of the shipments on which revenue was
not recognized.
Gross profit percentage for the fourth quarter of fiscal 2005 was 38.1%,
compared to 48.1% in the previous year's fourth quarter. The primary reason for
the reduced percentage was the aforementioned write off. The gross profit
percentage for the fourth quarter of fiscal 2005 was also adversely affected by
increased sales of lower margin parts and by shipments of inventory purchased at
high prices during a period of perceived supply shortage. The gross profit
percentage is expected to improve in the first quarter of fiscal 2006 to between
44% and 46%, as noted in the Business Outlook section below, and to improve
further in subsequent quarters.
Research and development expenses for the quarter were $10.5 million, compared
to $10.2 million in the year-ago quarter, and selling, general and
administrative expenses were $12.1 million, compared to $11.1 million in last
year's fourth quarter, including litigation costs of $1.1 million in the fourth
quarter of fiscal 2005 and $0.2 million in the same period last year. Operating
expenses for the quarter ended February 28, 2005 included a credit of $0.7
million to mark stock appreciation rights to market as a result of the decrease
in SMSC's share price during the quarter.
As previously disclosed, SMSC settled a patent infringement dispute with Analog
Devices Inc. (ADI) in the fourth quarter of fiscal 2005. In connection with this
settlement, SMSC made a one-time payment of $6 million to ADI, which was
recorded in the same period. The litigation costs quoted in the preceding
paragraph were directly related to the dispute with ADI and, as a result of the
settlement, will no longer continue.
Lastly, during the fourth quarter ended February 28, 2005, SMSC recorded a gain
of $1.0 million on the sale of real estate.
Due to the significance of the aggregate impact of the settlement charge, the
distributor related asset write-off and the real estate gain in the fourth
quarter of fiscal 2005, SMSC is presenting certain pro forma information to
facilitate a comparison of operating results. A schedule reconciling the
non-GAAP measures to the most comparable GAAP measures is attached to the
release.
On a GAAP basis, the net loss in the fourth quarter of fiscal 2005 was $0.15 per
share, including the impact of special items, which in the aggregate decreased
SMSC's earnings per share by a net of $0.26. On a pro forma basis, SMSC's net
income was $0.11 per share, which compares to net income of $0.17 per share in
the fourth quarter of fiscal 2004.
Fiscal 2005 Financial Highlights:
o SMSC posted record annual semiconductor product revenues of $197.8 million
for fiscal 2005.
o The Company achieved strong growth in year-over-year sales of networking
and connectivity products with collective revenue growth of more than
30% over the prior year.
o As a of percentage of product revenues, PC I/O sales comprised 59% and
non-PC I/O sales were 41%, versus a split of 67% and 33% last year,
respectively.
o SMSC announced that it settled a patent infringement dispute with ADI,
under which both parties agreed to dismiss all claims against each other.
As part of the agreement, SMSC made a one-time payment of $6 million to
ADI, and was granted a royalty-bearing license to the patents in question.
o On a GAAP basis, net income per share for fiscal 2005 was $0.08 versus
$1.16 in fiscal 2004. On a pro forma basis, excluding the impact of the
special items mentioned above, net income per share for fiscal 2005 was
$0.33 versus $1.14 in fiscal 2004. Slightly more than half of the
year-to-year decrease in pro forma net income per share was due to the fact
that intellectual property payments from Intel were much higher in fiscal
2004 than in fiscal 2005.
o Cash and liquid investments at the end of fiscal 2005 increased to $172.6
million. Inventories at the end of the fiscal year totaled $33.3 million,
and are appropriate relative to expected demand. The Company has no bank
debt, and book value per share as of February 28, 2005 was $14.44,
of which $9.24 was cash and short-term investments.
"SMSC's total revenues for the fourth quarter increased on both a year-over-year
and sequential comparison," said Steven J. Bilodeau, Chairman and Chief
Executive Officer. "Though quarterly PC I/O sales were roughly flat with last
year's fourth quarter and connectivity grew slightly, SMSC's networking business
increased by 27%."
Mr. Bilodeau continued, "Looking ahead, with the contributions of the OASIS
acquisition, SMSC will experience an immediate acceleration in revenues, on top
of organic growth."
