##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, 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
    May 31, 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
    incorporation or organization)

(I.R.S. Employer
    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
    o þ o
  Rule 12b-2 o þ




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##### 



TABLE OF
    CONTENTS
  Part I  FINANCIAL
    INFORMATIONItem 1.


Financial
    StatementsCondensed
    Consolidated Balance Sheets as of May 31, 2006 and
    February 28, 2006

1Condensed
    Consolidated Income Statements for the Three-Month Periods Ended
    May 31, 2006 and 2005

2Condensed
    Consolidated Statements of Cash Flows for the Three-Month
    Periods Ended May 31, 2006 and 2005

3Notes to Condensed
    Consolidated Financial Statements

4Item 2.


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

17Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk

22Item 4.


Controls and
    Procedures

23Part II  OTHER
    INFORMATIONItem 1.


Legal
    Proceedings

24Item 1A.


Risk
    Factors

24Item 2.


Unregistered Sales
    of Equity Securities and Use of Proceeds

24Item 3.


Defaults Upon
    Senior Securities

24Item 4.


Submission of
    Matters to a Vote of Security Holders

24Item 5.


Other
    Information

24Item 6.


Exhibits

24Signatures

25Certification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of CEO and CFO Pursuant to Section 906   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)  May 31,


February 28,2006


2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
24,500


$
43,932Short-term investments


105,023



111,101Accounts receivable, net


44,033



39,802Inventories


49,574



41,861Deferred income taxes


16,974



17,457Other current assets


10,001



5,651Total current assets


250,105



259,804Property, plant and equipment,
    net


45,928



38,140Goodwill


96,987



94,606Intangible assets,
    net


44,262



44,039Deferred income taxes


6,644



8,307Other assets


3,090



3,314TOTAL ASSETS

$
447,016


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

$
30,275


$
27,220Deferred income on shipments to
    distributors


15,007



13,205Accrued consideration payable
    pursuant to business acquisition agreement






17,750Accrued expenses, income taxes and
    other liabilities


26,364



28,919Total current
    liabilities


71,646



87,094Deferred income taxes


10,273



9,817Other liabilities


14,212



17,330Commitments and
    contingenciesShareholders
    equity:Preferred stock






Common stock


2,427



2,400Additional paid-in capital


255,199



250,792Retained earnings


121,275



112,642Treasury stock, at cost


(30,286
)


(25,961
)Deferred stock-based compensation






(3,953
)Accumulated other comprehensive
    income


2,270



(1,951
)Total shareholders
    equity


350,885



333,969TOTAL LIABILITIES AND
    SHAREHOLDERS EQUITY

$
447,016


$
448,210    1




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STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES



CONDENSED
    CONSOLIDATED INCOME STATEMENTS

(in
    thousands, except per share amounts)  Three Months EndedMay 31,2006


2005(Unaudited)Product sales

$
83,292


$
65,992Intellectual property revenues


2,852



2,81586,144



68,807Costs and expenses:Costs of goods sold (exclusive of
    amortization shown below)


44,914



36,492Research and development


15,168



12,966Amortization of intangible assets


1,569



1,153In-process research and development






895Selling, general and administrative


13,803



13,591Income from operations


10,690



3,710Interest income


1,146



723Interest expense


(32
)


(21
)Other expense, net


(63
)


(26
)Income before income taxes


11,741



4,386Provision for income taxes


3,108



1,359Net income

$
8,633


$
3,027Basic net income per share

$
0.40


$
0.15Diluted net income per share

$
0.37


$
0.15Weighted average common shares
    outstanding:Basic


21,824



20,066Diluted


23,147



20,476    2




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STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES



CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS

(in
    thousands)  Three Months EndedMay 31,2006


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

$
8,633


$
3,027Adjustments to reconcile net
    income to net cash provided by (used for) operating
    activities:Depreciation and amortization


4,084



3,893In-process research and
    development charge






895Stock-based compensation


(2,559
)


232Other adjustments, net






9Changes in operating assets and
    liabilities, net of business acquisition impact:Accounts receivable


(3,481
)


(732
)Inventories


(7,278
)


3,221Accounts payable, deferred income,
    accrued expenses and other liabilities


(2,428
)


4,336Current and deferred income taxes


2,602



174Other changes, net


725



125Net cash provided by operating
    activities


298



15,180Cash flows from investing
    activities:Capital expenditures


(10,201
)


(3,162
)Acquisition of OASIS
    SiliconSystems Holding AG, net of cash acquired


(12,555
)


(60,349
)Purchases of short-term investments


(97,932
)


(179,886
)Sales of short-term investments


104,010



135,172Other






21Net cash used in investing
    activities


(16,678
)


(108,204
)Cash flows from financing
    activities:Proceeds from issuance of common
    stock


