0001012870-01-501927.txt : 20011008
0001012870-01-501927.hdr.sgml : 20011008
ACCESSION NUMBER: 0001012870-01-501927
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010920
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: SYMMETRICOM INC
CENTRAL INDEX KEY: 0000082628
STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661]
IRS NUMBER: 951906306
STATE OF INCORPORATION: CA
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-02287
FILM NUMBER: 1741179
BUSINESS ADDRESS:
STREET 1: 2300 ORCHARD PARKWAY
CITY: SAN JOSE
STATE: CA
ZIP: 95131-1017
BUSINESS PHONE: 4084287813
MAIL ADDRESS:
STREET 1: 2300 ORCHARD PARKWAY
CITY: SAN JOSE
STATE: CA
ZIP: 95131-1017
FORMER COMPANY:
FORMER CONFORMED NAME: REDCOR CORP
DATE OF NAME CHANGE: 19820720
FORMER COMPANY:
FORMER CONFORMED NAME: SILICON GENERAL INC
DATE OF NAME CHANGE: 19920703
10-K405
1
d10k405.txt
FORM 10-K
================================================================================
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
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 0-2287
------------------
SYMMETRICOM, INC.
(Exact name of registrant as specified in its charter)
California No. 95-1906306
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2300 Orchard Parkway,
San Jose, California 95131-1017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 433-0910
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Series A Participating Preferred Stock Purchase Rights
(Title of Class)
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 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.29.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at August 31, 2001 was approximately $164,776,374. The number of
shares outstanding of the registrant' s Common Stock at August 31, 2001 was
23,207,940.
Documents Incorporated by Reference
Item 10 (as to directors and Section 16(a) Beneficial Ownership Reporting
Compliance), 11, 12 and 13 of Part III incorporate by reference information from
the registrant's proxy statement to be filed with the Securities and Exchange
Commission in connection with the solicitation of proxies for the registrant's
2001 Annual Meeting of Stockholders to be held on November 9, 2001.
================================================================================
PART I
Item 1. Business
When used in this Report, the words "expects," "anticipates," "estimates,"
"plans" and similar expressions are intended to identify forward-looking
statements. These are statements that relate to future periods and include
statements as to the extent of worldwide use of our products, the challenges
facing the digital subscriber line market, our business-class digital subscriber
line products' ability to cost effectively bridge the gap between T1 and fiber
optic speeds, the features, benefits, performance and utility of our current and
future products and services, the markets for our products, the effects of the
expansion of wireline and wireless networks, our global services division's
ability to eliminate service providers' need to hire or train additional
technical resources, the growth of the broadband access market to extend the
reach of digital subscriber lines, the expansion of wireline and wireless
networks resulting in an increased need for timing devices, telecommunications
providers' future need for broadband devices, the timing and impact of current
and future litigation, the importance of our patents, our strategy with regard
to obtaining and protecting our patents, our reliance on technological expertise
and marketing competence to protect our competitive advantage, the relationship
between backlog and net sales, our current and future competitors, our ability
to compete in our markets, increases in competition in our markets, our ability
to obtain sufficient amounts of key components at prices we deem to be
reasonable, our ability to attract and retain our management, sales, marketing
and technical personnel, our relationship with our employees, and the
maintenance and adequacy of our current facilities. Forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected. These risks and uncertainties include, but are
not limited to, those risks discussed below, as well as risks relating to
general economic conditions in the markets we address and the telecommunications
market in general, risks related to the development of our new products and
services including our entry into the Broadband Access market and the
Professional Services market, the effects of competition and competitive pricing
pressure, uncertainties associated with changing intellectual property laws,
developments in and expenses related to litigation, increased competition in
our markets, inability to obtain sufficient amounts of key components, the
rescheduling or cancellation of a key customer order, the loss of a key
customer, the effects of new and emerging technologies, the risk that excess
inventory may result in write-offs, price erosion and decreased demand,
fluctuations in the rate of exchange of foreign currency, changes in our
effective tax rate, market acceptance of our new products and services,
technological advancements, undetected errors or defects in our products, the
risks associated with our international sales, and the risks set forth below
under Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors That May Affect Results." These forward-looking
statements speak only as of the date hereof. We expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in our
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
In the sections of this report entitled "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Factors That May Affect Results," all references to "Symmetricom," "we," "us,"
"our" mean Symmetricom, Inc. and its subsidiaries, except where it is made clear
that the term means only the parent company.
TimeSource, SMARTCLOCK, and BestTime are our registered trademarks. GoLong,
GoWide, TimeHub, TimePictra and TimeScan are our trademarks. We also refer to
trademarks of other corporations and organizations in this document.
Overview
Symmetricom designs, manufactures and markets solutions for the global
telecommunications industry. Our products and services include network
synchronization systems and timing elements for most network operators and
users, innovative broadband access devices for business and residential
applications, and professional services. Our products play an important role in
the operation, bandwidth utilization, and quality of service of wireline,
wireless and broadband communications networks enabling our customers to
increase the efficiency of their networks in today's evolving communications
environment.
1
Our acquisition of a portion of Hewlett-Packard's synchronization business
in fiscal 2000 solidified our position as a leading supplier of
telecommunications network synchronization and timing equipment to global
network service providers. These products control, or synchronize, the flow of
voice, video, and data information in telecommunications networks. As an
innovator in the development of synchronization equipment, we continue to
pioneer the use of global positioning systems, or GPS, code division multiple
access, or CDMA, advanced control algorithms and atomic technologies in our
products to improve the performance and operability of global
telecommunications. We believe that our products have been installed in wireline
and wireless networks in more than 80 countries.
We also supply consumer and business broadband access solutions to global
network service providers. We believe the single largest challenge in the
digital subscriber line, or DSL, market is distance. DSL is generally capable of
being delivered only about three miles from the telephone company to the
consumer over the copperwire infrastructure for last mile access. Our GoLong
product doubles the distance that DSL can be delivered over copper telephone
lines without sacrificing significant speed. GoLong makes DSL service possible
to the more than 35% of the population in the United States and nearly 15% of
the population in Western Europe who are currently outside the reach of
broadband services. In the business market, we believe we cost-effectively
bridge the gap between T1 and fiber optic speeds through our business-class DSL
products. In June 2001, we announced our GoWide product. We believe GoWide will
combine up to eight DSL phone lines of the international standard referred to as
G.SHDSL to deliver 15 megabits per second of synchronous voice and data
capacity to business customers less expensively than equivalent T1 lines. We
believe our GoWide product will allow service providers to retain higher margins
and provide a higher level of service to their customers without replacing their
customer's current equipment interface. We anticipate that both our GoLong and
GoWide products will comply with international standards making these products
available to telecommunications providers worldwide.
In June 2001, we formed a new business division, Symmetricom Global
Services, to deliver a wide portfolio of services for our customers around the
world. We believe service providers worldwide are in need of cost-effective
methods of expanding their technical and support resources without putting
additional strain on their engineering and maintenance departments. Our global
services division will provide a cost-effective, one-stop solution, which we
believe will eliminate the need for our service provider customers to hire or
train additional technical resources. The list of offerings of our global
services division will include network synchronization design, implementation
project management, on-site maintenance, customized on-site services, disaster
recovery planning, and customized consulting services in addition to the
engineering and installation, optioning and commissioning audits, training,
operations and growth support, and network synchronization audits.
Our customers include world-wide public network providers, incumbent local
exchange carriers, or ILECs, post telephone and telegraph companies, or PTTs,
competitive local exchange carriers, or CLECs, other telephone companies,
wireless service providers, cable television operators, internet service
providers, or ISPs, and communications original equipment manufacturers, or
OEMs.
Symmetricom was incorporated in California in 1956. We have five reportable
business segments: synchronization products, wireless products, transmission
products, broadband access products, and contract manufacturing. Information as
to net sales and gross profit margin attributable to each of our five segments
for each year in the three-year period ended June 30, 2001, is contained in Note
L of the Notes to the Consolidated Financial Statements.
Industry Background
Today's telecommunications carriers and service providers are faced with
changing business models, an evolving technological landscape, and demands for
new services. We believe growth in the telecommunications industry has created
two needs. First, modern network builders must be able to maximize bandwidth
efficiency and deliver the highest quality transmission of voice, data, or video
over the network, whether copper, fiber or wireless. Second, telecommunications
companies must be able to maximize the value of the existing copper wire
infrastructure for last mile access to deliver both business-class and consumer
broadband services.
The telecommunications industry is currently comprised of several different
markets, including: wireline infrastructure, wireless and broadband.
2
Wireline Infrastructure Market
The wireline local, long distance, and international telecommunications
services sector is growing as operators expand their networks in order to meet
increased demand for telecommunications services. Privatization, competition,
and economic expansion have increased demand for networking systems in emerging
markets. In these markets, new wireline networks are being installed to provide
basic telephony service. In developed countries, increased demand for new
services and government deregulation has encouraged the development of expanded
networks, particularly in the local exchange and long distance markets. We
believe the expansion of wireline and wireless networks has led to an increased
need for timing devices to synchronize the flow of information and maximize the
efficiency of the networks.
Wireless Market
Investment in the wireless network continues to grow, as wireless network
operators convert older analog networks to digital technology and expand their
digital wireless networks in order to improve transmission quality, increase
network capacity, and expand network coverage. Both analog and digital cellular
telecommunications networks consist of numerous cells located throughout a
service area, each with its own base station connected to the wireline network
through a network switch. In a wireless network, calls are segmented,
transmitted over a wider spectrum of bandwidth, and reassembled by a receiver
within the network. Without proper synchronization, signal degradation resulting
from this process of segmentation and reassembly may result in dropped calls and
loss of data, and decreasing network efficiency and capacity. In order to
minimize the problems that result from poor synchronization, cellular operators
and cellular base station manufacturers require precise timing equipment to be
installed in each base station. As data applications over wireless networks
become increasingly prevalent, precise timing devices will be essential for
acceptable performance.
Broadband Access Market
We believe telecommunications providers' largest assets are their last mile
copper loops. Unlike wireless, optical and cable, the copper loop extends to
every business and home in the United States, and almost every business and home
internationally. We believe that the market to extend the reach of DSL is
growing as telecommunications providers search for cost-effective ways to reach
their customers and increase their customers' level of service. While the need
for business bandwidth increases, less than five percent of businesses are
directly served by fiber optics installed to their facilities.
Telecommunications providers are, accordingly, searching for economical methods
to deliver voice and data at greater speeds using copper. As cost aware
telecommunications providers grow their service offerings, we believe they will
continue to search for new and better methodologies to utilize their copper
loops through broadband devices.
Products
We address the needs of the world's telecommunications service providers by
providing innovative synchronization, timing, frequency, access and broadband
products, as well as professional services. Our synchronization and timing
products optimize bandwidth utilization and deliver a high quality transmission
of voice, data and video over most networks. Networks increasingly are required
to transmit large volumes of data and video for the purpose of communicating
information, conducting business, and delivering entertainment. In order to
transfer voice, data, or video traffic from one line or network to another, both
segments of the network must operate at the same frequency within a very narrow
tolerance. The failure to synchronize digital network equipment results in the
loss of information, requiring re-transmission and thus decreasing network
efficiency and increasing network operating costs. The following discussion
includes products from each of our five segments: synchronization, wireless,
broadband access, transmission and contract manufacturing.
Synchronization Products
The public-switched telecommunications network, or PSTN, consists of a
series of interconnected switching equipment and other components, or nodes,
that route voice, video and data traffic throughout the network. In order for
these networks to function efficiently, it is essential that each network be
synchronized and
3
individual nodes within the network operate within very precise tolerances.
Precision synchronization equipment throughout these networks provides a
frequency reference to enable digital switching and transmission systems to
operate at a common, or synchronized, clock rate, therefore minimizing signal
degradation and reducing errors in the transmission of data throughout a
network. Synchronization products comprised 73.7% of consolidated revenue in
fiscal 2001, 72.0% in fiscal 2000 and 83.8% in fiscal 1999.
High quality synchronization is an essential requirement for modern
telecommunications service providers as they move to high-capacity, high-speed
digital transmission technologies such as dense wavelength division
multiplexing, synchronous optical network, or SONET, and synchronous digital
hierarchy, or SDH, networks. Synchronization is also required in voice and
video services carried on packet-based network technologies, such as signaling
system 7, asynchronous transfer mode, and voice over internet protocol.
Asynchronous transfer mode requires synchronization to support certain
interfaces such as channelized T1, E1 and SONET signals.
