Exhibit 99.1
SMSC REPORTS 58% YEAR-OVER-YEAR INCREASE IN SECOND QUARTER REVENUES, INCLUDING
OASIS ACQUISITION
Revenues and Earnings Exceed Company's Prior Estimates
Hauppauge, NY - September 21, 2005 - SMSC (Nasdaq: SMSC) today announced that
revenues for the second quarter ended August 31, 2005 were $79.1 million, an
increase of approximately 58% from last year's second quarter revenues of $50.2
million. Approximately half of the increase was attributable to the March 30,
2005 acquisition of OASIS SiliconSystems Holding AG (OASIS), and the remainder
resulted from growth in SMSC's other product lines. Second quarter fiscal 2006
revenues included $1.1 million received with respect to shipments to a Taiwanese
distributor in fiscal 2005, which could not be recognized previously due to
collectibility concerns.
Gross profit percentage was 43.9% for the three months ended August 31, 2005,
compared to 47.6% for the year-earlier quarter, and 47.0% for the quarter ended
May 31, 2005. For purposes of this discussion, gross profit is defined as
revenues minus cost of goods sold, before amortization of intangible assets. The
cost of the inventory underlying the $1.1 million of revenues referenced above
was written off in the fourth quarter of fiscal 2005. Therefore, there is no
cost of good sold in the second quarter of fiscal 2006 associated with that
revenue. Also, the gross profit percentage for the second quarter of fiscal 2006
reflects the impact of yield losses aggregating $1.5 million related to certain
atypical production issues. Those yields have now returned to expected levels
and gross profit improvement is expected in the third quarter of fiscal 2006.
Research and development expenses for the quarter were $14.7 million, compared
to $11.2 million in the year-ago quarter, and selling, general and
administrative expenses were $18.6 million, compared to $11.9 million in last
year's second quarter.
The year-over-year increase in costs and expenses primarily reflects the
addition of OASIS and an expense provision of $5.7 million in the second quarter
of fiscal 2006 to adjust Stock Appreciation Rights (SARs) to market value as a
result of the increase in SMSC's stock price during the quarter. This SARs
provision is included within cost of goods sold ($0.4 million), research and
development expenses ($1.4 million) and selling, general and administrative
expenses ($3.9 million).
All of the above resulted in an operating loss of $0.1 million in the second
quarter, compared to operating income of $0.6 million a year ago. Net income was
breakeven in the second quarter of fiscal 2006, compared to $0.9 million, or
$0.05 per share, in the second quarter of last year.
To provide additional insight into its underlying operations, SMSC is also
presenting a second quarter fiscal 2006 statement of operations on a non-GAAP
basis, excluding the aforementioned provision to adjust SARs to market value, as
well as the impact from non-cash acquisition-related charges, comprised of
amortization of acquired intangible assets and adjustments to the value of
opening inventory at the date of the OASIS acquisition. This statement is
presented in a format that reconciles the non-GAAP measures to the comparable
GAAP measures.
On a non-GAAP basis, operating results were as follows: Gross profit percentage
for the period was 45.6%, compared to 47.6% in the previous year's second
quarter. Operating income was $8.1 million, or 10.3% of revenues, compared to
$0.8 million, or 1.6% of revenues, in the year-ago period. Non-GAAP net income
was $5.3 million, or $0.25 per share, compared to net income of $1.1 million, or
$0.06 per share, in the second quarter of fiscal 2005.
"Second quarter revenues showed growth across all of our product areas," said
Steven J. Bilodeau, Chairman and Chief Executive Officer. "Non-PC related sales
represented 51% of total sales in the second quarter, with 33% shipping into
consumer electronics and automotive infotainment applications and 18% in
industrial and other. Shipments into mobile and desktop PCs totaled 49% of sales
with mobile exceeding desktop shipments for the second quarter in a row."
Mr. Bilodeau continued, "We are also pleased to have achieved our target of 10%
operating income as a percentage of revenues at a $300 million annual run rate,
as SMSC delivered a 10.3% operating income margin on a non-GAAP basis this
quarter. Going forward, as revenues increase, we expect the continued leverage
of operating expenses to further improve operating margins. Our current
expectation is that the third quarter will be another quarter of robust
year-over-year growth in revenues and earnings as outlined herein."
Cash and liquid investments at August 31, 2005 were $131.7 million, compared to
$121.0 million at May 31, 2005. The Company has no bank debt, and book value per
share was $14.61 as of August 31, 2005.