Fiscal 2005 Business Highlights:
In fiscal 2005, SMSC:
o Celebrated the unveiling of a new global brand identity at the opening of
the NASDAQ Stock Market at the NASDAQ MarketSite in Times Square on April
26, 2004. Through this identity launch, SMSC placed a new emphasis on
positioning the Company as a stronger and more competitive supplier of
innovative solutions to a broad range of end markets.
o Unveiled the industry's first USB2.0 2-port hub controller. Addressing the
growing demand in applications such as digital media, mobile, printers and
multi-functional devices, this hub controller offers a 2-port device for
those applications where the primary system requirement is to double the
available number of USB2.0 ports.
o Unveiled five new USB2.0-based products, including a 3-port, second
generation 4-port and 7-port hub controller; a controller for 12-in-1 flash
card readers; and a second generation USB2.0 physical layer transceiver
(PHY). With this introduction, SMSC is offering the market the most
comprehensive, highest performing line of USB2.0 hub controller products
for a wide range of consumer and commercial connectivity applications.
o Introduced its 10-in-1 USB2.0 card reader controllers delivering optimized,
cost-effective performance with low power for flash media cards. With
today's proliferation of flash cards, embedded hardware designers now have
a better way to leverage fast USB2.0 data transfer speeds, while also
addressing the requirements of advanced card formats, most importantly,
increased compatibility and lower system costs.
o Introduced the Company's second generation 10/100 non-PCI Ethernet
controller addressing the growing demand to connect multiple PCs with
digital media in the home. Applications include video streaming, such as
cable, HDTV, digital video recorders, home gateways, printers and more.
o Announced that VOCAL Technologies, Ltd. selected SMSC's Ethernet controller
for its reference design serving the Voice over IP market space. In
addition, SMSC is VOCAL's silicon supplier for all IP interaction.
o Targeting the consumer notebook PC market, introduced a family of
integrated microcontrollers, which expand the role of the traditional
keyboard controller to deliver the industry's first mobile embedded
controller solution that integrates critical thermal, power and system
management capabilities with keyboard scan, serial port and consumer
infrared functionality into a single device.
o Introduced a super Input/Output (I/O) controller targeting the media-rich
mobile PC market and the digital home. With the growing demand for mobility
and the consumer's desire to access audio, video and data, this I/O
controller is ideally suited for a market where cost, size and performance
are critical benchmarks.
o Launched a family of pin compatible system controller I/O chips. The suite
of I/O controllers delivers a more flexible design that enables system
design engineers to standardize on a single part across a wide range of
applications with similar characteristics.
o In response to customer challenges associated with overcoming heat
dissipation and cooling system issues, expanded its line of Environmental
Monitoring and Control (EMC) solutions to include four new temperature
sensors, providing industry first solutions that address these customer
issues with the highest levels of accuracy while conserving board space.
o Shortly after the close of fiscal 2005, SMSC announced that it had acquired
OASIS SiliconSystems Holding AG (OASIS), a leading provider of Media
Oriented Systems Transport (MOST(R)) technology, which enables the seamless
transport of digital audio, video, and packet-based data, along with
control information, within automobiles. The acquisition, which closed on
March 30, 2005, marks another major step in SMSC's diversification strategy
by moving into a new vertical market with the leader in automotive
infotainment networking in Europe.
Business Outlook:
The following expectations include the impact of the OASIS SiliconSystems
acquisition for two months of the first quarter of fiscal 2006, beginning on
March 31, 2005.
For the first quarter, SMSC expects revenues to be between $63 million and $67
million, reflecting a year-over-year increase of 22% at the midpoint of that
range. Gross profit percentage is expected to be between 44% and 46%. Research
and development expenses and selling, general and administrative expenses are
both expected to be between $13.25 million and $14 million. The effective tax
rate is estimated to be approximately 32%. Before in-process R&D charges and
amortization of acquired intangibles, the Company expects first quarter net
income to be between $0.08 and $0.12 per share.
Sarbanes-Oxley:
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, SMSC will report on
the effectiveness of its internal controls as of fiscal 2005 in its upcoming
Form 10K. This is the first annual period for which such an assessment has been
required, and management and SMSC's independent auditors are in the process of
finalizing their evaluation of the design and tests of effectiveness of its
internal controls as defined by Section 404. There can be no assurance that the
Company's Form 10K will not include reportable deficiencies.