Wireline Products
Our core synchronization products consist principally of synchronization
solutions based on quartz, rubidium and GPS technologies, which provide highly
accurate and uninterruptible timing that meets the synchronization requirements
of digital networks. We have established ourselves as a leading provider of
telephone network synchronization products. Our synchronization products provide
for the generation of a stable primary timing reference and the distribution of
that timing reference throughout a network, thereby enabling telecommunications
service providers to synchronize precisely such diverse telephone network
elements as digital switches, digital cross-connect systems and multiplexers for
customers who are dependent upon high quality data transmission.
Our Building Integrated Timing Supply, or BITS, Synchronization Supply
Unit, or SSU, and Primary Reference Source, or PRS, product families consists of
six major product platforms:
. TimeHub intelligent network synchronization system;
. Digital Clock Distributor, or DCD, Series, including the DCD 500;
. 55400A network synchronization unit;
. DCD Local Primary Reference, or LPR;
. 55300A Primary Reference Source, or PRS; and
. TimeSource family of intelligent PRS products.
In fiscal 2001, we began commercial shipments of our TimeHub 5500 product
platform. The TimeHub 5500 is an intelligent network synchronization system that
improves the quality of service and maximizes the bandwidth for
telecommunications service providers. The TimeHub 5500 has a unique high-density
architecture that provides 700 protected synchronization signals per system. The
product also provides input reference qualification and switching, signal
filtering and distribution functionalities.
Our DCD 500 product platform is a third generation synchronization and
timing distribution platform that provides the accurate clock references needed
throughout networks to ensure reliable synchronization. We believe the DCD 500's
quad-bus architecture makes it the most redundant and reliable synchronization
system available.
Our 55400A network synchronization unit is a modular, fully redundant
timing and distribution unit for international networks where SDH technology is
being deployed and expanded. The 55400A uses our SMARTCLOCK technology to
improve the holdover performance of its internal quartz oscillators.
Our DCD-LPR series platform uses either GPS or Long Range Navigation
version C, or LORAN-C, to provide direct Stratum 1 performance, which is the
highest standard for clocks in telecommunications networks, traceable
synchronization to network sites equipped with DCD 500 distribution systems. The
DCD-LPR employs an integrated, roof-mounted GPS antenna and timing receiver to
receive precision universal coordinated time timing signals from GPS satellites
at virtually any location in the world or from LORAN-C radio stations in a
number of locations in the world.
4
Our 55300A primary reference source platform is a compact, multi-purpose
network synchronization and timing system that uses our proprietary SmartClock
technology in combination with a high quality quartz oscillator to give
performance that exceeds the requirements of the International
Telecommunications Union, or ITU, and the American National Standards Institute,
or ANSI. Designed for SONET and SDH networks, the 55300A is compatible with most
BITS or SSU platforms and can be used to upgrade synchronization in any office.
The DCD-LPR can also be deployed as a standalone unit, providing complete
synchronization for remote offices and network edge facilities.
The TimeSource family of products consists of primary reference source
systems configurable with a number of antenna options addressing the
synchronization and timing needs of all types of central offices including
co-location sites and remote offices. All TimeSource products use BESTIME
technology, which is a flexible clock engine that uses all commonly available
sources of timing including CDMA, GPS, T1, the European format for digital
transmission, known as E1, and/or local oscillator signals to generate highly
precise synchronization signals.
Our TimeSource 2500 product is a high-performance and inexpensive
alternative to the cesium time standard for GPS hostile environments. The
TimeSource 2500 BESTIME engine provides robust performance in compromised GPS
installations by modeling GPS timing information and predicting correction
values during the loss of GPS signals. TimeSource 2500 delivers Stratum 1
performance with only one satellite in view for as little as 10 hours a day. The
antenna can be mounted inside a building provided it is near a window with a
view to the sky.
Our TimeSource 2700 product is a standalone Stratum 1 primary reference
source that uses reference signals from CDMA wireless networks. CDMA signals are
received inside buildings, which eliminates the antenna installation and
maintenance costs associated with GPS primary reference source systems. Using
BESTIME clock technology, the TimeSource 2700 tracks and ensembles multiple CDMA
pilot signals, seamlessly switching to the most stable and least noisy signal.
TimeSource 2700 delivers a Stratum 1 primary reference source in office
environments where GPS is not practical or available.
Our TimeSource 3000 product is a standalone Stratum 1 primary reference
source that meets GR2830 requirements for ILEC central office installations.
Using BESTIME clock technology, TimeSource 3000 provides extended Stratum 1
holdover performance upon loss of GPS. TimeSource 3000 can be configured as a
primary reference source to front-end an office BITS or as an integrated primary
reference source and distributor for remote offices. The TimeSource 3100, the E1
equivalent of our TimeSource 3000, meets European network performance
requirements.
In fiscal 2001, we began shipping our TimeSource 3500 and 3600 products.
The TimeSource 3500 is a standalone Stratum 1 primary reference source that
meets GR2830 requirements for ILEC central office installations and works in GPS
hostile environments. Our TimeSource 3500 product meets network primary
reference source performance requirements by using a GPS antenna mounted inside
a window. Timing outputs with Stratum 1 performance are achieved using BesTime
clock technology, a single-satellite-locking GPS receiver, and a rubidium local
oscillator. The TimeSource 3600, the E1 equivalent of our TimeSource 3500, meets
European network performance requirements.
Network Management
We believe our network management systems provide the key to maximum
performance, reliability, and efficiency for synchronization networks.
Symmetricom's synchronization network management solutions include TimePictra,
Open Synchronization Management Framework, or OSMF, TimeScan/TMN, TimeScan/NMS,
and TimeScan/Craft.
We began commercial shipments of TimePictra, a scalable, web-based, open
vendor synchronization management platform, in fiscal 2001. TimePictra controls
and monitors the synchronization network allowing operators to shift their focus
to predictive and preventative maintenance leading to reduced down time, lowered
costs, and enhanced quality of service. TimePictra's advanced monitoring and
reporting capabilities also provide benefits in validating service level
agreements. We believe TimePictra is the only web-based system on the market
today that controls and monitors synchronization network elements from different
vendors. Our OSMF products
5
gives telecommunications service providers the ability to remotely manage their
synchronization networks and quickly isolate synchronization-related problems.
TimeScan/TMN is a Unix-based telecommunications management network, or TMN,
and Q3, a network management standard, compliant full element management system
for synchronization networks. TimeScan/NMS is a Windows NT-based proprietary
network management system. TimeScan/TMN and TimeScan/NMS provide scaleable,
centralized real-time security monitoring, performance monitoring, fault
management, remote configuration, and inventory of a synchronization network.
The TimeScan/TMN graphical user interface presents status at the network level
and at the element level, providing real-time representations of configuration
and status of both logical and physical properties of the network. The
TimeScan/NMS graphical user interface presents network status using hierarchical
overviews of both logical and geographical network topologies. TimeScan/Craft is
a Windows 95-based local craft maintenance terminal that provides local
management and maintenance. Each of these products features tools for
identifying customer troubles before they affect service.
Wireless Products
Cellular and personal communications services, or PCS, networks require
precise frequency control and timing information. Our wireless base station
timing products deliver stable timing to cellular/PCS base stations through a
GPS receiver that captures the cesium-based time signals produced by GPS
satellites. We believe our 58533A and 58540A GPS time and frequency reference
receivers are a cost-effective source of highly accurate time and frequency
signals referenced to the global positioning system. We offer a number of GPS
accessory products to compliment our time and frequency receiver products. Our
58535A, 58536A, and 58517 GPS distribution amplifiers allow multiple GPS
receivers to share a single antenna. These wireless products are designed for
manufacturing, positioning, and timing redundancy applications. They provide
dependable signals for two, four or eight GPS receivers. The 58538A and 58539A
are accessory lightning arrestor products designed to protect the GPS Time and
Frequency receivers from lightning strikes.
Our 5853A and 58534A GPS Timing Antennas are a highly reliable, low-cost
source of precision GPS time. The 5853A is an integrated system that includes a
GPS receiver, system interface, and power supply that is both weatherproof and
easy to install. The 58532A GPS L1 frequency band reference antenna is used to
deliver L1 carrier frequency signals to GPS synchronization modules and
receivers. The antenna is based on a design with proven reliability and is
characterized by low noise and high gain to provide optimum signal quality.
Broadband Access Products
Our broadband access division is focused on delivering innovative business
and consumer access solutions. Our broadband products extend the reach and
bandwidth of broadband services from the global network backbone over the last
mile. We help maximize the deliverable bandwidth over the copper telephone wire
infrastructures, reducing the distance barriers for the consumer market and the
cost barriers in the business market for value-added broadband services.
In June 2000, we announced our first Broadband Access product, GoLong, an
asymmetrical digital subscriber line, or ADSL, loop extender that allows
telecommunication providers, primarily ILECs, to deliver service up to and
beyond thirty thousand feet. GoLong maintains high bandwidth at great distances
and maintains the G.DMT or G.LITE formats for ADSL international standard
signaling making GoLong compatible with all standard ADSL access multiplexers
and customer premises equipment modems. GoLong is currently operating across
North America and four countries internationally.
In June 2001, we announced our GoWide product. We believe GoWide will
provide a new way to bridge the T-chasm, the bandwidth gap between copper T1
lines (1.544 megabits per second) and optical T3 lines (45 megabits per
second). We believe GoWide will deliver 15 megabits per second of synchronous
voice and data capacity to business customers less expensively than equivalent
T1 lines. GoWide will utilize bonding technology and the new international
standard called G.SHDSL to deliver this new class of service. We believe GoWide
will also provide the customer with T1, E1 and T3 interfaces so that no
upgrade in customer equipment is needed. We believe GoWide's compatibility and
leading edge technology will allow service providers to utilize their copper
loop to offer superior data and voice service and retain higher margins.
6
Transmission Products
Our transmission products include Secure7, Secure7Lite and the Integrated
Digital Services Terminal. Our transmission products are primarily used to
support intelligent, fault-tolerant, digital transmission terminals that
automatically reroute disrupted high priority telephone data links. During
fiscal 2001 we ceased manufacture of these products. Sales of our transmission
products are only as add-ons or for maintenance of existing contracts.
Contract Manufacturing
We utilize our production facilities to manufacture products for
third-party customers on a contract basis. We offer full-service manufacturing
solutions that include printed circuit board assembly and testing, procurement
of raw materials, and delivery of finished products. Our manufacturing processes
utilize what we believe are the latest surface mount and through-hole technology
production equipment.
Professional Services
In June 2001, we announced the formation of our professional services
division, Symmetricom Global Services, in reaction to customer requests for
expanded services. Through this division, we plan to deliver a broad portfolio
of services for our customers around the world. The services we will offer
include system planning, network audits, network monitoring, maintenance,
logistics and installation. By hiring highly experienced support engineers,
through internal and external qua lity programs and audits, and by training our
staff formally, we anticipate the services offered by this division will be
world-class.
Sales and Marketing
In the United States, we market and sell most of our products through our
own sales force to the ILECs, PTTs, CLECs, other telephone companies, wireless
service providers, cable television operators, ISPs and OEMs. Internationally,
we market and sell our products to telecommunications service providers through
our sales force, independent sales representatives, distributors and system
integrators. As of June 30, 2001, we employed a sales and marketing force of 80
people. As of June 30, 2001, we had 23 employees in domestic sales and 9
employees in international sales. We sell our products both directly to
customers and through domestic and international distributors.
Licenses, Patents and Trademarks
We incorporate a combination of trademark, copyright and patent
registration, contractual restrictions and internal security to establish and
protect our proprietary rights. As of June 30, 2001, we have 12 United States
patents, 9 foreign patents and 44 patent applications pending covering certain
technology used by our operations. The 12 United States patents issued expire
between December, 2007 and October, 2018. All of our international patents
expire during 2017. In addition, we use technology licensed from others. We
believe that our patents have value, but we rely primarily on innovation,
technological expertise and marketing competence to maintain our competitive
advantage. The telecommunications industry is characterized by the existence of
a large number of patents and frequent litigation based on allegations of patent
infringement. We intend to continue our efforts to obtain patents, whenever
possible, but there can be no assurance that patents will be issued or that any
existing patents or patents that are obtained will not be challenged,
invalidated or circumvented or that the rights granted will provide any
commercial benefit to us. Additionally, if any of our processes or designs are
identified as infringing upon patents held by others, there can be no assurances
that a license will be available or that the terms of obtaining any such license
will be acceptable to us. In addition, the laws of certain countries in which
our products are or may be developed, manufactured or sold may not protect our
products and intellectual property rights to the same extent as the laws of the
United States.