Non-GAAP Business Outlook:
Third quarter guidance for non-GAAP net income, which is expected to be between
$0.31 and $0.37 per share, assuming approximately 23 million diluted weighted
average shares outstanding, is presented only on a non-GAAP basis because of
SMSC's inability to project its future stock price and any resultant adjustment
that might be required to adjust SARs to market value.
For the third quarter, in line with the non-GAAP net income per share guidance
above, SMSC expects the following on a non-GAAP basis:
o Revenues of between $81 million and $86 million, reflecting a year-over-year
increase of more than 60% at the midpoint of that range. Of that growth,
approximately 28% results from the OASIS acquisition and 32% is attributable
to SMSC's pre-existing business.
o Gross profit percentage of between 46% and 48%.
o Research and development expenses of between $13.5 million and $14.5 million.
o Selling, general and administrative expenses of between $14 million and $15
million.
o An effective income tax rate of approximately 31%.
The non-GAAP third quarter guidance above excludes the impact of (a) any charges
or credits that might be required relative to SARs and (b) two non-cash
acquisition related charges, which are the amortization of acquired intangible
assets, estimated to be $1.6 million, and an adjustment to cost of goods sold to
reflect the write up of the cost of inventory at the date of the OASIS
acquisition, which is estimated to be $0.1 million.
SMSC currently has approximately 1.5 million SARs outstanding, none of which are
vested, but all of which are scheduled to vest between September 2005 and
September 2010.
In GAAP results, expense recognition related to SARs is determined by a
mark-to-market calculation based on SMSC's stock price at the end of each
period. The SARs outstanding as of August 31, 2005 have been marked to the
actual market price of $26.05 on that date. If the market price of SMSC stock
remained at $26.05 on November 30, 2005, an expense provision of approximately
$1.0 million ($0.7 million, or $0.03 per share, after tax) would be required in
the third quarter due to the passage of additional vesting time related to the
SARs. Each $1.00 change in SMSC's share price above or below $26.05 as of
November 30, 2005 would require an additional expense provision or credit of
approximately $0.75 million ($0.5 million, or $0.02 per share, after tax) in the
third quarter, with any credit limited to a maximum of $5.7 million ($3.9
million, or $0.17 per share, after tax).
SMSC includes the actual cash cost of SARs in non-GAAP results as SARs are
exercised. However, the non-GAAP guidance above includes no estimate of any cash
cost that might be incurred in the third quarter of fiscal 2006 because it is
impossible to predict the number of SARs that may be exercised or the market
value of SMSC stock at the time any exercise.
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, Hi-Speed USB 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
Phone: 631-435-6626
Fax: 631-273-5550
carolynne.borders@smsc.com
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended August 31,
--------------------------------------------------------------------------------------
2005 2004
------------------------------------------ ----------------------------------------
GAAP Adjustment Non-GAAP GAAP Adjustment Non-GAAP
Revenues $ 79,060 $ - $ 79,060 $ 50,157 $ - $ 50,157
Costs and expenses:
Cost of goods sold 44,372 (1,354)(a) 43,018 26,260 - 26,260
Research and development 14,685 (1,429)(b) 13,256 11,220 - 11,220
Selling, general and administrative 18,554 (3,893)(b) 14,661 11,852 - 11,852
Amortization of intangible assets 1,557 (1,557)(c) - 266 (266)(c) -
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (108) 8,233 8,125 559 266 825
Interest income 649 - 649 556 - 556
Other income (expense), net (5) - (5) (6) - (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 536 8,233 8,769 1,109 266 1,375
Provision for income taxes 517 2,954 (d) 3,471 214 96 (d) 310
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 19 5,279 5,298 895 170 1,065
====================================================================================================================================
Basic net income per share $ - $ 0.26 $ 0.05 $ 0.06
====================================================================================================================================
Diluted net income per share $ - $ 0.25 $ 0.05 $ 0.06
====================================================================================================================================
Weighted average common shares outstanding:
Basic 20,630 20,630 18,308 18,308
Diluted 21,611 21,611 19,169 19,169
Notes:
SMSC uses certain non-GAAP information to evaluate its operating results and
believes such information also provides investors with additional insight into
its underlying operations. This schedule presents a full reconciliation between
GAAP and non-GAAP results.
(a) The adjustment to Cost of goods sold includes $974 to remove the impact of
writing up the cost of inventory at the date of the OASIS acquisition over
OASIS' original cost of the inventory. That write up will only impact GAAP
Cost of goods sold for the turnover period of the OASIS inventory at the
date of acquisition. That turnover period is expected to conclude in the
quarter ending November 30, 2005.
The remaining $380 adjustment to Cost of goods sold is to remove the impact
of the provision to adjust Stock Appreciation Rights (SARs) to market value
as a result of the increase in SMSC's stock price in the quarter. SMSC
includes the actual cash cost of SARs in non-GAAP results as the SARs are
exercised. No SARs had become exercisable through August 31, 2005.