1,462



21Purchases of treasury stock


(4,326
)


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


(142
)


(659
)Net cash used in financing
    activities


(3,006
)


(2,800
)Effect of foreign exchange rate
    changes on cash and cash equivalents


(46
)


(628
)Net decrease in cash and cash
    equivalents


(19,432
)


(96,452
)Cash and cash equivalents at
    beginning of period


43,932



116,126Cash and cash equivalents at end
    of period

$
24,500


$
19,674    3




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STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES



NOTES TO
    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
    Compensation
 4




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




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

$
79.5SMSC common stock
    (2.1 million shares)


35.8Transaction costs


3.5118.8Additional
    ConsiderationCash


12.4SMSC common stock
    (0.2 million shares)


4.016.4$
135.0     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


67.6Deferred 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$
135.0    6




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##### Table of Contents



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




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STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005Revenues

$
73.0Net income

$
2.5Basic net income per share

$
0.13Diluted net income per share

$
0.12   4.
    INVESTMENTS  available-for-sale.
      available-for-sale
  5.
    BALANCE
    SHEET DATA  first-in,
  May 31,


Feb. 28,2006


2006Raw materials

$
2,215


$
1,812Work in process


30,264



26,378Finished goods


17,095



13,671$
49,574


$
41,861  8




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     May 31,


Feb. 28,2006


2006Land

$
1,389


$
803Buildings and improvements


35,062



15,135Machinery and equipment


81,773



75,584Construction in progress






16,184118,223



107,706Less: accumulated depreciation


(71,223
)


(69,566
)$
47,000


$
38,140   6.
    NET
    INCOME PER SHARE      Three Months EndedMay 31,2006


2005Average shares outstanding for
    basic net income per share


21,824



20,066Dilutive effect of stock options
    and unvested restricted stock awards


1,323



410Average shares outstanding for
    diluted net income per share


23,147



20,476     7.
    COMPREHENSIVE
    INCOME  available-for-sale.
  Three MonthsEndedMay 31,2006


2005Net income

$
8,633


$
3,027Other comprehensive income (loss):Change in foreign currency
    translation adjustments


4,228



(4,819
)Change in unrealized gain (loss)
    on marketable equity securities, net of taxes


(8
)


34Total comprehensive income (loss)

$
12,853


$
(1,758
)  9




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   8.
    BUSINESS
    RESTRUCTURING      9.
    GOODWILL
    AND INTANGIBLE ASSETS          May 31, 2006


February 28, 2006Accumulated





AccumulatedCost


Amortization


Cost


AmortizationPurchased technologies

$
37,280


$
8,332


$
37,280


$
7,425Customer relationships and
    contracts


10,158



1,330



10,040



1,235Total  finite-lived
    intangible assets


47,438



9,662



47,320



8,660Trademark and other


6,486







5,379



$
53,924


$
9,662


$
52,699


$
8,660    10




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Period

AmountRemainder of fiscal 2007

$
4,791Fiscal 2008

$
6,389Fiscal 2009

$
5,616Fiscal 2010

$
5,359Fiscal 2011

$
5,359Fiscal 2012 and thereafter

$
11,137   10.
    RETIREMENT
    PLANS    Three Months EndedMay 31,2006


2005Service
    cost  benefits earned

$
92


$
86Interest cost on projected benefit
    obligations


110



98Net amortization and deferral


76



67Net periodic pension expense

$
278


$
251     11.
    COMMON
    STOCK REPURCHASE PROGRAM    12.
    OPERATING
    SEGMENT INFORMATION  Disclosures about Segments of
    an Enterprise and Related Information.
 11




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


5,087


$
19.32Granted


143


$
23.44Exercised


(74
)

$
18.49Canceled or expired


(176
)

$
16.45Options outstanding, May 31,
    2006


4,980


$
19.55



7.1


$
16,136,044Options exercisable, May 31,
    2006


2,013


$
16.60



5.5


$
12,457,124     (shares in thousands
  WeightedAverage


Weighted





WeightedRemaining


Average





AverageOptions


Lives


Exercise


Options


ExerciseOutstanding


(in years)


Prices


Exercisable


Prices1,295



5.4


$
12.77



959


$
12.291,253



8.2


$
17.64



388


$
17.721,323



7.0


$
20.82



504


$
20.821,109



8.8


$
28.11



162


$
26.294,980



7.3


$
19.55



2,013


$
16.60      12




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Three monthsended May 31,2006


2005Dividend yield






Expected volatility


0.59



0.59Risk-free interest rates


4.59



3.71Expective lives (in years)


4.42



5.08   Restricted
    Stock Awards
      Fiscal2007


Grant-DateShares


Fair ValueRestricted stock shares
    outstanding, March 1, 2006


549


$
17.77Granted


33


$
22.23Canceled or expired






Vested


(53
)