Manufacturing
Our manufacturing process consists primarily of in-house electrical
assembly and test performed by our subsidiary in Aguada, Puerto Rico. Our
facility is ISO 9002 certified and registered. We are in the process of
7
consolidating our manufacturing facilities in Puerto Rico. Our Puerto Rico
subsidiary currently occupies three buildings in Aguada, which will be
consolidated into one new facility in Aguadilla during fiscal 2002.
We previously relied on a subcontractor in Korea for assembly of our
wireless products. We completed the transfer of the Korea subcontract
manufacturing lines to our Puerto Rico facility in October 2000.
Backlog
At June 30, 2001, our backlog was approximately $15.9 million compared to
approximately $34.6 million at June 30, 2000. Backlog consists of customer
orders that are expected to ship within the next twelve months. Most orders
included in backlog can be rescheduled or canceled by customers without
significant penalty. Historically, a substantial portion of net sales in any
fiscal period has been derived from orders received during that fiscal period.
Our backlog may also be affected by the cancellation or delay of customer
orders, the overall condition of the telecommunications industry, overall
worldwide economic conditions and the cyclical nature of customer demand in each
of our markets. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Factors that May Affect Results -- Our quarterly
and annual operating results have fluctuated in the past and may continue to
fluctuate in the future, which could cause our stock price to decline and result
in losses to our investors."
Key Customers and Export Sales
Acterna Worldwide and Samsung accounted for 13.5% and 15.5%, respectively,
of our net sales in fiscal year 2001. No single customer accounted for more than
10% of our net sales in each of fiscal 2000 and 1999. Our export sales, which
were primarily to Western Europe, Latin America, the Far East and Canada,
accounted for 29%, 25% and 29% of our net sales in fiscal years 2001, 2000 and
1999.
Gains and losses on the conversion to United States dollars of foreign
currency accounts receivable and accounts payable arising from international
operations may in the future contribute to fluctuations in our business and
operating results. Sales and purchase obligations denominated in foreign
currencies have not been significant. We do not currently engage in foreign
currency hedging activities or derivative arrangements but may do so in the
future to the extent that such obligations become more significant.
Information regarding revenues by geographic areas is included in Note L to
the Notes to the Consolidated Financial Statements.
Competition
Competition in the telecommunications industry in general, and in the new
and existing markets we serve, including the wireline infrastructure, network
access, wireless and broadband access markets, in particular, is intense and
likely to increase substantially. Some of our competitors or potential
competitors are more established than we are and have greater financial,
manufacturing, technical and marketing resources. Competitors in our
synchronization products segment include Datum, Inc., Frequency Electronics,
Inc., and Oscilloquartz SA. Competitors in our wireless segment include Trimble
Navigation, Ltd. and Datum, Inc., and our primary competitor in our broadband
access segment is Adtran, Inc. In addition, the Telecommunications Act of 1996
permits ILECs to manufacture telecommunications equipment, which may result in
increased competition.
The factors on which we compete primarily are product reliability and
performance, product features, adherence to standards, customer service and
price. While we believe that overall we compete favorably with respect to these
factors, there can be no assurance that we will be able to compete successfully
in the future. Our ability to compete successfully is dependent upon our
response to the entry of new competitors or the introduction of new products by
our competitors, the average selling prices received for our products, changing
technology and customer requirements, development or acquisition of new
products, the timing of new product introductions by us or our competitors,
continued improvement of existing products, changes in overall worldwide market
and economic conditions, cost effectiveness, quality, price, service and market
acceptance of our products. See "Management's
8
Discussion and Analysis of Financial Condition and Results of Operations --
Factors that May Affect Results -- The telecommunications market is highly
competitive, and if we are unable to compete successfully in our markets, our
revenues could decline."
Research and Development
As of June 30, 2001, we had approximately 36 engineers and technicians
directly involved in the design and development of our products. We focused our
development efforts in fiscal 2001 on the development of both hardware and
software technologies. Our new product development program includes DSL
repeaters, advanced bonding for the international standard referred to as
G.SHDSL, integrated access devices, wireline and wireless synchronization and
network management software. In fiscal years 2001, 2000 and 1999 our overall
research and development expenditures were $12.9 million, $16.6 million and
$13.7 million, respectively. We expensed all research and development
expenditures as they were incurred.
Our primary product development center is in San Jose, California. We also
develop products in Aguada, Puerto Rico.
Government Regulation
The telecommunications industry is subject to government regulatory
policies regarding pricing, taxation and tariffs, which may adversely impact the
demand for our telecommunications products. These policies are continuously
reviewed and subject to change by the various governmental agencies. We are also
subject to government regulations, which set installation and equipment
standards for newly installed hardware.
Environmental Regulation
Our operations are subject to numerous federal, state and local
environmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in our manufacturing
process. Failure to comply with such regulations could result in a suspension or
cessation of our operations, or could subject us to significant future
liabilities.
Sources and Availability of Raw Materials
We primarily use standard parts and components, which are generally
available from multiple sources. We make significant purchases of parts and
components, including oscillators, antennas and timing receivers from
third-party suppliers. During fiscal 2001, our experience in obtaining needed
standard parts and services from our suppliers improved greatly. We have
attempted to manage our risk by maintaining a reserve of certain single source
components, identifying alternative suppliers and maintaining quality
relationships with our suppliers. The inability to obtain sufficient key
components as required could result in delays or reductions in product
shipments, which could materially harm our business.
Employees
At June 30, 2001, we had 510 employees, including 309 in manufacturing, 48
in engineering and 153 in sales, marketing and administration. We believe that
our future success is highly dependent on our ability to attract and retain
highly qualified management, sales, marketing and technical personnel.
Accordingly, we maintain employee incentive, deferred compensation and stock
plans for certain of our employees. None of our employees are represented by a
labor union, and we have experienced no work stoppages. We believe that our
employee relations are good.
Properties
The following are our principal facilities as of June 30, 2001:
9
Approximate Floor Owned/Lease
Location Principal Operations Area (Sq. Ft.) Expiration Date
-------------------------- --------------------------------------- ------------------- -----------------
San Jose, California Administration, sales, and engineering 118,000 April 2009
Aguada, Puerto Rico Manufacturing 22,000 October 2001
Aguada, Puerto Rico Manufacturing 22,000 April 2002
Aguada, Puerto Rico Manufacturing 22,000 April 2002
Aguadilla, Puerto Rico Manufacturing 79,000 June 2012
During fiscal 2001, we leased a facility in Aguadilla, Puerto Rico to
consolidate all of our Puerto Rico operations in one building. The move to this
facility will be done in two stages over a one-year period starting in the first
quarter of fiscal year 2002. We have sublet approximately 34,000 square feet of
our San Jose facility through December 2004. We believe that our current
facilities are well maintained and generally adequate to meet short-term
requirements.
Item 3. Legal Proceedings
In January 1994, a securities class action complaint was filed against us
and certain of our former officers or directors in the United States District
Court, Northern District of California. The action was filed on behalf of a
putative class of purchasers of our stock during the period April 6, 1993
through November 10, 1993. The complaint sought unspecified money damages and
alleges that we and certain of our former officers or directors violated federal
securities laws in connection with various public statements made during the
putative class period. The Court granted summary judgment in favor of us, our
former officers and directors in August 2000. The plaintiff has filed a notice
of appeal to the United States Court of Appeals for the Ninth Circuit. We
believe that the complaint is without merit and intend to continue to defend the
action vigorously if necessary. We are also a party to certain other claims in
the normal course of our operations. While the results of such claims cannot be
predicted with any certainty, we believe that the final outcome of such matters
will not have a material impact on our financial position and results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Company
Following is a list of our executive officers as of August 31, 2001 and
brief summaries of their business experience. All officers, including executive
officers, are appointed annually by the Board of Directors at its meeting
following the annual meeting of shareholders. We are not aware of any officer
who was appointed to the office pursuant to any arrangement or understanding
with another person.
Name Age Position
----------------------- ----- --------------------------------------------
Thomas W. Steipp ...... 52 Chief Executive Officer
William Slater ........ 50 Chief Financial Officer and Secretary
Dale A. Pelletier ..... 50 Senior Vice President, Operations
Frederick B. Stroupe .. 58 Executive Vice President and General Manager
Mr. Steipp has served as Chief Executive Officer of Symmetricom since
October 1999. Mr. Steipp served as Chief Executive Officer and Chief Financial
Officer of the Company from December 1998 to October 1999. Mr. Steipp served as
President and Chief Operating Officer, Telecom Solutions, a division of the
Company, from March 1998 to December 1998. Prior to joining the Company, from
February 1996 to February 1998, Mr. Steipp served as Vice President and General
Manager of Broadband Data Networks, a division of Scientific-Atlanta. From
January 1979 to January 1996, Mr. Steipp held various management positions in
operations and marketing with Hewlett-Packard Company. While at Hewlett-Packard,
Mr. Steipp served as General Manager of the Federal Computer Division from
January 1991 to January 1996 and Manager of Federal Sales & Marketing from
August
10
1990 to January 1991. From January 1989 to August 1990, Mr. Steipp was Manager,
Systems Integration Operations.
Mr. Slater has served as Chief Financial Officer and Secretary of the
Company since August 2000. From September 1992 to December 1999, Mr. Slater
served as Executive Vice President and Chief Financial Officer of Computer
Curriculum Corporation, an educational software company that was a division of
Viacom. Previously, Mr. Slater served as Vice President of Financial Planning in
the publishing industry with Simon & Schuster for six years. Mr. Slater served
as Controller of Revlon's Professional Products Division Between 1978 and 1985.
Prior to that, Mr. Slater worked for Touche Ross.
Mr. Pelletier has served as Senior Vice President, Operations of the
Company since April 1999. Mr. Pelletier served as Senior Vice President,
Operations of Telecom Solutions, a division of the Company, since April 1997 and
as Vice President, Operations of Telecom Solutions from November 1993 to April
1997. From July 1993 until November 1993, Mr. Pelletier served as Vice President
and General Manager, Telecom Solutions. From July 1992 until July 1993, Mr.
Pelletier served as General Manager, Synchronization Division, Telecom
Solutions. From August 1990 until July 1992, he served as Synchronization
Division Manager, Telecom Solutions. From August 1989 until August 1990, Mr.
Pelletier served as Operations Manager, Telecom and Analog Solutions Divisions.
From August 1986, when Mr. Pelletier joined the Company until August 1989, he
held the position of Manufacturing Manager, Telecom Solutions. Previously, Mr.
Pelletier served in various finance and manufacturing positions for nine years
with several manufacturing companies.
Mr. Stroupe has served as Executive Vice President and General Manager of
the Company since June 2000. Mr. Stroupe served as Senior Vice President,
Worldwide Sales and Service of the Company from April 1997 to June 2000 and as
Vice President, Sales from October 1993 to April 1997. From July 1991 to October
1993, Mr. Stroupe served as Vice President, Sales, Telecom Solutions, a division
of the Company. From August 1990 to July 1991, Mr. Stroupe served as Director,
Sales and as Director, Sales-West from August 1987 to August 1990. Prior to
joining the Company Mr. Stroupe served in the telecommunications industry
primarily with General Electric for 12 years and Rockwell International/Wescom
for 13 years.
11
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The Company's common stock, no par value ("Common Stock"), is traded on the
Nasdaq National Market, or Nasdaq, under the symbol "SYMM." The following table
sets forth, for the periods indicated, the range of high and low sales prices
for the Common Stock on Nasdaq as reported in its consolidated transaction
reporting system.
High Low
----------- -----------
Year ended June 30, 2001
First Quarter ........................ $ 25.625 $ 7.750
Second Quarter ....................... 15.875 8.547
Third Quarter ........................ 19.875 9.500
Fourth Quarter ....................... 18.430 11.650
Year ended June 30, 2000
First Quarter ........................ 6.916 4.583
Second Quarter ....................... 8.583 4.333
Third Quarter ........................ 10.333 6.000
Fourth Quarter ....................... 17.333 5.833
As of June 30, 2001, the Common Stock was held by 1,213 stockholders of
record. The Company has not declared or paid dividends on its capital stock
during the last two fiscal years and does not anticipate paying any dividends in
the foreseeable future. The above high and low sales prices for the Common Stock
have been adjusted to reflect the three-for-two stock split effected in the form
of a stock dividend in August 2000.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes included
in Item 8 of this Report.
