##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
    Form 10-Q
    þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    November 30, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission file number 0-7422
      STANDARD MICROSYSTEMS
    CORPORATION
 (Exact name of registrant as
    specified in its charter)
   DELAWARE

11-2234952(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification No.)80 Arkay Drive, Hauppauge, New
    York

11788-3728(Address of principal executive
    offices)

(Zip
    Code)    Registrants telephone number, including area code:
 (631) 435-6000
  þ o
  Rule 12b-2
 Large
    accelerated filer o
    Accelerated
    filer þ
    Non-accelerated
    filer o  Rule 12b-2 o þ




---



##### 



TABLE OF
    CONTENTS
  
  Part I 
    FINANCIAL INFORMATIONItem 1.


Financial
    Statements


1Condensed
    Consolidated Balance Sheets as of November 30, 2006 and
    February 28, 2006


1Condensed
    Consolidated Income Statements for the Three and Nine-Month
    Periods Ended November 30, 2006 and 2005


2Condensed
    Consolidated Statements of Cash Flows for the Nine-Month Periods
    Ended November 30, 2006 and 2005


3Notes to Condensed
    Consolidated Financial Statements


4Item 2.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


18Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


25Item 4.


Controls and
    Procedures


26Part II 
    OTHER INFORMATIONItem 1.


Legal
    Proceedings


27Item 1A.


Risk
    Factors


27Item 2.


Unregistered Sales
    of Equity Securities and Use of Proceeds


27Item 3.


Defaults Upon
    Senior Securities


27Item 4.


Submission of
    Matters to a Vote of Security Holders


27Item 5.


Other
    Information


27Item 6.


Exhibits


27Signatures


28Certification of Chief Executive Officer to Section 302Certification of Chief Financial Officer to Section 302Certification of CEO and CFO to 18 U.S.C. Section 1350   i




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##### Table of Contents



PART I Item 1. 
    Financial Statements  STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
 CONDENSED
    CONSOLIDATED BALANCE SHEETS

(in thousands) November 30,


February 28,2006


2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
39,927


$
43,932Short-term investments


106,143



111,101Accounts receivable, net


38,774



39,802Inventories


52,630



41,861Deferred income taxes


19,446



17,457Other current assets


8,919



5,651Total current assets


265,839



259,804Property, plant and equipment,
    net


54,737



38,140Goodwill


98,103



94,606Intangible assets,
    net


41,869



44,039Deferred income taxes


6,760



8,307Other assets


3,078



3,314TOTAL ASSETS

$
470,386


$
448,210LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
28,917


$
27,220Deferred income on shipments to
    distributors


13,723



13,205Accrued consideration payable
    pursuant to business acquisition agreement






17,750Accrued expenses, income taxes and
    other liabilities


28,249



28,919Total current
    liabilities


70,889



87,094Deferred income taxes


10,014



9,817Other liabilities


14,050



17,330Commitments and
    contingenciesShareholders
    equity:Preferred stock






Common stock


2,487



2,400Additional paid-in capital


269,411



250,792Retained earnings


131,821



112,642Treasury stock, at cost


(32,038
)


(25,961
)Deferred stock-based compensation






(3,953
)Accumulated other comprehensive
    income (losses)


3,752



(1,951
)Total shareholders
    equity


375,433



333,969TOTAL LIABILITIES AND
    SHAREHOLDERS EQUITY

$
470,386


$
448,210    1




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
 CONDENSED
    CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts) Three Months Ended


Nine Months EndedNovember 30,


November 30,2006


2005


2006


2005(Unaudited)


(Unaudited)Product sales

$
95,212


$
83,997


$
272,338


$
226,406Intellectual property revenues


2,852



2,626



8,534



8,08498,064



86,623



280,872



234,490Costs and expenses:Costs of goods sold (exclusive of
    amortization shown below)