About SMSC:
Many of the world's most successful global technology companies rely upon SMSC
as a go-to resource for semiconductor system solutions that span analog, digital
and mixed-signal technologies. Leveraging substantial intellectual property,
integration expertise and a comprehensive global infrastructure, SMSC solves
design challenges and delivers performance, space, cost and time-to-market
advantages to its customers. SMSC's application focus targets key vertical
markets including mobile and desktop PCs, servers, consumer electronics,
automotive infotainment and industrial applications. The Company has developed
leadership positions in its select markets by providing application specific
solutions such as mixed-signal PC system controllers, non-PCI Ethernet, ARCNET,
MOST, USB2.0 and other high-speed serial communications.
SMSC is headquartered in Hauppauge, New York with operations in North America,
Taiwan, Japan, Korea, China and Europe. Engineering design centers are located
in Arizona, New York, Texas and Karlsruhe, Germany. 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 or distributors, 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, as well as general industry and
market conditions. Reductions in the rate of growth of the PC, consumer
electronics, embedded or automotive 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@smsc.com
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Fiscal Year Ended
February 28 or 29, February 28 or 29,
---------------------------------- -------------------------------
2005 2004 2005 2004
Sales and revenues:
Product sales $ 52,192 $ 49,218 $ 197,803 $ 191,969
Intellectual property revenues 2,658 2,896 11,012 23,904
- --------------------------------------------------------------------------------------------------------------------------------
54,850 52,114 208,815 215,873
Cost of goods sold 33,938 27,044 114,066 106,236
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit 20,912 25,070 94,749 109,637
Operating expenses (income):
Research and development 10,516 10,168 42,988 38,793
Selling, general and administrative 12,066 11,120 48,759 42,168
Amortization of intangible assets 265 317 1,113 1,311
Settlement charge 6,000 - 6,000 -
Gains on real estate transactions (1,017) - (1,017) (1,444)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (6,918) 3,465 (3,094) 28,809
Interest income 806 467 2,532 1,918
Other expense, net (45) (43) (103) (933)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for (benefit from)
income taxes and minority interest (6,157) 3,889 (665) 29,794
Provision for (benefit from) income taxes (3,339) 461 (2,267) 8,051
Minority interest in net income of subsidiary - 62 - 201
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (2,818) 3,366 1,602 21,542
Gain (loss) from discontinued operations (net of
income taxes of $94 and $(14)) - 169 - (24)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (2,818) 3,535 1,602 21,518
Gain on redemption of preferred stock of subsidiary - 6,685 - 6,685
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shareholders $ (2,818) $ 10,220 $ 1,602 $ 28,203
================================================================================================================================
Basic net income (loss) per share:
Income (loss) from continuing operations $ (0.15) $ 0.19 $ 0.09 $ 1.25
Gain (loss) from discontinued operations - 0.01 - -
- --------------------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share (0.15) 0.20 0.09 1.25
Gain on redemption of preferred stock of subsidiary - 0.37 - 0.39
- --------------------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share applicable to common
shareholders $ (0.15) $ 0.57 $ 0.09 $ 1.64
================================================================================================================================
Diluted net income (loss) per share:
Income (loss) from continuing operations $ (0.15) $ 0.17 $ 0.08 $ 1.17
Gain (loss) from discontinued operations - 0.01 - -
- --------------------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share (0.15) 0.18 0.08 1.16
Gain on redemption of preferred stock of subsidiary - 0.34 - 0.36
- --------------------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share applicable to common
shareholders $ (0.15) $ 0.51 $ 0.08 $ 1.53
================================================================================================================================
Weighted average common shares outstanding:
Basic 18,552 18,007 18,376 17,226
Diluted 18,552 19,887 19,318 18,479
The sum of the income (loss) per share amounts may not total due to rounding.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Fiscal Year Ended
February 28 or 29, February 28 or 29,
---------------------------------- -------------------------------
2005 2004 2005 2004
Sales and revenues:
Product sales $ 52,192 $ 49,218 $ 197,803 $ 191,969
Intellectual property revenues 2,658 2,896 11,012 23,904
- ------------------------------------------------------------------------------------------------------------------------------
54,850 52,114 208,815 215,873
Cost of goods sold 31,204 27,044 111,332 106,236