Year ended June 30,
---------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
Operating Results:
Net sales ..................................................... $ 152,668 $ 107,557 $ 76,915 $ 73,311 $ 89,718
Operating income .............................................. 21,784 3,654 2,322 4,192 9,625
Earnings from continuing operations before
income taxes ............................................... 34,877 5,273 3,524 5,175 11,431
Earnings from continuing operations ........................... 28,824 5,043 2,784 4,016 9,030
Earnings (loss) from discontinued operations .................. 506 -- (3,979) (5,546) 4,424
Net earnings (loss) ........................................... 29,330 5,043 (1,195) (1,530) 13,454
Basic earnings per share from continuing operations ........... 1.23 .22 .12 .17 .38
Basic earnings (loss) per share from discontinued
operations ................................................. .02 -- (.17) (.24) .19
Basic net earnings (loss) per share ........................... 1.25 .22 (.05) (.07) .57
Diluted earnings per share from continuing
operations ................................................. 1.15 .21 .12 .17 .37
Diluted earnings (loss) per share from discontinued
operations ................................................. .02 -- (.17) (.23) .18
Diluted net earnings (loss) per share ......................... 1.17 .21 (.05) (.06) .55
Balance Sheet:
Cash and investments .......................................... 60,672 55,299 59,197 34,342 41,587
Working capital ............................................... 87,324 66,386 66,591 71,997 74,639
Total assets .................................................. 155,403 134,669 106,320 108,446 115,822
12
Year ended June 30,
---------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
Long-term obligations ......................................... 7,184 7,679 8,069 8,368 8,583
Shareholders' equity .......................................... 120,117 95,020 79,604 84,357 87,603
Share and per share data for all periods presented herein have been
adjusted to give effect to the three-for-two stock split effected in the form of
a stock dividend in August 2000.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and the Consolidated Financial Statements and related Notes
included elsewhere in this Report.
When used in this discussion, the words "expects," "anticipates,"
"estimates," and similar expressions are intended to identify forward-looking
statements. These statements, which include statements as to the extent of
worldwide use of our products, future research and development costs related to
acquired products, our anticipated research and development efforts, the effect
of the adoption of certain accounting pronouncements, the adequacy of our
capital resources, our operating results, our reliance on a few customers, price
erosion in our products lines, our strategy with regard to protecting our
patents, the importance of our patents, our development of new products, the
factors that may affect our ability to compete, sales to international
customers, the effect of short-term fluctuations in interest rates on our
business and the impact of fluctuations in foreign exchange rates, are subject
to risks and uncertainties that could cause actual results to differ materially
from those projected. These risks and uncertainties include, but are not limited
to, those risks discussed below, as well as risks relating to general economic
conditions in the markets we address and the telecommunications market in
general, risks related to the development of our new products and services
including our entry into the Broadband Access market and the Professional
Services market, the effects of competition and competitive pricing pressure,
uncertainties associated with changing intellectual property laws, developments
in and expenses related to litigation, increased competition in our markets,
inability to obtain sufficient amounts of key components, the rescheduling or
cancellation of a key customer order, the loss of a key customer, the effects of
new and emerging technologies, the risk that excess inventory may result in
write-offs, price erosion and decreased demand, fluctuations in the rate of
exchange of foreign currency, changes in our effective tax rate, market
acceptance of our new products and services, technological advancements,
undetected errors or defects in our products, the risks associated with our
international sales, and the matters discussed in "Factors That May Affect
Results." These forward-looking statements speak only as of the date hereof. We
expressly disclaim any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
reflect any change in our expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
Overview
Symmetricom designs, manufactures and markets advanced solutions for the
global telecommunications industry. Our synchronization and timing products
control or synchronize the flow of voice, video, and data information in both
wireline and wireless telecommunication networks. We believe that our
synchronization and timing products have been installed in wireline and wireless
networks in more than 80 countries.
Symmetricom's broadband products help maximize the deliverable bandwidth
over the copper telephone infrastructure, reducing the distance barriers for the
consumer market and the cost barriers in the business market for value-added
broadband services. Our transmission products are used to support intelligent,
fault-tolerant, digital transmission terminals that automatically reroute
disrupted, high priority telephone data links. We also provide contract
manufacturing services, utilizing our production facilities to manufacture
third-party products. Recently, we formed a new division, Symmetricom Global
Services, to provide network synchronization design services, implementation
project management, on-site maintenance, disaster recovery planning and
customized consulting services.
13
Symmetricom's customers include worldwide public network providers,
incumbent local exchange carriers, or ILECs, post telephone and telegraph
companies, or PTTs, competitive local exchange carriers, or CLECs, other
telephone companies, wireless service providers, cable TV operators, internet
service providers, or ISPs, and communications original equipment manufacturers,
or OEMs.
On September 29, 2000, we sold our United Kingdom-based dielectric Antenna
Division to a joint venture called Sarantel Limited for approximately $0.6
million cash subject to an escrow agreement. We maintain a 19% investment stake
in Sarantel Limited. We realized a gain of $0.1 million or $0.08 million after
taxes related to the sale of our Antenna Division.
On March 30, 2000, we sold our GPS division to Parthus Technologies PLC,
formerly Silicon Systems, Ltd., or SSL, for $9.5 million in cash. Additionally,
Symmetricom made a $3.0 million investment in shares of Parthus. We realized a
gain of $6.7 million, or $4.2 million after taxes related to the sale of our GPS
division. During fiscal 2001, we realized a gain of $1.8 million from the sale
of Parthus stock.
On September 30, 1999, Symmetricom acquired certain assets of
Hewlett-Packard Company's Communications Synchronization Business, or HP
Product Line business, for $19.4 million in cash. The acquisition has been
accounted for under the purchase method of accounting. The net purchase price of
$19.8 million, which includes cash paid of $19.0 million, transaction costs of
$0.4 million and assumed liabilities of $0.4 million was allocated to tangible
assets acquired of $1.4 million, intangible assets of $14.9 million, and
in-process research and development, or IP R&D, of $3.5 million. Intangible
assets associated with the acquisition includes goodwill of $3.2 million,
customer lists of $1.3 million, workforce of $1.4 million, SMARTCLOCK trademark
of $0.9 million, current product technology of $7.6 million and other intangible
assets of $0.4 million. Amortization is computed using the straight-line method
over a life of 10 years for goodwill, 10 years for customer lists, 7 years for
workforce, SMARTCLOCK trademark and for current product technology. The other
intangible assets are amortized over 5 years. In connection with this
transaction, we recorded $6.8 million of non-recurring charges, including $3.5
million for IP R&D and $3.3 million for recruiting and employee expenses, which
was paid out in full during the first quarter of fiscal 2000. All products
related to the acquisition are complete and we do not expect to incur any
additional significant research or development costs related to these products.
On April 14, 1999, we sold our Linfinity Microelectronics, Inc.
("Linfinity") semiconductor subsidiary to Microsemi Corporation for $24.1
million in cash, of which $1.1 million is subject to an escrow agreement. The
per share consideration paid to shareholders of Linfinity was $2.96 per
preferred share and $1.46 per common share. The outstanding capital stock of
Linfinity was comprised of 6,000,000 shares of preferred stock and 4,197,824
shares of common stock. There were stock options outstanding to purchase 121,449
and 109,000 shares of Linfinity's common stock at $0.50 and $0.80 per share,
respectively. The holders of these options were entitled to receive in cash the
difference between $1.46 and the option exercise price. Of the $24.1 million
aggregate purchase price, $23.6 million was paid to us (including amounts
currently held in escrow) and $0.5 million was paid to the former minority
shareholders and optionholders of Linfinity.
The Linfinity business has been accounted for as a discontinued operation
and, accordingly, its net assets have been segregated from continuing operations
in the consolidated balance sheets and the results of operations have been
excluded from continuing operations in the consolidated statements of operations
and cash flows for all periods presented.
On August 4, 2001, our Board of Directors adopted a shareholder rights plan
and declared a dividend at the rate of one right for each share of common stock.
The rights will be distributed as a non-taxable dividend and will expire August
2011. The rights will be exercisable only in the event that a person or group
acquires 15 percent or more of, or initiates a tender offer or exchange offer
on, our outstanding common stock. Under these circumstances, all rights holders,
except the acquiring person or group, will be entitled to buy our common stock
at a discount. The effect of the shareholders rights plan is to discourage
acquisitions of 15 percent or more of our common stock in the absence of
negotiations with our Board of Directors.
14
Results of Operations
Net Sales
Net sales increased by $45.1 million, or 41.9%, to $152.7 million in
fiscal 2001 as compared to $107.6 million in fiscal 2000. Net sales in fiscal
1999 were $76.9 million. The $45.1 million increase in net sales in fiscal 2001
is primarily comprised of an increase in the sales of our wireless and
synchronization products which includes the following: $32.8 million from
existing customers who were expanding their operations and $12.3 million from
all other sources. Net sales of wireless products increased 70.3% to $28.1
million in fiscal 2001 from $16.5 million in fiscal 2000, while net sales of
synchronization products increased 45.2% to $112.5 million in fiscal 2001 from
$77.5 million in fiscal 2000. The increase in fiscal 2000 net sales as compared
to fiscal 1999 was due primarily to revenue from the wireless products acquired
in the HP Product Line business transaction and higher sales of synchronization
products.
Gross Profit Margin
Gross profit as a percentage of net sales was 44.3%, 43.2%, and 47.8%
in fiscal 2001, 2000, and 1999, respectively. In fiscal 2001, the increase in
gross profit margin was primarily due to lower material costs resulting from
favorable prices on higher volume component purchases as well as a favorable mix
due to increased sales of higher margin products, such as our ST3E clocks and
our TimeSource 3000, 3500 and 3600 products. In fiscal 2000, the decrease in the
gross profit margin was primarily due to lower margins resulting from sales of
acquired HP Product Line products and less favorable manufacturing efficiencies.
Operating Expenses
Research and development expense was $12.9 million, or 8.5% of net
sales, $16.6 million, or 15.4% of net sales, and $13.7 million, or 17.8% of net
sales, in fiscal 2001, 2000, and 1999, respectively. The decrease in research
and development during fiscal 2001 is due to a reduction in employee headcount
in research and development, management's decision to provide a more
concentrated focus on specific research and development projects, and the sale
of the GPS division in the third quarter of fiscal 2000. The increase in
research and development expense during fiscal 2000 was primarily the result of
our investment in both new products and core technology and the increased
headcount in engineering in connection with the acquisition of the HP Product
Line business. In the future, we plan to increase our research and development
efforts in our Broadband Access Division, which includes our GoLong and GoWide
products.
Selling, general and administrative expense including amortization of
goodwill and intangibles was $33.0 million, or 21.6% of net sales, $26.2
million, or 24.3% of net sales, and $20.8 million, or 27.0% of net sales, in
fiscal 2001, 2000, and 1999, respectively. The increase in the aggregate dollars
expensed during fiscal 2001 is the result of an increase in selling expenses,
which is consistent with the increase in sales volume for the fiscal year. Also,
during fiscal 2001 we opened a new sales office in Hong Kong and hired
additional employees in order to meet increased product demand.
In fiscal 2001, we recorded a non-recurring gain of $0.04 million,
which included a gain of $0.1 million or $0.08 million after taxes, on the sale
of the United Kingdom-based dielectric Antenna Division, offset by a $0.06
million charge due to costs incurred in connection with the termination of
certain employees.
Gain on Sales of Equity Investments
In fiscal 2001, we recorded a non-recurring gain on the sale of equity
investments of $11.3 million, or 7.4% of net sales. The gain was comprised of a
$1.8 million gain from the sale of stock in Parthus and a $9.5 million gain from
the sale of stock of Brocade, Inc.
15
Interest Income
Interest income was $2.4 million, $2.3 million and $1.9 million in
fiscal 2001, 2000, and 1999, respectively. The increase in fiscal 2001 was
primarily due to the increase in cash, cash equivalents and short-term
investments as a result of increased cash flow from operations, as well as cash
proceeds from the sale of equity investments. The increase in fiscal 2000 was
primarily due to the increase in cash, cash equivalents and short-term
investments from the $23.0 million in proceeds from the sale of Linfinity and
the $9.5 million in proceeds from the sale of the GPS division, partially offset
by the $19.4 million cash expenditure to acquire the HP Product Line business
and the $3.0 million cash expenditure for Parthus subscription shares.
Interest Expense
Interest expense was constant at approximately $0.7 million in fiscal
2001, 2000, and 1999, respectively. Our interest expense results from the
capital lease for our building in San Jose.