51,953



45,697



149,226



126,561Research and development


17,565



14,907



49,875



42,558Amortization of intangible assets


1,592



1,547



4,752



4,257In-process research and development














895Selling, general and administrative


21,140



17,742



53,102



49,887Income from operations


5,814



6,730



23,917



10,332Interest income


1,162



900



3,481



2,272Interest expense


(54
)


(9
)


(198
)


(53
)Other expense, net


(15
)


(12
)


(69
)


(20
)Income before provision for income
    taxes


6,907



7,609



27,131



12,531Provision for income taxes


2,088



2,218



7,952



4,094Net income

$
4,819


$
5,391


$
19,179


$
8,437Basic net income per share:

$
0.22


$
0.26


$
0.87


$
0.41Diluted net income per share:

$
0.21


$
0.24


$
0.83


$
0.39Weighted average common shares
    outstanding:Basic


22,133



20,983



21,966



20,548Diluted


23,368



22,543



23,153



21,558    2




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
 CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) November 30,2006


2005(Unaudited)Cash flows from operating
    activities:Net income

$
19,179


$
8,437Adjustments to reconcile net
    income to net cash provided by (used for) operating
    activities:Depreciation and amortization


14,394



12,415Tax benefits from employee stock
    plans






2,852Excess tax benefits associated
    with stock-based compensation


(1,514
)


In-process research and
    development charge






895Stock-based compensation


3,325



10,240Deferred income taxes


335



(7,127
)Other adjustments, net






1Changes in operating assets and
    liabilities, net of business acquisition impact:Accounts receivable


1,843



(9,088
)Inventories


(11,116
)


4,311Accounts payable, accrued expenses
    and other liabilities


(4,421
)


8,791Deferred income


519



3,753Income taxes payable


889



5,579Other changes, net


(1,722
)


701Net cash provided by operating
    activities


21,711



41,760Cash flows from investing
    activities:Capital expenditures


(22,704
)


(15,988
)Acquisition of OASIS
    SiliconSystems Holding AG, net of cash acquired


(12,555
)


(60,349
)Purchases of short-term investments


(389,110
)


(375,601
)Sales of short-term investments


394,080



322,170Other






(296
)Net cash used in investing
    activities


(30,289
)


(130,064
)Cash flows from financing
    activities:Excess tax benefits associated
    with stock-based compensation


1,514



Proceeds from issuance of common
    stock


10,203



9,416Purchases of treasury stock


(6,078
)


(2,162
)Repayments of obligations under
    capital leases and notes payable


(982
)


(1,890
)Net cash provided by financing
    activities


4,657



5,364Effect of foreign exchange rate
    changes on cash and cash equivalents


(84
)


(1,455
)Net decrease in cash and cash
    equivalents


(4,005
)


(84,395
)Cash and cash equivalents at
    beginning of period


43,932



116,126Cash and cash equivalents at end
    of period

$
39,927


$
31,731    3




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  1.
    BASIS OF
    PRESENTATION        Form 10-K,
    2.
    STOCK-BASED
    COMPENSATION    Share-Based Payment Accounting
    for Stock Issued to Employees Statement of Cash Flows.
  Accounting for Stock-Based
 4




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Compensation
    Accounting for Stock-Based
    Compensation  Transition and Disclo
    3.
    BUSINESS
    ACQUISITION    Business
    Combinations
   5




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Initial ConsiderationCash

$
79.5SMSC common stock
    (2.1 million shares)


35.8Transaction costs


3.3118.6Additional
    ConsiderationCash


12.4SMSC common stock
    (0.2 million shares)


4.0Transaction costs


0.216.6$
135.2     Cash and cash equivalents

$
22.4Accounts receivable


5.8Inventory


12.9Other current assets


0.5Identifiable intangible assets:Purchased technology


32.4Customer relationships


10.5Trademark


5.4Other


0.6Property and equipment


2.7Goodwill


67.8Deferred income tax benefits


0.6Accounts payable


(1.7
)Accrued expenses and income taxes


(6.5
)Deferred income tax liabilities


(19.1
)In-process research and development


0.9$
135.2  6




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    work-in-process
        Goodwill and Other Intangible
    Assets
   7