(b) The adjustments to Research & development and Selling, general &
administrative expense are to remove the impact of the provision to adjust
Stock Appreciation Rights (SARs) to market value as a result of the
increase in SMSC's stock price in the quarter. SMSC includes the actual
cash cost of SARs in non-GAAP results as the SARs are exercised. No SARs
had become exercisable through August 31, 2005.
(c) The adjustment to Amortization of intangible assets for the three months
ended August 31, 2005 includes $1,291 related to the OASIS acquisition and
$266 related to the fiscal 2003 acquisition of Gain Technology Corporation
(Gain). The adjustment for the three months ended August 31, 2004 relates
entirely to the Gain acquisition.
(d) The adjustments to the Provision for income taxes were determined by
applying the appropriate incremental tax rates to the adjustments described
in notes (a) through (c) above.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended August 31,
--------------------------------------------------------------------------------------
2005 2004
------------------------------------------ ----------------------------------------
GAAP Adjustment Non-GAAP GAAP Adjustment Non-GAAP
Revenues $ 79,060 $ - $ 79,060 $ 50,157 $ - $ 50,157
Costs and expenses:
Cost of goods sold 44,372 (1,354)(a) 43,018 26,260 - 26,260
Research and development 14,685 (1,429)(b) 13,256 11,220 - 11,220
Selling, general and administrative 18,554 (3,893)(b) 14,661 11,852 - 11,852
Amortization of intangible assets 1,557 (1,557)(c) - 266 (266)(c) -
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (108) 8,233 8,125 559 266 825
Interest income 649 - 649 556 - 556
Other income (expense), net (5) - (5) (6) - (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 536 8,233 8,769 1,109 266 1,375
Provision for income taxes 517 2,954 (d) 3,471 214 96 (d) 310
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 19 5,279 5,298 895 170 1,065
====================================================================================================================================
Basic net income per share $ - $ 0.26 $ 0.05 $ 0.06
====================================================================================================================================
Diluted net income per share $ - $ 0.25 $ 0.05 $ 0.06
====================================================================================================================================
Weighted average common shares outstanding:
Basic 20,630 20,630 18,308 18,308
Diluted 21,611 21,611 19,169 19,169
Notes:
SMSC uses certain non-GAAP information to evaluate its operating results and
believes such information also provides investors with additional insight into
its underlying operations. This schedule presents a full reconciliation between
GAAP and non-GAAP results.
(a) The adjustment to Cost of goods sold includes $974 to remove the impact of
writing up the cost of inventory at the date of the OASIS acquisition over
OASIS' original cost of the inventory. That write up will only impact GAAP
Cost of goods sold for the turnover period of the OASIS inventory at the
date of acquisition. That turnover period is expected to conclude in the
quarter ending November 30, 2005.
The remaining $380 adjustment to Cost of goods sold is to remove the impact
of the provision to adjust Stock Appreciation Rights (SARs) to market value
as a result of the increase in SMSC's stock price in the quarter. SMSC
includes the actual cash cost of SARs in non-GAAP results as the SARs are
exercised. No SARs had become exercisable through August 31, 2005.
(b) The adjustments to Research & development and Selling, general &
administrative expense are to remove the impact of the provision to adjust
Stock Appreciation Rights (SARs) to market value as a result of the
increase in SMSC's stock price in the quarter. SMSC includes the actual
cash cost of SARs in non-GAAP results as the SARs are exercised. No SARs
had become exercisable through August 31, 2005.
(c) The adjustment to Amortization of intangible assets for the three months
ended August 31, 2005 includes $1,291 related to the OASIS acquisition and
$266 related to the fiscal 2003 acquisition of Gain Technology Corporation
(Gain). The adjustment for the three months ended August 31, 2004 relates
entirely to the Gain acquisition.