Income Taxes
The income tax provision was $6.1 million (effective tax rate of
17.4%), $0.2 million (effective tax rate of 4.4%), and $0.7 million (effective
tax rate of 21.0%) in fiscal 2001, 2000 and 1999, respectively. Our effective
tax rate is affected by the percentage of qualified Puerto Rico earnings
compared to total earnings as most of the Company `s Puerto Rico earnings are
taxed under Section 936 of the U.S. Internal Revenue Code, which exempts
qualified Puerto Rico earnings from federal income taxes. This exemption is
subject to wage-based limitations and expires at the end of fiscal 2006. In
addition, this exemption will be further limited in fiscal years 2003 through
2006, based on certain prior year Puerto Rico earnings. Certain deferred tax
assets remain subject to a valuation allowance that was substantially reduced in
fiscal 2001. The remaining valuation allowance is attributable to stock option
transactions and will be credited to common stock when the related deferred
assets are realized. In recent years, the effective tax rate has fluctuated as a
result of the impact of nonrecurring gains and losses, the acquisition and
disposition of business lines and changes to the valuation allowance.
Gain/loss from Discontinued Operations
During our fiscal year ended June 30, 2001, we recognized a gain of
$0.5 million or $0.02 per share (diluted), net of taxes, on the sale of
discontinued operations related to the Linfinity business. The gain represents
an adjustment to the estimate for selling-related expenses incurred during the
disposition of the business. The loss from discontinued operation was $4.0
million or $0.17 per share (diluted) in fiscal 1999.
As a result of the factors discussed above, net earnings were $29.3
million or $1.17 per share (diluted) in fiscal 2001 compared to $5.0 million or
$0.21 per share (diluted) in fiscal 2000 and a net loss of $1.2 million or $0.05
per share (diluted) in fiscal 1999.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations
and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires
that all business combinations initiated after June 30, 2001 be accounted for
under the purchase method and addresses the initial recognition and measurement
of goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives will not be amortized, but will
rather be tested at least annually for impairment. We will adopt SFAS No. 142
during the first quarter of fiscal 2002. The impact of SFAS No. 141 and SFAS No.
142 on our consolidated financial statements has not yet been determined.
In March 2000, the FASB issued Interpretation No. 44 (FIN No. 44),
Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB 25. FIN No. 44 clarifies (i) the definition of employee
for purposes
16
of applying APB Opinion No. 25, (ii) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (iii) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (iv) the accounting for an exchange of stock compensation awards in a
business combination. We adopted FIN No. 44 during fiscal 2001 and the adoption
did not have a material effect on our consolidated financial position or results
of operations.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133, as amended, establishes accounting and reporting standards for
derivative financial instruments and hedging activities and requires that we
recognize all derivatives as either assets or liabilities on the balance sheet
and measure them at fair value. Gains and losses resulting from changes in fair
value are accounted for based on the use of the derivative and whether it is
designated and qualifies for hedge accounting. We adopted SFAS No. 133 during
fiscal 2001 and the adoption did not have a material effect on our consolidated
financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101 (SAB No. 101), Revenue Recognition in
Financial Statements, which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements. We adopted SAB No. 101 during
fiscal 2001 and the adoption did not have a material effect on our consolidated
financial position or results of operations.
Liquidity and Capital Resources
Working capital increased to $87.3 million at June 30, 2001 from $66.4
million at June 30, 2000, while the current ratio increased to 4.2 from 3.1. The
increase in the current ratio is a result of increased cash flow from operations
as well as cash proceeds from the sale of equity investments. During the same
period cash, cash equivalents and short-term investments increased to $60.7
million from $55.3 million, primarily due to $17.6 million provided by operating
activities, $5.8 million from the issuance of common stock and $12.9 million in
proceeds from the sale of equity investments, offset by $8.3 million used for
capital expenditures and $5.7 million used for the repurchase of our common
stock.
Accounts receivable at June 30, 2001 increased by $3.8 million to $23.4
million, or 15.3% of net sales. The increase is due to the increased sales
volume versus prior year. Days' sales outstanding in receivables decreased to 59
days at June 30, 2001, compared to 66 days at June 30, 2000 primarily due to
higher sales at the end of the period.
Inventory levels at June 30, 2001 increased by $2.9 million to $25.2
million from $22.4 million at June 30, 2000. The inventory turnover was 3.6
turns for the year ended June 30, 2001 compared to 3.7 turns for the year ended
June 30, 2000. The increase in inventory was primarily due to a planned build up
in raw material inventory to avoid component shortages and to compensate for
long lead-times while managing inventory requirements to meet higher sales.
During the years ended June 30, 2001 and June 30, 2000, we made
investments totaling $44.9 million and $44.2 million, respectively, in
commercial paper. During the years ended June 30, 2001 and 2000, proceeds from
maturities and sales of commercial paper were $49.4 million and $38.1 million,
respectively. The proceeds from the sales of equity investments totaled $12.9
million for the year ended June 30, 2001.
We believe that cash, cash equivalents, short-term investments and
funds generated from operations will be sufficient to satisfy working capital
requirements and capital expenditures in fiscal 2002. At June 30, 2001 we had
outstanding commitments of $0.5 million to purchase capital equipment.
17
Factors That May Affect Results
Our quarterly and annual operating results have fluctuated in the past and may
continue to fluctuate in the future, which could cause our stock price to
decline and result in losses to our investors
We believe that period to period comparisons of our operating results
are not a good indication of our future performance. Our quarterly and annual
operating results have fluctuated in the past and may continue to fluctuate in
the future. Some of the factors that could cause our operating results to
fluctuate include:
. the ability to obtain sufficient supplies of sole or limited source
components at commercially reasonable prices;
. changes in our products or mix of sales to customers;
. our ability to manage fluctuations in manufacturing yields;
. our ability to manage the level and value of our inventories;
. our ability to accurately anticipate the volume and timing of
customer orders or customer cancellations;
. the gain or loss of significant customers;
. our ability to introduce new products on a timely and
cost-effective basis;
. customer delays in qualification of new products;
. market acceptance of new or enhanced versions of our products and
our competitors' products;
. our ability to manage increased competition and competitive pricing
pressures;
. our ability to manage fluctuations, especially declines, in the
average selling prices of our products;
. the ability to manage the long sales cycle associated with our
products;
. the ability to manage cyclical conditions in the telecommunications
industry; and
. reduced rates of growth of telecommunications services and
high-bandwidth applications.
A significant portion of our operating and manufacturing expenses are
relatively fixed in nature and planned expenditures are based in part on
anticipated orders. If we are unable to adjust spending in a timely manner to
compensate for any unexpected future sales shortfall, our operating results will
be negatively impacted. Our operations entail a high level of fixed costs and
require an adequate volume of production and sales to achieve and maintain
reasonable gross profit margins and net earnings. Significant decreases in
demand for our products or reduction in our average selling prices, or any
material delay in customer orders may negatively harm our business, financial
condition and results of operations. Our future results depend in large part on
growth in the markets for our products. The growth in each of these markets may
depend on changes in general economic conditions, conditions related to the
markets in which we compete, changes in regulatory conditions, legislation,
export rules or conditions, interest rates and fluctuations in the business
cycle for any particular market segment. If our quarterly or annual operating
results do not meet the expectations of securities analysts and investors, the
trading price of our common stock could decline significantly.
18
The economic downturn in the telecommunications industry has negatively impacted
the demand for our products and may impair our customers' ability to pay us
Demand for products in the telecommunications industry, including our
products, declined dramatically during the third quarter of fiscal 2001 and
continued to decline in the fourth quarter of fiscal 2001 due to the downturn in
the telecommunication market. We do not know when the telecommunications market
will recover. The downturn in the telecommunications market has resulted in
decreased orders of our products by our customers and could result in
prospective customers delaying their decision to use our products or services.
The financial condition of some of our customers may also have been adversely
affected by the economic downturn. If customers are unable to pay us for
products delivered or services rendered, our results of operations could be
negatively impacted.
A substantial portion of our quarterly net sales depends on orders
received and shipped during a particular quarter, of which a significant portion
may be received during the last month or even the last days of that quarter. The
timing of the receipt and shipment of even one large order may have a
significant impact on our net sales and results of operations for such a
quarter. Most orders in our backlog can be rescheduled or canceled without any
significant penalty. As a result, it is difficult to predict our quarterly
results, even during the final days of a quarter.
We have relied and continue to rely on a limited number of customers for a
significant portion of our net sales, and our revenue could decline due to the
delay of customer orders or cancellation of existing orders
A relatively small number of customers have historically accounted for
a significant portion of our net sales. Two customers accounted for 13.5% and
15.5 % of our net sales in fiscal 2001. We expect we will continue to depend on
a relatively small number of customers for a substantial portion of our net
sales for the foreseeable future. The timing and level of sales to our largest
customers have fluctuated significantly in the past and are expected to continue
to fluctuate significantly. For example, our sales to Samsung were $23.6 million
in fiscal 2001 and $10.7 million in fiscal 2000 compared to zero in fiscal 1999.
We expect sales to Samsung in fiscal 2002 to be significantly lower than in
fiscal 2001 and could be significantly lower than fiscal 2000. We cannot be sure
as to the timing or level of future sales to our customers. If we lose one or
more of our significant customers, or if there is a significant reduction or
delay in sales to any customer, our business and operating results may be
harmed.
If we are unable to develop new products, or we are delayed in production
startup, sales of our products could decline, which could reduce our revenue
The markets for our products are characterized by:
. rapidly changing technology;
. evolving industry standards;
. changes in end-user requirements; and
. frequent new product introductions.
Technological advancements could render our products obsolete and
unmarketable. Our success will depend on our ability to respond to changing
technologies, customer requirements and our ability to develop and introduce new
and enhanced products, in a cost-effective and timely manner. The development of
new or enhanced products is a complex and uncertain process requiring the
accurate anticipation of technological and market trends. We may experience
design, manufacturing, marketing and other difficulties that could delay or
prevent the development, introduction or marketing of our new products and
enhancements.
The introduction of new or enhanced products also requires that we
manage a smooth transition from older products to new products. In the future,
we expect to develop certain new products that we may not successfully develop.
Delays in new product development or delays in production startup could reduce
sales of our products, which would negatively impact our revenue.
19
Our products are complex and may contain errors or design flaws which could be
costly to correct
Our products are complex and often use state of the art components,
processes and techniques. When we release new products, or new versions of
existing products, they may contain undetected or unresolved errors or defects.
Despite testing, errors or defects may be found in new products or upgrades
after the commencement of commercial shipments. Undetected errors and design
flaws have occurred in the past and could occur in the future. These errors
could result in delays, loss of market acceptance and sales, diversion of
development resources, damage to our reputation, legal action by our customers,
failure to attract new customers, and increased service and warranty costs. The
occurrence of any of these factors could cause our net sales to decline.
The telecommunications market is highly competitive, and if we are unable to
compete successfully in our markets, our revenues could decline
We believe that competition in the telecommunications industry in
general, and in the markets we serve, is intense and likely to increase
substantially. We face competition in all of our markets, and ILECs may become
competitors in the future. Our ability to compete successfully in the future
will depend on many factors including:
. the cost effectiveness, quality, price, service and market
acceptance of our products;
. our response to the entry of new competitors into our markets or
the introduction of new products by our competitors;
. the average selling prices received for our products;
. our ability to keep pace with changing technology and customer
requirements;
. our continued improvement of existing products;
. the timely development or acquisition of new or enhanced products;
and
. the timing of new product introductions by our competitors or us.
Many of our competitors or potential competitors are more established
and have greater financial, manufacturing, technical and marketing resources.
These competitors may be able to respond more quickly to new and
emerging technologies and changes in customer requirements, to devote greater
resources to the development, promotion and sale of products, or to deliver
competitive products at lower prices. We expect to continue to experience
pricing pressures from our competitors in all of our markets and continued price
erosion in several of our product lines. If we are unable to compete by
delivering new products or by delivering competitive products at lower prices,
we could lose market share which could cause our business to suffer.
If we fail to protect our intellectual property, our competitive position could
be weakened and our revenues may decline
Our success will depend on our ability to protect trade secrets, obtain
or license patents and operate without infringing on the rights of others. We
rely on a combination of trademark, copyright and patent registration,
contractual restrictions and internal security to establish and protect our
proprietary rights. There can be no assurance that such measures will provide
meaningful protection for our trade secrets or other proprietary information. We
have United States and international patents and patent applications pending
that cover certain technology used by our operations. However, while we believe
that our patents have value, we rely primarily on innovation, technological
expertise and marketing competence to maintain our competitive position. While
we intend to continue our efforts to obtain patents whenever possible, there can
be no assurance that patents will be issued, or that new, or existing patents
will not be challenged, invalidated or circumvented, or that the rights granted
will provide any commercial benefit to us.