$
16.31Restricted stock shares
    outstanding, May 31, 2006


528


$
18.19     Stock
    Appreciation Rights Plan
   13




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fiscal2007


Grant-DateSARs


Fair ValueSARs outstanding, March 1,
    2006


1,544Granted


59


$
11.84Exercised


(2
)

$
11.62Canceled or expired


(32
)

$
11.62SARs outstanding, May 31, 2006


1,569


$
11.38SARs exercisable, May 31, 2006


204


$
11.66     Three monthsended May 31,2006Dividend yield


Expected volatility


0.59Risk-free interest rates


4.97Expective lives (in years)


2.75-4.31   Stock-Based
    Compensation Expense
      Three Months EndedMay 31, 2006Costs of goods sold

$
(443
)Research and development


(322
)Selling, general and administrative


(1,794
)Total stock based compensation

$
(2,559
)  14




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Three MonthsEnded May 31,2006Stock-based compensation credit
    under provisions of SFAS 123, pre-tax


(6,437
)Stock-based compensation credit
    included in net income, as reported using the fair value method
    for all awards under SFAS 123(R), pre-tax


(2,559
)Effect of SFAS 123(R) on
    income from operations and income before income taxes


(3,878
)Tax provision at 36%


1,396Effect of SFAS 123(R) on
    net income


(2,482
)Effect of
    SFAS 123(R)  Basic loss per share

$
(0.11
)Effect of
    SFAS 123(R)  Diluted loss per share

$
(0.11
)Weighted average common shares
    outstanding:Basic


21,824Diluted


23,147   Prior to
    the Adoption of SFAS 123(R)
    Three MonthsEnded May 31,2005Net income  as
    reported

$
3,027Add: Stock-based compensation
    expense included in net income, net of taxes  as
    reported


145Deduct: Stock-based compensation
    expense determined using the fair value method for all awards,
    net of taxes


(2,315
)Net income  pro
    forma

$
857Basic net income per
    share  as reported

$
0.15Diluted net income per
    share  as reported

$
0.15Basic net income per
    share  pro forma

$
0.04Diluted net income per
    share  pro forma

$
0.04   14.
    COMMITMENTS
    AND CONTINGENCIES   15




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##### Table of Contents



STANDARD
    MICROSYSTEMS CORPORATION AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   15.
    RECENT
    ACCOUNTING PRONOUNCEMENTS  Accounting Changes and Error Corrections Accounting Changes
 16




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##### Table of Contents



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
   17




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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
  ®
     18




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##### Table of Contents



RESULTS
    OF OPERATIONS
    Sales and
    Revenues
    Three Months Ended


Three Months EndedMay 31, 2006


May 31, 2005Amount


Percent


Amount


PercentMobile and Desktop PC

$
37.4



45
%

$
36.4



55
%Consumer Electronics and
    Infotainment


31.0



37
%


19.2



29
%Industrial and Other


14.9



18
%


10.5



16
%Total Product Sales


83.3



100
%


66.1



100
%Intellectual Property Revenues


2.8







2.7Total Sales and Revenues

$
86.1






$
68.8            19




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##### Table of Contents



Costs of
    Goods Sold
      Research
    and Development Expenses
    Selling,
    General and Administrative Expenses
    Amortization
    of Intangible Assets
    In-Process
    Research and Development
    Interest
    and Other Income (Expense)
   20




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##### Table of Contents



Provision
    for Income Taxes
        LIQUIDITY &
    CAPITAL RESOURCES
                     21




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##### Table of Contents



COMMITMENTS
    AND CONTINGENCIES
    RECENT
    ACCOUNTING PRONOUNCEMENTS
  Accounting Changes and Error Corrections Accounting Changes
 Item 3.  Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    Rate Risk
       22




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##### Table of Contents



Equity
    Price Risk
    Foreign
    Currency Risk
     Item 4.  Controls
    and Procedures        Financial
    Statements  Note 3. As part of its ongoing
    integration activities, SMSC is in the process of incorporating
    its controls and procedures into OASIS, and expects to complete
    the process by no later than February 28, 2007. Management
    has excluded from its assessment of the effectiveness of the
    Companys internal control over financial reporting as of
    May 31, 2006 certain elements of the internal control over
    financial reporting of OASIS.
 23




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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        TotalNumber ofShares


MaximumTotal





Purchased as


Number ofNumber of


Average


Part of Publicly


Shares thatShares


Price per


Announced


may Yet bePeriod

Purchased


Share


Plans


PurchasedApril 2006


48,000


$
22.08



48,000



960,216May 2006


135,300


$
24.14



135,300



824,916Total


183,300


$
23.60



183,300



824,916  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.  24




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##### Table of Contents



SIGNATURE      By:
    /s/  Joseph
    S. Durko          25




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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.