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Three Months


Nine MonthsEnded November 30,


Ended November 30,2005


2005Revenues

$
86.6


$
238.6Net income (loss)

$
4.8


$
7.9Basic net income (loss) per share

$
0.23


$
0.38Diluted net income (loss) per share

$
0.21


$
0.36   4.
    INVESTMENTS  available-for-sale.
      5.
    BALANCE
    SHEET DATA  first-in,
  November 30,


February 28,2006


2006Raw materials

$
2,154


$
1,812Work-in-process


23,991



26,378Finished goods


26,485



13,671$
52,630


$
41,861  8




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    November 30,


February 28,2006


2006Land

$
1,389


$
803Buildings and improvements


35,942



15,135Machinery and equipment


94,134



75,584Construction in progress






16,184131,465



107,706Less: accumulated depreciation


(76,728
)


(69,566
)$
54,737


$
38,140   6.
    NET
    INCOME PER SHARE      Three Months Ended


Nine Months EndedNovember 30,


November 30,2006


2005


2006


2005Average shares outstanding for
    basic net income per share


22,133



20,983



21,966



20,548Dilutive effect of stock options
    and unvested restricted stock awards


1,235



1,560



1,187



1,010Average shares outstanding for
    diluted net income per share


23,368



22,543



23,153



21,558    9




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7.
    COMPREHENSIVE
    INCOME  available-for-sale.
  Three Months


Nine MonthsEnded


EndedNovember 30,


November 30,2006


2005


2006


2005Net income

$
4,819


$
5,391


$
19,179


$
8,437Other comprehensive income (loss):Change in foreign currency
    translation adjustments


2,169



(4,459
)


5,693



(9,102
)Change in unrealized gain (loss)
    on marketable equity securities, net of taxes


8



(12
)


6



40Total comprehensive income (loss)

$
6,996


$
920


$
24,878


$
(625
)   8.
    BUSINESS
    RESTRUCTURING      9.
    GOODWILL
    AND INTANGIBLE ASSETS       10




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    November 30, 2006


February 28, 2006Accumulated





AccumulatedCost


Amortization


Cost


AmortizationPurchased technologies

$
38,810


$
11,432


$
37,280


$
7,425Customer relationships and
    contracts


10,966



2,364



10,040



1,235Total  finite-lived
    intangible assets


49,776



13,796



47,320



8,660Trademark and other


5,889







5,379



$
55,665


$
13,796


$
52,699


$
8,660       Period

AmountRemainder of fiscal 2007

$
1,618Fiscal 2008

$
6,439Fiscal 2009

$
5,838Fiscal 2010

$
5,409Fiscal 2011

$
5,409Fiscal 2012 and thereafter

$
11,269   10.
    RETIREMENT
    PLANS      Three Months


Nine MonthsEnded November 30,


Ended November 30,2006


2005


2006


2005Service cost  benefits
    earned

$
92


$
86


$
275


$
257Interest cost on projected benefit
    obligations


110



98



329



296Net amortization and deferral


79



67



236



200Net periodic pension expense

$
281


$
251


$
840


$
753    11




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11.
    COMMON
    STOCK REPURCHASE PROGRAM    12.
    OPERATING
    SEGMENT INFORMATION  Disclosures about Segments of
    an Enterprise and Related Information.
  13.
    BENEFIT
    AND INCENTIVE PLANS  Employee
    and Director Stock Option Plans
    (shares in
    thousands):
  WeightedAverage


WeightedFiscal


Exercise


Average2007


Prices


Contractual


AggregateShares


per Share


Term


Intrinsic ValueOptions outstanding, March 1,
    2006


5,086


$
19.32Granted


569


$
26.50Exercised


(685
)

$
15.97Canceled or expired


(318
)