20
Third parties may assert intellectual property infringement claims, which would
be difficult to defend, costly and may result in our loss of significant rights
The telecommunications industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement. We are also subject to the risk of adverse claims and litigation
alleging infringement of the intellectual property rights of others. Although we
are currently not a party to any intellectual property litigation, from time to
time we have received claims asserting that we have infringed the proprietary
rights of others. There can be no assurance that third parties will not assert
infringement claims against us in the future, or that any such claims will not
result in costly litigation or require us to obtain a license for such
intellectual property rights regardless of the merit of such claims. No
assurance can be given that any necessary licenses will be available or that, if
available, such licenses can be obtained on commercially reasonable terms.
If we acquire other companies and are unable to smoothly integrate the
businesses we acquire, our operations and financial results could be harmed
As part of our growth strategy we may acquire other businesses or
technologies that would complement our current products, expand our market
coverage, enhance our technical capabilities and offer growth opportunities. Our
future acquisitions may involve risks such as the following:
. we may be exposed to unknown liabilities of the acquired business;
. we may incur significant one-time write-offs;
. we may experience problems in combining the acquired operations,
technologies or products;
. we may overestimate the revenues and profits that we expect the
acquired business to generate;
. we may encounter unanticipated acquisition or integration costs
that could cause our quarterly or annual operating results to
fluctuate;
. our management's attention may be diverted from our core business;
. our existing business relationships with suppliers and customers
may be impaired;
. we may encounter difficulties in entering markets in which we have
no or limited prior experience;
. we may be unable to retain key employees of the purchased
organizations; and
. our stockholders may be diluted if we pay for the acquisition with
equity securities.
There can be no assurance that we will be able to successfully
integrate any business, products, technologies or personnel from any future
acquisitions. If we fail to successfully integrate acquisitions or achieve any
anticipated benefits of an acquisition, our operations and business could be
harmed. If we acquire additional business not located near San Jose, California,
we may experience more difficulty integrating and managing the acquired
business' operations.
We are subject to environmental regulations that could result in costly
environmental liability that could exceed our resources
Our operations are subject to numerous federal, state and local
environmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in our manufacturing
process. While we have not experienced any significant effects on our operations
from environmental regulations, changes in such regulations may require
additional capital expenditures or restrict our ability to expand our
operations. Failure to comply with such regulations could result in suspension
or cessation of our operations, or could subject us to significant liabilities.
Although we periodically review our facilities and internal operations for
compliance with applicable environmental regulations, such reviews are
necessarily limited in scope and frequency and, therefore, there can be no
assurance that such reviews have revealed all potential instances of
noncompliance,
21
possible injury or possible contamination. The liabilities arising from any
noncompliance with such environmental regulations, or liability resulting from
accidental contamination or injury from toxic or hazardous chemicals could
result in liability that exceeds our resources.
We may experience power blackouts and higher electricity prices as a result of
California's current energy crisis, which could disrupt our manufacturing
operations and increase our expenses
California is in the midst of an energy crisis that could have a
negative impact on our operating activities. California is currently
experiencing prolonged energy alerts caused by the shortage and substantially
increased costs of electricity and natural gas supplies. Although the majority
of our manufacturing operations are located outside of California, we conduct
our research and development activities as well as some pilot manufacturing and
testing at our headquarters in San Jose, California. If blackouts interrupt our
power supply, we may be unable to continue our research and development efforts.
Any such interruptions could delay the development, pilot manufacturing or
testing of new products. We do not presently have back-up power generating
capacity at our San Jose, California facility. Future interruptions in our power
supply or further increases in the cost of power could have a material adverse
affect on our operations, reputation and financial results.
Our customers may be subject to governmental regulations, which, if changed,
could negatively impact our business results
Federal and state regulatory agencies, including the Federal
Communications Commission and the various state public utility commissions and
public service commissions, regulate most of our domestic telecommunications
customers. Similar government oversight also exists in the international market.
While we are not directly affected by such legislation, such regulation of our
customers may negatively impact our business. For instance, the sale of our
products may be affected by the imposition upon certain of our customers of
common carrier tariffs and the taxation of telecommunications services. These
regulations are continuously reviewed and changed by the various governmental
agencies. Changes in current or future laws or regulations, in the United States
or elsewhere, could negatively impact our business results.
Sales of a significant portion of our products to customers outside of the
United States subjects us to business, economic and political risks
Our export sales, which are primarily to Western Europe, Latin America,
the Far East and Canada accounted for 29.0% of net sales in fiscal 2001, 25.0%
of our net sales in fiscal 2000 and 29.0% of our net sales in fiscal 1999. We
anticipate that sales to customers located outside of the United States will
continue to be a significant part of our net sales for the foreseeable future.
Because a significant portion of our sales are to customers outside of the
United States we are subject to risks, including:
. foreign currency fluctuations;
. export restrictions;
. longer payment cycles;
. unexpected changes in regulatory requirements or tariffs;
. protectionist laws and business practices that favor local
competition;
. dependence on local vendors; and
. reduced or limited protection of intellectual property rights and
political and economic instability.
To date, very few of our international revenues and cost obligations
have been denominated in foreign currencies. As a result, an increase in the
value of the United States dollar relative to foreign currencies could make our
products more expensive, and thus, less competitive in foreign markets. A
portion of our international revenues
22
may be denominated in foreign currencies in the future, including the Euro,
which will subject us to risks associated with fluctuations in these foreign
currencies. We do not currently engage in foreign currency hedging activities or
derivative arrangements, but may do so in the future to the extent that such
obligations become more significant.
If we have significant inventories that become obsolete or cannot be sold at
acceptable prices, our results may be negatively impacted
Although we believe that we currently have adequate adjustments for
inventory that has declined in value, become obsolete, or is in excess of
anticipated demand, there can be no assurance that such adjustments will be
adequate. If significant inventories of our products become obsolete, or are
otherwise not able to be sold at favorable prices, our business could be
materially affected.
Increases in our effective tax rate will negatively impact our cash flow
Our effective tax rate is affected by the percentage of qualified
Puerto Rican earnings compared to our total earnings. Most of our Puerto Rican
earnings are taxed under Section 936 of the United States Internal Revenue Code,
which allows us to exempt qualified Puerto Rican earnings from our total
earnings when calculating our effective tax rate. Historically, our effective
tax rate has been reduced by using this exemption. Our overall effective tax
rate could increase during fiscal years 2003 through 2006 as the exemption will
become subject to certain wage-based limitations before it expires at the end of
fiscal 2006. Any increase in our effective tax rate will increase our federal
income taxes and negatively impact our cash flow.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk related to fluctuations in interest rates
and in foreign currency exchange rates:
Interest Rate Exposure
Our exposure to market risk due to fluctuations in interest rates
relates primarily to our short-term investment portfolio, which consists of
corporate debt and equity securities which are classified as available-for-sale
and were reported at an aggregate fair value of $15.7 million as of June 30,
2001. These available-for-sale securities are subject to interest rate risk
inasmuch as their fair value will fall if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10% from the
levels prevailing at June 30, 2001, the fair value of the portfolio would not
decline by a material amount. Additionally, a 10% decrease in the market
interest rates would not materially impact the fair value of the portfolio. We
do not use derivative financial instruments to mitigate the risks inherent in
these securities. However, we do attempt to reduce such risks by typically
limiting the maturity date of such securities to no more than nine months,
placing our investments with high credit quality issuers and limiting the amount
of credit exposure with any one issuer. In addition, we believe that we
currently have the ability to hold these investments until maturity, and
therefore, believe that reductions in the value of such securities attributable
to short-term fluctuations in interest rates would not materially harm our
business.
Foreign Currency Exchange Rate Exposure
Our exposure to market risk due to fluctuations in foreign currency
exchange rates relates primarily to the intercompany balance with our subsidiary
in the United Kingdom. Although we transact business with various foreign
countries, settlement amounts are usually based on United States currency.
Transaction gains or losses have not been significant in the past and the
Company does not presently engage in hedging activity on sterling or other
currencies. Based on the intercompany balance of $0.1 million at June 30, 2001,
a hypothetical 10% adverse change in sterling against United States dollars
would not result in a material foreign exchange loss. Consequently, we do not
expect that reductions in the value of such intercompany balances or of other
accounts denominated in foreign currencies resulting from even a sudden or
significant fluctuation in foreign exchange rates would have a direct material
impact on our business.
Notwithstanding the foregoing analysis of the direct effects of
interest rate and foreign currency exchange rate fluctuations on the value of
certain of our investments and accounts, the indirect effects of such
fluctuations could have a materially harmful effect on our business. For
example, international demand for our products is affected by foreign currency
exchange rates. In addition, interest rate fluctuations may affect the buying
patterns of
23
our customers. Furthermore, interest rate and currency exchange rate
fluctuations have broad influence on the general condition of the United States,
foreign and global economies which could materially harm our business.
Item 8. Financial Statements and Supplementary Data
Page
----
Independent Auditors' Report .................................................................... 25
Consolidated Balance Sheets at June 30, 2001 and 2000 ........................................... 26
Consolidated Statements of Operations for the years ended June 30, 2001, 2000 and 1999 .......... 27
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years
Ended June 30, 2001, 2000 and 1999 ............................................................ 28
Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999 .......... 29
Notes to the Consolidated Financial Statements .................................................. 31
24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Symmetricom, Inc.
We have audited the accompanying consolidated balance sheets of
Symmetricom, Inc. and subsidiaries (the "Company") as of June 30, 2001 and 2000,
and the related consolidated statements of operations, shareholders' equity and
comprehensive income and cash flows for each of the three years in the period
ended June 30, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Symmetricom, Inc. and
subsidiaries at June 30, 2001 and 2000, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2001
in conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
San Jose, California
July 26, 2001
(August 4, 2001 as to Note N)
25
SYMMETRICOM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
--------------------------
2001 2000
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 44,989 $ 19,283
Short-term investments 15,683 36,016
---------- ----------
Cash and investments 60,672 55,299
Accounts receivable, net of allowance for doubtful accounts of $994 and $322 23,425 19,588
Inventories 25,242 22,357
Prepaids and other current assets 5,562 909
---------- ----------
Total current assets 114,901 98,153
Property, plant and equipment, net 23,379 19,960
Goodwill, net 2,672 3,002
Other intangible assets, net 9,120 10,607
Deferred taxes and other assets 4,831 2,447
Note receivable from employee 500 500
---------- ----------
Total assets $ 155,403 $ 134,669
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,328 $ 8,407
Accrued compensation 7,526 6,430
Other accrued liabilities 14,229 16,539
Current maturities of long-term obligations 494 391
---------- ----------
Total current liabilities 27,577 31,767
Long-term obligations 7,184 7,679
Deferred income taxes 525 203
---------- ----------
Total liabilities 35,286 39,649
---------- ----------
Shareholders' equity:
Preferred stock, no par value; 500 shares authorized, none issued -- --
Common stock, no par value; 150,000 shares authorized, 23,651
and 22,913 shares issued and outstanding 30,747 20,503
Shareholder note receivable (555) --
Accumulated other comprehensive income 1,490 10,204
Retained earnings 88,435 64,313
---------- ----------
Total shareholders' equity 120,117 95,020
---------- ----------
Total liabilities and shareholders' equity $ 155,403 $ 134,669
========== ==========
See notes to the consolidated financial statements.
