-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DUYKqQEBUZYyzN1sIi39dBGKhQCugY8emvCYjReDHNuhShLrpxl4KGlxSH0AggMH sTgQ4tY/H51+MoPnUHSYaA== 0000808220-96-000001.txt : 19960216 0000808220-96-000001.hdr.sgml : 19960216 ACCESSION NUMBER: 0000808220-96-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SSE TELECOM INC CENTRAL INDEX KEY: 0000808220 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 521466297 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16473 FILM NUMBER: 96517503 BUSINESS ADDRESS: STREET 1: 47823 WESTINGHOUSE DR CITY: FREMONT STATE: CA ZIP: 94539 BUSINESS PHONE: 5106577552 MAIL ADDRESS: STREET 1: 47823 WESTINGHOUSE DR CITY: FREMONT STATE: CA ZIP: 94539 10-Q 1 3 _______________________________________________________________________ _______ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________________________________________________________ _______ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 33-10965 SSE TELECOM, INC. (Exact name of registrant as specified in its charter) Delaware 52-1466297 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8230 Leesburg Pike, Suite 710 Vienna, Virginia 22182 (Address of principal executive office) Registrants telephone number, including area code: (703) 442-4503 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ As of February 5, 1996, the following number of shares of each of the issuers classes of common stock were outstanding: Common Stock 5,734,304 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements Page Consolidated Balance Sheets as of December 30, 1995 and September 30, 1995 3 Consolidated Income Statements for the three months ended December 30, 1995 4 and December 31, 1994 Consolidated Statements of Cash Flows for the three months ended December 30, 5 1995 and December 31, 1994 Notes to Consolidated Financial Statements 6-7 Item 2. Managements Discussion and Analysis of Financial Condition and Results of 8-12 Operations PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13-14 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SSE TELECOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Assets December 30, September 1995 30, 1995 Current Assets (Unaudited) Cash and cash equivalents $2,495,093 $3,547,574 Short term investments 4,072,145 4,350,132 Accounts receivable net of allowance 7,298,857 6,968,103 for doubtful accounts of $191,598 at December 30, 1995, and $223,439 at September 30, 1995 Inventory 7,388,605 6,093,315 Other current assets 1,089,637 915,249 Total current assets 22,344,337 21,874,373 Net property, equipment and leasehold 2,048,571 2,088,084 improvements Long-term investments 22,512,399 13,575,197 Other assets 271,178 285,064 Total assets $47,176,485 $37,822,718 Liabilities and Stockholders Equity Current Liabilities Accounts payable $3,331,640 $2,772,277 Accrued salaries and employee benefits 640,347 770,873 Other accrued liabilities 803,189 678,950 Total current liabilities 4,775,176 4,222,100 Deferred tax liabilities 8,087,311 4,617,524 Notes payable 9,573,452 9,426,252 Commitments and contingencies -- -- Stockholders Equity Common stock $.01 par value per share, 55,337 55,313 10,000,000 shares authorized; 5,533,679 and 5,531,346 shares issued and outstanding at December 30, 1995 and September 30, 1995, respectively. Additional paid in capital 6,748,712 6,745,236 Retained earnings 7,087,585 6,594,253 Net unrealized gain on available for sale 12,472,915 7,051,021 investments Treasury stock, at cost, 237,975 shares and 143,275 shares at December 30, 1995, (1,624,003) (888,981) and September 30, 1995 respectively Total stockholders equity 24,740,546 19,556,842 Total liabilities & stockholders $47,176,485 $37,822,718 equity See accompanying notes SSE TELECOM, INC. CONSOLIDATED INCOME STATEMENTS (Unaudited) For The Three Months Ended December 30, 1995 and December 31, 1994 December 30, December 31, 1995 1994 Revenue $9,019,342 $7,523,118 Cost of revenue 6,129,631 5,123,860 Gross margin 2,889,711 2,399,258 Expense Research and development 686,805 599,729 Marketing, general and 1,380,520 1,231,661 administrative Operating income 822,386 567,868 Net interest expense 42,929 71,671 Other expense 21,125 14,870 Income before income taxes 758,332 481,327 Provision for income taxes 265,000 144,000 Net income $493,332 $337,327 Primary earnings per share $.09 $.06 Shares used in computing primary 5,441,339 5,518,369 earnings per share See accompanying notes SSE TELECOM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For The Three Months Ended December 30, 1995 and December 31, 1994 Operating Activities: December 30, December 31, 1995 1994 Net income $493,332 $337,327 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 187,593 155,023 Interest expense 147,200 -- Changes in operating assets and liabilities: Accounts receivable (330,754) 574,018 Inventory (1,295,290) (222,399) Other current assets (174,388) (27,599) Accounts payable 559,363 (253,397) Accrued salaries and employee benefits (130,526) (46,077) Other accrued liabilities 124,239 772,623 