$
18.71Options outstanding,
    November 30, 2006


4,652


$
20.73



7.1


$
51,822Options exercisable,
    November 30, 2006


1,870


$
18.19



5.5


$
20,833    12




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Three Months


Three Months


Nine Months


Nine MonthsEnded


Ended


Ended


EndedNovember 30,


November 30,


November 30,


November 30,2006


2005


2006


2005Dividend yield














Expected volatility


0.59



0.59



0.59



0.59Risk-free interest rates


4.6-4.7



3.86



4.59-5.06



4.35Expective lives (in years)


4.42



5.21



4.42



5.40   Restricted
    Stock Awards
      Number of


Grant-DateShares


Fair ValueRestricted stock shares
    outstanding, March 1, 2006


255


$
20.65Granted


75


$
24.87Canceled or expired


(17
)

$
23.52Vested


(86
)

$
18.93Restricted stock shares
    outstanding, November 30, 2006


227


$
22.48       Stock
    Appreciation Rights Plan
   13




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Number of


Grant-DateSARs


Fair ValueSARs outstanding, March 1,
    2006


1,544Granted


1,546


$
16.66Exercised


(211
)

$
17.72Canceled or expired


(61
)

$
13.96SARs outstanding,
    November 30, 2006


2,818


$
17.34SARs exercisable,
    November 30, 2006


354


$
18.23       Three Months


Nine MonthsEnded


EndedNovember 30, 2006


November 30, 2006Dividend yield






Expected volatility


0.59



0.59Risk-free interest rates


4.67-4.85



4.67-4.85Expected lives (in years)


2.25-4.34



2.25-4.34   Stock-Based
    Compensation Expense
   14




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Three Months


Nine MonthsEnded


EndedNovember 30, 2006


November 30, 2006Cost of goods sold

$
(501
)

$
(367
)Research and development


(1,880
)


(2,901
)Selling, general and administrative


(3,033
)


(3,140
)Stock-based compensation under
    SFAS 123R, before income tax benefit


(5,414
)


(6,408
)Tax benefit


1,743



2,063Stock-based compensation under
    SFAS 123R, after income tax benefit

$
(3,671
)

$
(4,345
)Effect of
    SFAS 123R  Basic income (loss) per share

$
(0.17
)

$
(0.20
)Effect of
    SFAS 123R  Diluted income (loss) per share

$
(0.16
)

$
(0.19
)Weighted average common shares
    outstanding:Basic


22,133



21,966Diluted


23,368



23,153   Prior to
    the Adoption of SFAS 123R
    Three Months


Nine MonthsEnded November 30,


Ended November 30,2005


2005Net income  as reported

$
5,391


$
8,437Add: Stock-based compensation
    expense included in net income, net of taxes  as
    reported


2,904



6,893Deduct: Stock-based compensation
    expense determined using the fair value method for all awards,
    net of taxes


(2,873
)


(10,604
)Net income  pro forma

$
5,422


$
4,726Basic net income per
    share  as reported

$
0.26


$
0.41Diluted net income per
    share  as reported

$
0.24


$
0.39Basic net income per
    share  pro forma

$
0.26


$
0.23Diluted net income per
    share  pro forma

$
0.25


$
0.22   14.
    COMMITMENTS
    AND CONTINGENCIES   15




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  15.
    RECENT
    ACCOUNTING PRONOUNCEMENTS  Accounting Changes and Error Corrections Accounting Changes
  Accounting for Income Tax Uncertainties
    Considering the Effects of Prior Year Misstatements when
    Quantifying Misstatements in Current Year Financial
    Statements beginning-of-year
  Fair Value Measurements.
 16




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Employers Accounting for Defined Benefit Pension
    and Other Postretirement Plans
  16.
    SUBSEQUENT
    EVENT   17




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
    QUARTERLY REPORT ON
    FORM 10-Q
    FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2006
 Item 2. 
    Managements Discussion and Analysis of Financial
    Conditions and Results of Operations GENERAL
  Financial Statements Form 10-Q
  Forward-Looking
    Statements
    Form 10-K Form 10-Q Risk Factors
  Description
    of Business
  time-to-market
   18