26
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year ended June 30,
------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Net sales $ 152,668 $ 107,557 $ 76,915
Cost of sales 85,003 61,047 40,169
------------ ------------ ------------
Gross profit 67,665 46,510 36,746
Operating expenses:
Research and development 12,908 16,575 13,671
Selling, general and administrative 31,050 24,682 18,314
Amortization of goodwill and intangibles 1,960 1,470 2,439
Non-recurring loss (gain) (37) 6,818 --
Gain on sale of GPS Division -- (6,689) --
------------ ------------ ------------
Operating income 21,784 3,654 2,322
Gain on sale of equity investments 11,325 -- --
Interest income 2,432 2,302 1,917
Interest expense (664) (683) (715)
------------ ------------ ------------
Earnings before income taxes 34,877 5,273 3,524
Income tax provision 6,053 230 740
------------ ------------ ------------
Earnings from continuing operations 28,824 5,043 2,784
Gain (loss) from discontinued Linfinity operations, net of tax 506 -- (3,979)
------------ ------------ ------------
Net earnings (loss) $ 29,330 $ 5,043 $ (1,195)
============ ============ ============
Earnings (loss) per share - basic:
Earnings from continuing operations $ 1.23 $ .22 $ .12
Gain (loss) from discontinued operations .02 -- (.17)
------------ ------------ ------------
Net earnings (loss) $ 1.25 $ .22 $ (.05)
============ ============ ============
Weighted average shares outstanding - basic 23,474 22,593 22,952
============ ============ ============
Earnings (loss) per share - diluted:
Earnings from continuing operations $ 1.15 $ .21 $ .12
Gain (loss) from discontinued operations .02 -- (.17)
------------ ------------ ------------
Net earnings (loss) $ 1.17 $ .21 $ (.05)
============ ============ ============
Weighted average shares outstanding - diluted 25,005 23,510 23,093
============ ============ ============
See notes to the consolidated financial statements.
27
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands)
Accumulated Total Total
Common Stock Shareholder Other Share- Compre-
-------------------- Note Comprehensive Retained holders' hensive
Shares Amount Receivable Income Earnings Equity Income (loss)
-------- --------- ----------- ------------- ---------- --------- -------------
Balance at June 30, 1998 23,658 $ 23,892 $ -- $ -- $ 60,465 $ 84,357
Issuance of common stock:
Stock option exercises, net of shares
tendered upon exercise 18 13 -- 13
Employee stock purchase plan 207 712 -- 712
Repurchase of common stock (1,494) (5,683) -- (5,683)
Comprehensive income:
Earnings from continuing operations -- -- 2,784 2,784 $ 2,784
Loss from discontinued operations -- -- (3,979) (3,979) (3,979)
Unrealized gain on securities, net of
deferred taxes of $400 -- -- 1,400 -- 1,400 1,400
------- --------- ---------- ---------- --------- --------- ----------
Balance at June 30, 1999 22,389 18,934 -- 1,400 59,270 79,604 $ 205
==========
Issuance of common stock:
Stock option exercises, net of shares
tendered upon exercise 1,002 3,566 -- 3,566
Employee stock purchase plan 150 634 -- 634
Tax benefit from stock option plans -- 300 -- 300
Repurchase of common stock (628) (2,931) -- (2,931)
Comprehensive income:
Earnings from continuing operations -- -- 5,043 5,043 $ 5,043
Unrealized gain on securities, net of
deferred taxes of $6,802 -- -- 8,804 -- 8,804 8,804
------- --------- ---------- ---------- --------- --------- ----------
Balance at June 30, 2000 22,913 20,503 -- 10,204 64,313 95,020 $ 13,847
==========
Issuance of common stock:
Stock option exercises, net of shares
tendered upon exercise 1,121 5,268 -- -- 5,268 $ --
Employee stock purchase plan 102 761 -- -- 761 --
Tax benefit from stock option plans -- 4,738 -- -- 4,738 --
Repurchase of common stock (485) (523) -- (5,208) (5,731) --
Shareholder note receivable -- (555) -- -- (555) --
Comprehensive income:
Earnings from continuing operations -- -- -- 28,824 28,824 28,824
Gain from discontinued operations -- -- -- 506 506 506
Unrealized gain (loss) on securities,
net of deferred taxes of $5,684 -- -- -- (8,714) -- (8,714) (8,714)
------- --------- ---------- ---------- --------- --------- ----------
Balance at June 30, 2001 23,651 $ 30,747 $ (555) $ 1,490 $ 88,435 $ 120,117 $ 20,616
======= ========= ========== ========== ========= ========= ==========
See notes to the consolidated financial statements.
28
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended June 30,
-------------------------------------------
2001 2000 1999
------------ ----------- -----------
Cash flows from operating activities:
Net earnings (loss) $ 29,330 $ 5,043 $ (1,195)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used for) operating activities:
(Gain) loss from discontinued operations and disposal (506) -- 3,979
Purchased in-process research and development -- 3,468 --
Depreciation and amortization 6,340 6,426 4,556
Deferred income taxes (4,246) (2,239) (442)
Forgiveness of note receivable from employee 100 100 100
Gain on sale of equity investments (11,325) -- --
Gain on sale of Antenna Division (99) -- --
Gain on sale of GPS division -- (6,689) --
Changes in assets and liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable (3,837) (8,673) (374)
Inventories (2,885) (11,734) 784
Prepaids and other current assets (1,905) 272 (256)
Accounts payable (3,079) 4,843 1,202
Accrued compensation 1,096 -- --
Other accrued liabilities 8,619 3,395 2,765
------------ ----------- -----------
Net cash provided by (used for) continuing operations 17,603 (5,788) 11,119
Net cash used for discontinued operations -- -- (2,198)
------------ ----------- -----------
Net cash provided by (used for) operating activities 17,603 (5,788) 8,921
------------ ----------- -----------
Cash flows from investing activities:
Cash paid for disposition/acquisition and related costs (228) (19,419) --
GPS assets sold, net of cash received -- 9,453 --
Purchases of short-term investments (44,945) (44,218) (45,927)
Maturities of short-term investments 49,353 38,108 36,000
Proceeds from sale of discontinued operations -- -- 23,000
Proceeds from sale of equity investments 12,851 -- --
Purchases of plant and equipment, net (8,279) (4,593) (3,214)
Other -- 168 (375)
------------ ----------- -----------
Net cash provided by (used for) investing activities 8,752 (20,501) 9,484
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations -- -- 595
Repayment of long-term obligations (392) (594) (514)
Proceeds from issuance of common stock 5,791 4,200 725
Shareholder note receivable (317) -- --
Repurchase of common stock (5,731) (2,931) (5,683)
------------ ----------- -----------
Net cash provided by (used for) financing activities (649) 675 (4,877)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 25,706 (25,614) 13,528
Cash and cash equivalents at beginning of year 19,283 44,897 31,369
------------ ----------- -----------
Cash and cash equivalents at end of year $ 44,989 $ 19,283 $ 44,897
============ =========== ===========
(continued)
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year ended June 30,
----------------------------------------------
2001 2000 1999
-------------- ------------- -------------
Unrealized gain (loss) on securities, net $ (8,714) $ 8,804 $ 1,400
Deferred taxes on unrealized gain (loss) (5,685) (6,802) --
Cash proceeds in escrow related to the sale of Antenna
Division, including accrued interest 664 -- --
Issuance of common stock for note receivable (238) -- --
Cash payments for:
Interest $ 664 $ 683 $ 715
Income taxes 4,663 1,596 351
See notes to the consolidated financial statements.
30
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A--Summary of Significant Accounting Policies
Business. Symmetricom designs, manufactures and markets solutions for the
global telecommunications industry. Our products and services include network
synchronization systems and timing elements for most network operators and
users, innovative broadband access devices for business and residential
applications, and professional services. Our products play an important role in
the operation, bandwidth utilization, and quality of service of wireline,
wireless and broadband communications networks enabling our customers to
increase the efficiency of their networks in today's evolving communications
environment.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and our wholly owned subsidiaries. All significant
intercompany accounts and transactions are eliminated.
Fiscal Period. Symmetricom, for presentation purposes, presents each fiscal
year as if it ended on June 30. However, our fiscal year ends on the Sunday
closest to June 30. Fiscal year 2001 actually ended on July 1, 2001. All
references to years refer to our fiscal years. Fiscal year 2001 consisted of 52
weeks. Fiscal year 2000 consisted of 53 weeks and fiscal year 1999 consisted of
52 weeks.
Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Cash Equivalents. We consider all highly liquid debt investments purchased
with an original maturity of three months or less to be cash equivalents.
Short-term Investments. Short-term investments consists of corporate debt
and equity securities. Corporate debt securities mature between three and twelve
months. All of our debt and marketable equity securities are classified as
available-for-sale. These securities are carried at fair value with the
unrealized gains and losses, net of taxes, reported as a component of
shareholders' equity.
31
The following table summarizes the Company's available-for-sale securities
recorded as cash and cash equivalents or short-term investments as of June 30,
2001 and June 30, 2000 (in thousands):
Gross
Amortized Unrealized
June 30, 2001 Cost Gains (losses) Fair Value
------------- ------------------ --------------
Commercial paper $ 28,430 $ -- $ 28,430
Corporate equity securities 1,533 2,796 4,329
------------- ------------------ --------------
Total available-for-sale investments 29,963 2,796 32,759
Less amounts classified as cash equivalents (17,464) -- (17,464)
Deferred compensation plan assets 576 (188) 388
------------- ------------------ --------------
Total short term investments $ 13,075 $ 2,608 $ 15,683
============= ================== ==============
June 30, 2000
Commercial paper $ 28,430 $ -- $ 28,430
Corporate equity securities 3,060 17,006 20,066
------------- ------------------ --------------
Total available-for-sale investments 31,490 17,006 48,496
Less amounts classified as cash equivalents (12,480) -- (12,480)
------------- ------------------ --------------
Total short term investments $ 19,010 $ 17,006 $ 36,016
============= ================== ==============
Fair Values of Financial Instruments. The estimated fair value of our
financial instruments, which include cash and cash equivalents, short-term
investments, accounts receivable, capital lease obligations and accounts
payable, approximate their carrying amount, which is due to their short-term
maturities. The short-term investments in equity instruments are carried at
market values. The recorded amount of our capital lease obligation approximates
the estimated fair value.
Concentrations of Credit Risk. Financial instruments, which potentially
subject us to concentrations of credit risk, consist principally of cash
equivalents, short-term investments and accounts receivable. We place our
investments with high-credit-quality corporations and financial institutions.
Accounts receivable are derived primarily from sales to telecommunications
service providers, original equipment manufacturers and distributors. Management
believes that its credit evaluation, approval and monitoring processes
substantially mitigate potential credit risks.
Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories consist of (in thousands):
June 30, 2001 June 30, 2000
---------------- -----------------
Raw materials $ 12,623 $ 12,094
Work-in-process 4,769 4,710
Finished goods 7,850 5,553
---------------- -----------------
Inventories, net $ 25,242 $ 22,357
================ =================
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Depreciation and amortization are computed using the straight-line method
based on the estimated useful lives of the assets (three to twelve years) or the
lease term if shorter.
32
Intangible assets. Intangible assets are carried at cost and consist of the
following (in thousands):
June 30, 2001 June 30, 2000
------------- -------------
Goodwill $ 3,245 $ 3,245
Less: accumulated amortization (573) (243)
------------- -------------
Goodwill, net $ 2,672 $ 3,002
============= =============
Other intangibles:
Technology $ 7,607 $ 7,607
Customer lists, workforce, trademarks, other 4,370 4,227
------------- -------------
Total gross other intangible assets 11,977 11,834
Less: accumulated amortization (2,857) (1,227)
------------- -------------
Other intangible assets, net $ 9,120 $ 10,607
============= =============
Intangible assets associated with the acquisition of the HP Product Line
business includes goodwill of $3.2 million, customer lists of $1.3 million,
workforce of $1.4 million, SMARTCLOCK trademark of $0.9 million, current product
technology of $7.6 million and other intangible assets of $0.4 million.
Amortization is computed using the straight-line method over a life of 10 years
for goodwill, 10 years for customer lists, 7 years for workforce, SMARTCLOCK
trademark and for current product technology. The other intangible assets are
amortized over 5 years.
Long-lived assets. In accordance with Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, the carrying value of
long-lived assets and certain identifiable intangible assets is evaluated
whenever events or changes in circumstances indicate that the carrying value of
the asset may be impaired. An impairment loss is recognized when the net book
value of the asset exceeds the estimated undiscounted future cash flows. As of
June 30, 2001 no such impairment has occurred.
Software Development Costs. Costs for the development of new software and
substantial enhancements to existing software are expensed as incurred until
technological feasibility has been established, at which time any additional
development costs would be capitalized in accordance with Statement of Financial
Accounting Standards No. 86 (SFAS No. 86), Computer Software to Be Sold, Leased,
or Otherwise Marketed. We believe the current process for developing software is
essentially completed concurrently with the establishment of technological
feasibility; accordingly, no costs have been capitalized to date.
Foreign Currency Translation. The functional currency of our foreign
subsidiaries is the U.S. Dollar. Foreign currency denominated assets and
liabilities are translated at the year-end exchange rates except for
inventories, prepaid expenses, and property and equipment, which are translated
at historical exchange rates. Statements of income are translated at the average
exchange rates during the year except for those expenses related to the balance
sheet amounts that are translated using historical exchange rates. Foreign
currency translation amounts have not been material to our operating results for
all of the periods presented.