Net cash (used) provided by operating (419,231) 1,289,519 activities Investing Activities: Cash purchases of equipment (139,705) (122,717) Purchases of short-term investments (1,180,775) (1,260,239) Sales of short-term investments 1,451,452 -- Other assets (32,700) (56,910) Net cash provided (used) by operating 98,272 (1,439,866) activities Financing Activities: Proceeds from issuance of common stock 3,500 18,000 Borrowings under equipment note -- (533,033) Payments on notes payable -- (721,948) Treasury stock repurchase (735,022) (153,839) Net cash (used) by financing activities (731,522) (1,390,820) Net (decrease) in cash and cash equivalents (1,052,481) (1,541,167) Cash and cash equivalents beginning of 3,547,574 6,118,201 period Cash and cash equivalents end of period 2,495,093 4,577,034 See accompanying notes SSE TELECOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The financial information contained herein has been prepared by the Company, without audit, except for information as of September 30, 1995 which has been audited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows for the interim periods have been made. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Companys September 30, 1995 annual report on Form 10-K. The results of operations for the period ended December 30, 1995 are not necessarily indicative of the operating results for the full year. 2. INVENTORY Inventory consists of manufacturing raw materials, work-in process and finished goods. Inventories are valued at the lower of cost or realizable current value. Cost is based on the average cost method, which approximates actual cost on the first-in, first-out (FIFO) basis. At December 30, 1995 and September 30, 1995, inventory consisted of: ($000s) December 30, September 30, 1995 1995 Manufacturing raw $4,967 $3,727 materials Work-in-process 2,124 1,784 Finished Goods 298 582 Total $7,389 $6,093 3. COMMITMENTS, NOTES PAYABLE AND LONG TERM DEBT The Company leases office and manufacturing space under leases that expire in June 2001. The terms of the leases provide for periodic escalation in rent payments that have been expensed on a straight line basis over the term of the lease. The Company also leases office space in Vienna, Virginia, and Singapore. The Virginia lease expires in October 1996, while the Singapore lease expires in June 1997. The Company leases equipment under leases expiring in various amounts through 1997. The Company also has short term lease agreements related to office and manufacturing equipment. The Company maintains a secured operating line of credit with a national bank. The maximum available under the line of credit was the lesser of $5.0 million or 80% of qualified receivables. On December 30, 1995 the maximum available under the line of credit was approximately $3.3 million of which none was borrowed. The line of credit expires on February 29, 1996, and the Company is in the process of negotiating an extension. The Company is subject to and in compliance with certain financial covenants and requirements. 4. BUSINESS COMBINATIONS On January 28, 1996, SSE Telecom completed the acquisition of the business of Fairchild Data Corporation (Fairchild Data), a subsidiary of The Fairchild Corporation, (NYSE:FA) via an asset purchase agreement. The Company acquired substantially all the assets of Fairchild Data, subject to certain liabilities in exchange for approximately $6.2 million, consisting of approximately $4.2 million in cash, 200,000 shares of SSE Telecom common stock, and a warrant to acquire 50,000 shares of SSE Telecom common stock. The cash portion has been financed with a combination of short-term bank financing and cash. The short-term bank financing is a separate loan agreement which does not affect the line of credit mentioned in Note 3. The financing facility provides the Company up to $3.2 million, of which the Company borrowed $2.0 million on January 29, 1996. The interest rate of the loan is 7.56% and the note is due in 30 days at which time the Company may finance the balance at the then current rate. The collateral for the loan is the Companys short term investments. The Company filed a form 8-K, dated February 7, 1996, relative to the Fairchild Data asset purchase agreement. Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the quarters ended on the dates indicated, certain income and expense items expressed as an approximate percentage of the Companys total revenues: December December 30, 1995 31, 1995 1994 Revenue 100% 100% Gross margin 32% 32% Research and development 8% 8% expense Marketing, general and 15% 16% administrative expenses Operating income 9% 8% Net interest expense -- 1% Other expense -- -- Income before income 9% 7% taxes Provision for income 3% 2% taxes Net income 6% 5% Three Months Ended December 30, 1995, Compared With Three Months Ended December 31, 1994. SSE Telecoms revenues increased by 20% from $7,523,000 for the first quarter 1995 to $9,019,000 for first quarter 1996. Growth in revenue is due to increased