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##### Table of Contents



CRITICAL
    ACCOUNTING POLICIES & ESTIMATES
      
    Revenue Recognition
    Inventory Valuation
    Determination of the Allowance for Doubtful Accounts Receivable
    Valuation of Long-Lived Assets
    Valuation of Share-Based Payments
    Accounting for Deferred Income Taxes
    Legal Contingencies  Form 10-K Share-Based Payment
  BUSINESS
    ACQUISITION
       19




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##### Table of Contents



RESULTS
    OF OPERATIONS
    Sales and
    Revenues
    Three Months Ended November 30,2006


2005Amount


Percent


Amount


PercentMobile & desktop PC

$
41.9



43
%

$
40.4



47
%Consumer electronics &
    infotainment


38.8



39
%


31.8



37
%Industrial & other


14.5



15
%


11.8



14
%Total Product Sales


95.2



97
%


84.0



97
%Intellectual Property Revenues


2.9



3
%


2.6



3
%Total Sales and Revenues

$
98.1



100
%

$
86.6



100
%   Nine Months Ended November 30,2006


2005Amount


Percent


Amount


PercentMobile & desktop PC

$
120.9



43
%

$
115.8



49
%Consumer electronics &
    infotainment


107.9



39
%


77.1



33
%Industrial & other


43.6



15
%


33.1



14
%Total Product Sales


272.4



97
%


226.0



96
%Intellectual Property Revenues


8.5



3
%


8.5



4
%Total Sales and Revenues

$
280.9



100
%

$
234.5



100
%      20




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##### Table of Contents



Costs of
    Goods Sold
      Research
    and Development Expenses
   21




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##### Table of Contents



Selling,
    General and Administrative Expenses
      Amortization
    of Intangible Assets
    In-Process
    Research and Development
    Interest
    and Other Income (Expense)
    Provision
    for Income Taxes
   22




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##### Table of Contents



LIQUIDITY &
    CAPITAL RESOURCES
                 23




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##### Table of Contents



COMMITMENTS
    AND CONTINGENCIES
    RECENT
    ACCOUNTING PRONOUNCEMENTS
  Accounting Changes and Error Corrections Accounting Changes
  Accounting for Income Tax Uncertainties
   24




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##### Table of Contents



Considering the Effects of Prior Year Misstatements when
    Quantifying Misstatements in Current Year Financial
    Statements beginning-of-year
  Fair Value Measurements.
  Employers Accounting for Defined Benefit Pension
    and Other Postretirement Plans
 Item 3. 
    Quantitative and Qualitative Disclosures About Market
    Risk  Interest
    Rate Risk
       25




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##### Table of Contents



Equity
    Price Risk
    Foreign
    Currency Risk
     Item 4. 
    Controls and Procedures        Financial Statements  Note 3.
 26




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##### Table of Contents



PART II  Item 1.
    Legal
    Proceedings     Item 1.A. 
    Risk Factors  Form 10-Q Forms 10-K, 10-Q 8-K,
  Form 10-K,
 Item 2. 
    Unregistered Sales of Equity Securities and Use of
    Proceeds         Item 3. 
    Defaults Upon Senior Securities   Item 4. 
    Submission of Matters to a Vote of Security
    Holders   Item 5. 
    Other Information   Item 6. 
    Exhibits  31
.1



Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)
    (17 CFR
    240.13a-14(a)),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.31
.2



Certification of Chief Financial
    Officer pursuant to
    Rule 13a-14(a)
    (17 CFR
    240.13a-14(a)),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.32
.1



Certifications of Chief Executive
    Officer and Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.   *
    
    Indicates a management or compensatory plan or arrangement. 27




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##### Table of Contents



SIGNATURE      By:
    /s/  Joseph
    S. Durko         28




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNo.



Description31
.1



Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)
    (17 CFR
    240.13a-14(a)),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.31
.2



Certification of Chief Financial
    Officer pursuant to
    Rule 13a-14(a)
    (17 CFR
    240.13a-14(a)),
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.32
.1



Certifications of Chief Executive
    Officer and Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.   *
    
    indicates a management or compensatory plan or arrangement.