(d) The adjustments to the Provision for income taxes were determined by
applying the appropriate incremental tax rates to the adjustments described
in notes (a) through (c) above.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Six Months Ended August 31,
-----------------------------------------------------------------------------------
2005 2004
---------------------------------------- ---------------------------------------
GAAP Adjustment Non-GAAP GAAP Adjustment Non-GAAP
Revenues $ 147,867 $ - $ 147,867 $ 103,210 $ - $ 103,210
Costs and expenses:
Cost of goods sold 80,864 (1,959)(a) 78,905 52,645 - 52,645
Research and development 27,651 (1,397)(b) 26,254 22,082 - 22,082
Selling, general and administrative 32,145 (3,808)(b) 28,337 23,704 - 23,704
Amortization of intangible assets 2,710 (2,710)(d) - 583 (583)(d) -
In-process research and development 895 (895)(c) - - -
- -------------------------------------------------------------------------------------------------------------------------------
Income from operations 3,602 10,769 14,371 4,196 583 4,779
Interest income 1,372 - 1,372 1,022 - 1,022
Other income (expense), net (52) - (52) (38) - (38)
- -------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 4,922 10,769 15,691 5,180 583 5,763
Provision for income taxes 1,876 3,908 (e) 5,784 1,373 210 (e) 1,583
- -------------------------------------------------------------------------------------------------------------------------------
Net income 3,046 6,861 9,907 3,807 373 4,180
===============================================================================================================================
Basic net income per share 0.15 $ 0.49 $ 0.21 $ 0.23
===============================================================================================================================
Diluted net income per share $ 0.14 $ 0.47 $ 0.20 $ 0.21
===============================================================================================================================
Weighted average common shares outstanding:
Basic 20,325 20,325 18,278 18,278
Diluted 21,071 21,071 19,482 19,482
Notes:
SMSC uses certain non-GAAP information to evaluate its operating results and
believes such information also provides investors with additional insight into
its underlying operations. This schedule presents a full reconciliation between
GAAP and non-GAAP results.
(a) The adjustment to Cost of goods sold includes $1,587 to remove the impact
of writing up the cost of inventory at the date of the OASIS acquisition
over OASIS' original cost of the inventory. That write up will only impact
GAAP Cost of goods sold for the turnover period of the OASIS inventory at
the date of acquisition. That turnover period is expected to conclude in
the quarter ending November 30, 2005.
The remaining $372 adjustment to Cost of goods sold is to remove the impact
of the provision to adjust Stock Appreciation Rights (SARs) to market value
as a result of the increase in SMSC's stock price in the quarter. SMSC
includes the actual cash cost of SARs in non-GAAP results as the SARs are
exercised. No SARs had become exercisable through August 31, 2005.
(b) The adjustments to Research & development and Selling, general &
administrative expense are to remove the impact of the provision to adjust
Stock Appreciation Rights (SARs) to market value as a result of the
increase in SMSC's stock price in the quarter. SMSC includes the actual
cash cost of SARs in non-GAAP results as the SARs are exercised. No SARs
had become exercisable through August 31, 2005.
(c) The adjustment to In-process research and development is to remove from the
pro forma results the cost of in-process research and development that was
purchased in the OASIS acquisition and immediately expensed.
(d) The adjustment to Amortization of intangible assets for the six months
ended August 31, 2005 includes $2,178 related to the OASIS acquisition and
$532 related to the fiscal 2003 acquisition of Gain Technology Corporation
(Gain). The adjustment for the six months ended August 31, 2004 relates
entirely to the Gain acquisition.
(e) The adjustments to the Provision for income taxes were determined by
applying the appropriate incremental tax rates to the adjustments described
in notes (a) through (d) above.
STANDARD MICROSYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
August 31, February 28,
2005 2005
--------------- ---------------
Assets
Current assets:
Cash and cash equivalents $ 24,678 $ 116,126
Short-term investments 106,988 56,519
Accounts receivable, net 29,109 23,788
Inventories 38,818 33,310
Deferred income taxes 16,612 17,701
Other current assets 4,794 4,295
- -----------------------------------------------------------------------------
Total current assets 220,999 251,739
- -----------------------------------------------------------------------------
Property, plant and equipment, net 28,915 22,630
Goodwill 79,032 29,435
Intangible assets, net 48,152 3,584
Deferred income taxes 9,456 7,163
Other assets 3,864 4,708
- -----------------------------------------------------------------------------
$ 390,418 $ 319,259
=============================================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 22,216 $ 15,995
Deferred income on shipments to
distributors 8,876 7,689
Accrued expenses, income taxes and
other liabilities 21,574 13,400
- -----------------------------------------------------------------------------
Total current liabilities 52,666 37,084
- -----------------------------------------------------------------------------
Deferred income taxes 16,116 -
Other liabilities 15,429 12,326
Shareholders' equity:
Preferred stock - -
Common stock 2,295 2,053
Additional paid-in capital 229,340 187,854
Retained earnings 103,658 100,612
Treasury stock, at cost (25,961) (23,799)
Deferred stock-based compensation (3,588) (1,925)
Accumulated other comprehensive
income 463 5,054
- -----------------------------------------------------------------------------
Total shareholders' equity 306,207 269,849
- -----------------------------------------------------------------------------
$ 390,418 $ 319,259
=============================================================================