total shipments. Actual units shipped increased by 38% from the same quarter in 1995. Revenue associated with the increase in units was offset by a shift to lower power level transceivers which are in a very price competitive market. International shipments accounted for 92% of revenue for the first quarter of 1996, compared to 78% in the same period of fiscal 1995. Gross margin increased $490,000 or 20%, as a result of higher revenue; gross margin as a percentage of revenue was 32% in 1995 and 1996. The Company continues to experience competitive price pressure on several particular product offerings. Product mix of shipments has shifted to lower-power level transceivers. The lower-power level business is very price competitive. The Company expects gross margin will remain at comparable levels during the first half of fiscal 1996 and improve during the remainder of fiscal 1996 with increased shipments of the STAR series advanced satellite transceiver product. There can be no assurance that competitive pressure will not reduce gross margins in the future. Research and development expense for the quarter was $687,000, an $87,000 or 15% increase from the same quarter of 1995. During the quarter, expenses were incurred primarily for the release of new products to manufacturing, cost reductions on new product offerings and product enhancements for current transceiver products. As a percentage of revenue, research and development expense was 8% in 1995 and 1996. The Company expects to continue to fund its research and development programs at the same percentage of revenue during the remainder of fiscal 1996. Marketing, general and administrative expenses increased $149,000 or 12% from the first quarter of 1995. A major portion of the increase was related to the establishment of a separate corporate business development and marketing function in late 1995. As a percentage of revenue, marketing, general and administrative expenses decreased from 16% in 1995 to 15% in 1996. Net interest expense decreased $29,000, or 40% from the comparable quarter in 1995, attributable to an increase in investment interest income. As a percentage of revenue, interest expense decreased from 1% in 1995 to less than 1% in 1996. Other expense increased $6,000 or 42% from first quarter of 1995. As a percentage of revenue, other expense was less than 1% in 1995 and 1996. Income before income taxes increased $277,000 or 58%. As a percentage of revenue, income before income taxes was 7% in 1995 and 9% in 1996. Provision for taxes on income increased $121,000 or 84% in the first quarter 1996 from the same quarter in 1995. The increase is the result of the Companys higher income and a higher estimated provisional tax rate of 35% in fiscal 1996 versus 30% in fiscal 1995. The rate increase is attributable to the expiration of federal research credits, a decreased benefit from the Companys foreign sales corporation, and an increase in state income taxes. First quarter net income increased $156,000 or 46% from the first quarter 1995. As a percentage of revenue, net income increased to 6% in fiscal 1996 from 5% in fiscal 1995. The Company had a backlog of firm orders of $7.8 million on December 30, 1995. Management expects substantially all orders to be delivered within fiscal 1996. The quarter ending backlog is representative of the historical product and customer mix. Comparable backlog as of February 5, 1996 was $10.0 million. The Company does not believe that backlog is necessarily indicative of future revenues. Timing differences from quarter to quarter as to the receipt of large orders and changes in factory production make meaningful quarter to quarter comparisons of backlog difficult. Liquidity and Capital Resources On December 30, 1995, the Company had working capital of $17.6 million including $6.6 million of cash, cash equivalents and short term investments compared with working capital of $17.7 million including $7.9 million of cash, cash equivalents and short term investments on September 30, 1995. Net cash used by operating activities was $419,000 for the quarter ended December 30, 1995, compared to net cash provided by operating activities of $1.3 million for the quarter ended December 31, 1994. Accounts receivable increased $331,000 from September 30, 1995. The fiscal year-end accounts receivable balance was down due to lower than anticipated shipment levels in the final quarter of fiscal year 1995. Increased shipments during the first quarter of fiscal 1996 increased the accounts receivable balances. The Company has lowered days sales outstanding from 101 in the first quarter of 1995 to 77 in the first quarter of 1996. Inventory turnover (defined as annualized cost of revenues divided by average inventory balance for the quarter) was 3.60 for the quarter ended December 30, 1995, and 3.47 for the quarter ended December 31, 1994. During the first quarter of fiscal 1996, the Company purchased raw material to prepare for quantity production of the STAR series advanced satellite