- ------------------------------------------------------------------------------------------------------------------------------
Gross profit 23,646 25,070 97,483 109,637
Operating expenses:
Research and development 10,516 10,168 42,988 38,793
Selling, general and administrative 12,066 11,120 48,759 42,168
Amortization of intangible assets 265 317 1,113 1,311
- ------------------------------------------------------------------------------------------------------------------------------
Income from operations 799 3,465 4,623 27,365
Interest income 806 467 2,532 1,918
Other expense, net (45) (43) (103) (184)
- ------------------------------------------------------------------------------------------------------------------------------
Income before provision for (benefit from)
income taxes and minority interest 1,560 3,889 7,052 29,099
Provision for (benefit from) income taxes (484) 461 588 7,794
Minority interest in net income of subsidiary - 62 - 201
- ------------------------------------------------------------------------------------------------------------------------------
Net income 2,044 3,366 6,464 21,104
==============================================================================================================================
Basic net income per share $ 0.11 $ 0.19 $ 0.35 $ 1.23
==============================================================================================================================
Diluted net income per share $ 0.11 $ 0.17 $ 0.33 $ 1.14
==============================================================================================================================
Weighted average common shares outstanding:
Basic 18,552 18,007 18,376 17,226
Diluted 19,224 19,887 19,318 18,479
These pro forma Consolidated Statements of Operations exclude:
from fiscal 2005, a settlement charge, a distributor-related asset
write-off and a gain of the sale of real estate, and
from fiscal 2004, a gain on the sale of real estate, a loss on the sale of
Chartered Semiconductor stock and a gain(loss) from discontinued
operations.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP AND PRO FORMA INFORMATION (Unaudited)
(in thousands, except per share amounts)
Three Months Ended Year Ended
February 28 or 29, February 28 or 29,
----------------------- ------------------------
2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------
Net income (loss)
As reported, per GAAP $ (2,818) $ 3,535 $ 1,602 $ 21,518
Add (Deduct):*
Settlement charge 3,780 - 3,780 -
Write off of distributor-related asset 1,723 - 1,723 -
Gains on real estate transactions (641) - (641) (910)
Loss on sale of Chartered Semiconductor stock - - - 472
(Gain) Loss from discontinued operations - (169) - 24
- -----------------------------------------------------------------------------------------------------------
Pro forma net income $ 2,044 $ 3,366 $ 6,464 $ 21,104
===========================================================================================================
Diluted net income (loss) per share:
As reported, per GAAP $ (0.15) $ 0.18 $ 0.08 $ 1.16
Pro forma $ 0.11 $ 0.17 $ 0.33 $ 1.14
Diluted weighted average common shares outstanding:
As reported, per GAAP 18,552 19,887 19,318 18,479
Pro forma 19,224 19,887 19,318 18,479
* All amounts added and deducted in calculating pro forma net income are
presented net of applicable income taxes at 37%.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
February 28, February 29,
2005 2004
---- ----
Assets
Current assets:
Cash and cash equivalents $ 116,126 $ 14,050
Short-term investments 56,519 144,247
Accounts receivable, net 23,788 21,946
Inventories 33,310 23,162
Deferred income taxes 17,701 15,064
Other current assets 4,295 8,549
- -------------------------------------------------------------------------------
Total current assets 251,739 227,018
- -------------------------------------------------------------------------------
Property, plant and equipment, net 22,630 23,430
Long-term investments - 15,600
Goodwill 29,435 29,595
Intangible assets, net 3,584 4,697
Deferred income taxes 7,163 6,493
Other assets 4,708 3,192
- -------------------------------------------------------------------------------
$ 319,259 $ 310,025
===============================================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 15,995 $ 14,679
Deferred income on shipments to distributors 7,689 7,972
Accrued expenses, income taxes and other
liabilities 13,400 13,168
- -------------------------------------------------------------------------------
Total current liabilities 37,084 35,819
- -------------------------------------------------------------------------------
Other liabilities 12,326 12,104
Shareholders' equity:
Preferred stock - -
Common stock 2,053 2,019
Additional paid-in capital 187,854 181,830
Retained earnings 100,612 99,010
Treasury stock, at cost (23,799) (23,454)
Deferred stock-based compensation (1,925) (1,962)
Accumulated other comprehensive income 5,054 4,659
- -------------------------------------------------------------------------------
Total shareholders' equity 269,849 262,102
- -------------------------------------------------------------------------------
$ 319,259 $ 310,025
===============================================================================