transceiver product. The Company also expanded its level of some long lead time components for quicker response time to customers needs. Total inventory increased by $1.3 million from year- end 1995. Approximately $1.2 million of the increase is raw material. The Company anticipates that inventory will continue to increase during the first six months of fiscal 1996 as both S-series and STAR series products are produced. The Company purchased $140,000 of fixed assets during the first quarter of 1996. These assets include $109,000 of office equipment and $31,000 of production equipment. During the remainder of fiscal 1996, the Company plans to purchase assets at the same full year level as fiscal 1995. Other long-term assets, primarily the market value of the Companys 912,717 shares of EchoStar Communication Corporation (NASD: DISH), Class A common Stock increased $8.9 million. As of December 29, 1995, the last trading day of the quarter, the EchoStar stock was trading at $24.25 per share. This adjustment, net of deferred tax, is reflected as a separate component of stockholders equity. Accounts payable increased $559,000 from fiscal year-end 1995, due to the increase in both S-Series backlog and STAR requirements. Deferred tax liability increased $3.5 million, as a result of the increase in the unrealized gain in the value of the EchoStar investment. Long-term notes payable increased $147,000. This increase is due to the quarterly accrued interest payable under its $8.7 million seven- year 6.5% convertible debenture payable to EchoStar. The Company is not required to make interest payments until March 1997. During the first quarter of 1996, the Company purchased 94,700 shares of stock in the market for $735,000, in connection with its stock repurchase plan. In total, the Company currently owns 237,975 shares of treasury stock. The Companys capital resource commitments on December 30, 1995, primarily consisted of obligations under operating leases for manufacturing facilities, and the purchase of additional debentures from Media4, Inc. The lease on the manufacturing facility in Fremont, California, will expire in June 2001. Based upon the progress of Media4 Inc., relative to product and market development, the Company is committed to purchase an additional $200,000 of debentures, payable upon the completion of certain milestones. Management anticipates the purchase of these debentures in fiscal year 1996. In addition to the acquisition of the business of Fairchild Data, the Company may pursue additional strategic acquisitions and investments in the satellite communications and related markets that will complement and expand its business opportunities. The Company believes it has the necessary capital resources available for such a program. The Company expects to incur charges in connection with the acquisition of Fairchild Data related to the realizability of certain SSE assets and for the write off of in-process research and development activities acquired. The Companys capital requirements could change in the event of factors such as lower than anticipated demand for the Companys products or unanticipated limitations on debt financing. If any of these or other events should occur, the Company could experience a need to raise additional capital. PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits included herein (numbered in accordance with Item 601 of Regulation S-K) Exhibit Number Description Sequential Page Number 11 Computation of Per Share Page 13 Earnings 27 Financial Data Schedule Page 14 (b) Reports on Form 8-K The Company filed a form 8-K, dated February 7, 1996, relative to the Fairchild Data asset purchase agreement. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: February 13, 1996 SSE TELECOM, INC. By: /s/ Frederick C. Toombs Frederick C. Toombs, President By: /s/ Daniel E. Moore Daniel E. Moore, Chief Financial Officer EX-11 2 EXHIBIT 11 Attached and Made Part of Part II Of 10Q for the Quarters Ended December 30, 1995 and December 31, 1994 Three months ended 12/30/95 12/31/94 Primary Weighted common average shares outstanding applying the treasury stock method 5,309,807 5,390,400 Increase in weighted average shares due to applying the treasury stock 131,532 127,969 method for stock options and warrants Primary weighted average shares 5,441,339 5,518,369 Primary net income $493,332 $337,327 Net income per share $.09 $.06 Fully diluted Weighted common average shares outstanding applying the treasury stock method 5,309,807 5,390,400 Increase in weighted average shares due to applying the treasury stock 190,082 129,217 method for stock options and warrants Fully diluted weighted average shares 5,499,889 5,519,617 Fully diluted net income $493,332 $337,327 Fully diluted net income per share $.09 $.06 EX-27 3
5 1,000 3-MOS SEP-28-1996 DEC-30-1995 2,495 4,072 7,491 192 7,389 1,090 4,704 2,656 47,176 4,775 9,573 55 0 0 24,685 47,176 9,019 9,019 6,130 8,197 21 0 43 758 265 493 0 0 0 493 .09 .09
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