Revenue Recognition. We recognize revenue from product sales upon shipment,
provided that title and risk of loss has passed to the customer, persuasive
evidence of an arrangement exists, fees are fixed or determinable, and
collectibility is reasonably assured. Service revenue is recognized as the
services are performed, provided collection of the related receivable is
reasonably assured. At the time of sale, provisions are made for warranty costs,
sales returns and price protection.
Stock Options. We account for employee stock based compensation using the
intrinsic value based method of accounting defined under Accounting Principles
Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." We
provide additional pro forma disclosures as required under Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation."
33
Net Earnings (Loss) Per Share. Basic earnings (loss) per share is computed
by dividing net earnings (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share is calculated
by dividing net earnings (loss) by the weighted average number of common shares
outstanding and common equivalent shares from dilutive stock options using the
treasury method except when antidilutive. The antidilutive common equivalent
shares from stock options were 971,532 in fiscal 2001, 44,339 in fiscal 2000,
and 849,332 in fiscal 1999. The following table reconciles the number of shares
utilized in the earnings (loss) per share calculations.
Year ended June 30,
-----------------------------------------
2001 2000 1999
-------- -------- --------
(In thousands, except per share amounts)
Earnings from continuing operations $28,824 $ 5,043 $ 2,784
Gain (loss) from discontinued operations 506 -- (3,979)
-------- -------- --------
Net earnings (loss) $29,330 $ 5,043 $(1,195)
======== ======== ========
Weighted average shares outstanding - basic 23,474 22,593 22,952
Dilutive stock options 1,531 917 141
-------- -------- --------
Weighted average shares outstanding - diluted 25,005 23,510 23,093
======== ======== ========
Basic earnings (loss) per share $ 1.25 $ .22 $ (.05)
Diluted earnings (loss) per share $ 1.17 $ .21 $ (.05)
Reclassifications. Certain reclassifications have been made to the prior
year consolidated financial statements to conform to the 2001 presentation. Such
reclassifications had no effect on previously reported results of operations or
retained earnings.
Comprehensive Income. Comprehensive income is comprised of two components:
net earnings and other comprehensive income. Other comprehensive income refers
to revenue, expenses, gains and losses that under generally accepted accounting
principles are recorded as an element of shareholders' equity but are excluded
from net income. The Company's other comprehensive income is comprised of
unrealized losses of $2.2 million, net of taxes, on marketable securities
categorized as available-for-sale, less a reclassification adjustment for gains
on sales of marketable securities included in net earnings of $6.5 million, net
of taxes.
Pro forma Condensed Consolidated Statement of Operations. On September 30,
1999 Symmetricom acquired certain assets of Hewlett-Packard Company's
Communication Synchronization Business for $19.4 million in cash. The
acquisition has been accounted for under the purchase method of accounting and
accordingly, the operating results have been included in the Company's
consolidated results of operations from the date of acquisition. The following
unaudited pro forma consolidated results of operations are presented as if the
acquisition of Hewlett-Packard Product Line had been made at the beginning of
fiscal 1999.
Year Ended Year Ended
June 30, 2000 June 30, 1999
------------------- ----------------------
(In thousands, except per share amounts)
Net sales $113,956 $125,803
Gross Profit 44,200 38,865
Net earnings (loss) 5,895 (25,076)
Earnings (loss) per share - basic 0.26 (1.64)
Earnings (loss) per share - diluted 0.23 (1.64)
The pro forma consolidated results of operations include adjustments to give
effect to amortization of goodwill, interest income on cash used for the
acquisition and certain other adjustments, together with related income tax
effects and exclude non-recurring costs of $3.6 million related to the write-off
of in-process research and development and the $3.5 million paid as employee
retention bonuses. The unaudited pro forma information is not necessarily
indicative of the results of operations that would have occurred had the
purchase been made at the beginning of the periods presented or the future
results of the combined operations.
34
Recent Accounting Pronouncements. In June 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method and addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination. SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 provides that intangible assets
with finite useful lives be amortized and that goodwill and intangible assets
with indefinite lives will not be amortized, but will rather be tested at least
annually for impairment. We will adopt SFAS No. 142 during the first quarter of
fiscal 2002. The impact of SFAS No. 141 and SFAS No. 142 on our consolidated
financial statements has not yet been determined.
In March 2000, the FASB issued Interpretation No. 44 (FIN No. 44),
Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB 25. FIN No. 44 clarifies (i) the definition of employee
for purposes of applying APB Opinion No. 25, (ii) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (iii) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (iv) the accounting for an exchange of stock compensation
awards in a business combination. We adopted FIN No. 44 during fiscal 2001 and
the adoption did not have a material effect on our consolidated financial
position or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133, as amended, establishes accounting and reporting
standards for derivative financial instruments and hedging activities and
requires that we recognize all derivatives as either assets or liabilities on
the balance sheet and measure them at fair value. Gains and losses resulting
from changes in fair value are accounted for based on the use of the derivative
and whether it is designated and qualifies for hedge accounting. We adopted SFAS
No. 133 during fiscal 2001 and the adoption did not have a material effect on
our consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. We adopted SAB No. 101 during
fiscal 2001 and the adoption did not have a material effect on our consolidated
financial position or results of operations.
Note B--Acquisition
On September 30, 1999, Symmetricom acquired certain assets of
Hewlett-Packard Company's Communications Synchronization Business ("HP Product
Line business") for $19.4 million in cash. The acquisition has been accounted
for under the purchase method of accounting. The net purchase price of $19.8
million, which includes cash paid of $19.0 million, transaction costs of $0.4
million and assumed liabilities of $0.4 million was allocated to tangible assets
acquired of $1.4 million, intangible assets of $14.9 million, and in-process
research and development ("IP R&D") of $3.5 million. Intangible assets
associated with the acquisition includes goodwill of $3.2 million, customer
lists of $1.3 million, workforce of $1.4 million, SMARTCLOCK trademark of $0.9
million, current product technology of $7.6 million and other intangible assets
of $0.4 million. Amortization is computed using the straight-line method over a
life of 10 years for goodwill, 10 years for customer lists, 7 years for
workforce, SMARTCLOCK trademark and for current product technology. The other
intangible assets are amortized over 5 years. In connection with this
transaction, we recorded $6.8 million of non-recurring charges - $3.5 million
for IP R&D and $3.3 million for recruiting and employee expenses, which was paid
out in full during the first quarter of fiscal 2000. All incomplete research and
development projects acquired have been completed during the year with minimal
costs and we do not expect to incur any additional significant research or
development costs.
Note C--Dispositions
On September 29, 2000, we sold our United Kingdom based dielectric
Antenna Division to a joint venture called Sarantel Limited for approximately
$0.6 million cash subject to an escrow agreement. Symmetricom maintains a 19%
investment stake in Sarantel Limited. We realized a gain of $0.1 million or
$0.08 million after taxes related to the sale of our Antenna Division.
35
On March 30, 2000, we sold our GPS division to Parthus Technologies
PLC, formerly Silicon Systems, Ltd., or SSL, for $9.5 million in cash.
Additionally, Symmetricom made a $3.0 million investment in shares of Parthus.
We realized a gain of $6.7 million, or $4.2 million after taxes related to the
sale of our GPS division.
Note D--Discontinued Operations
On April 14, 1999, we sold our Linfinity Microelectronics Inc.
("Linfinity") semiconductor subsidiary to Microsemi Corporation for $24.1
million in cash, of which $1.1 million is subject to an escrow agreement. The
per share consideration paid to shareholders of Linfinity was $2.96 per
preferred share and $1.46 per common share. The outstanding capital stock of
Linfinity was comprised of 6,000,000 shares of preferred stock and 4,197,824
shares of common stock. There were stock options outstanding to purchase 121,449
and 109,000 shares of Linfinity's common stock at the option exercise price of
$0.50 and $0.80 per share, respectively. The holders of these options were
entitled to receive in cash the difference between $1.46 and the option exercise
price. Of the $24.1 million aggregate purchase price, $23.6 million was paid to
Symmetricom (including amounts currently held in escrow) and $0.5 million was
paid to former minority shareholders and option holders of Linfinity.
The Linfinity business has been accounted for as a discontinued
operation and, accordingly, its net assets have been segregated from continuing
operations in the consolidated balance sheets and the results of operations have
been excluded from continuing operations in the consolidated statements of
operations and cash flows for all periods presented. The earnings (loss) from
discontinued operations, net of tax, for the three years ended June 30, 2001, is
comprised of:
Year ended June 30,
--------------------------------------
2001 2000 1999
--------- --------- ----------
(In thousands)
Net sales $ -- $ -- $ 37,115
Earnings (loss) from operations before taxes (81)
Income taxes (8)
----------
Earnings (loss) from operations (73)
----------
Estimated gain (loss) on sale $ 849 (182)
Income taxes (343) (3,724)
--------- ----------
Net estimated gain (loss) on sale 506 (3,906)
--------- --------- ----------
Gain (loss) from discontinued operations $ 506 $ -- $ (3,979)
========= ========= ==========
During fiscal year ended June 30, 2001, we recognized a gain of $0.5
million, net of taxes, on the sale of discontinued operations related to the
Linfinity business. The gain represents an adjustment to the estimate for
selling-related expenses incurred during the disposition of the business.
Note E--Balance Sheet Detail
June 30,
--------------------
2001 2000
-------- --------
(In thousands)
Property, plant and equipment, net:
Buildings and improvements $ 9,007 $ 9,007
Machinery and equipment 30,257 23,132
Leasehold improvements 7,782 7,683
-------- --------
47,046 39,822
Accumulated depreciation and amortization (23,667) (19,862)
-------- --------
$ 23,379 $ 19,960
======== ========
36
Building and improvements includes $8,750,000 of costs capitalized
under a capital lease for our facility in San Jose, California, which was
completed in June 1997. At June 30, 2001, 2000 and 1999, accumulated
amortization for this lease totaled $3,045,000, $2,283,000 and $1,522,000,
respectively.
June 30,
-------------------------
2001 2000
---------- -----------
(In thousands)
Other accrued liabilities:
Income taxes payable $ 2,246 $ 5,742
Accrued warranty expense 5,528 4,471
Deferred revenue 1,710 1,343
Other 4,745 4,983
--------- ---------
$ 14,229 $ 16,539
========= =========
Long-term obligations:
Capital lease $ 7,678 $ 8,070
Less - current maturities (494) (391)
--------- ---------
$ 7,184 $ 7,679
========= =========
Note F--Lease Commitments
During 1997, we leased a facility in San Jose, California under which
the land and building were accounted for as an operating lease and a capital
lease, respectively. This lease expires in April 2009. A section of the facility
has been sublet and accounted for as an operating lease. This sublease expires
in February 2004. At June 30, 2001 the minimum future sublease payments to be
received were $4,049,476. We lease certain other facilities and equipment under
operating lease agreements. Rental expense charged to operations was $1,101,000,
in 2001, $922,000 in 2000 and $1,229,000 in 1999, respectively. Future minimum
lease payments at June 30, 2001 are as follows:
Capital Operating
Lease Lease
----------- ------------
(In thousands)
For the years:
2002 $ 1,121 $ 1,407
2003 1,189 1,367
2004 1,261 1,243
2005 1,335 1,234
2006 1,412 1,230
Thereafter 4,393 2,859
-------- -------
Total minimum lease payments 10,711 $ 9,340
Amount representing interest (8.5%) (3,033) =======
--------
Present value of minimum lease payments 7,678
Less - current portion (494)
--------
Long-term obligation $ 7,184
========
37
Note G--Income Taxes
The provision of federal, state and foreign income tax expense on
income from continuing operations consists of the following:
Year ended June 30,
--------------------------------------
2001 2000 1999
------- ------- -------
(In thousands)
Current:
Federal $ 7,531 $ 1,863 $ 368
State 1,556 161 (169)
Puerto Rico 1,117 414 1,030
Foreign 95 31 (47)
------- ------- -------
$10,299 $ 2,469 $ 1,182
======= ======= =======
Deferred:
Federal $(4,328) $(1,975) $ 26
State (303) (148) 241
Puerto Rico 385 (116) (709)
------- ------- -------
(4,246) (2,239) (442)
------- ------- -------
$ 6,053 $ 230 $ 740
======= ======= =======
Deferred income tax provision (benefit) is recorded when income and
expenses are recognized in different periods for financial reporting and tax
purposes. The significant components of deferred income tax provision (benefit)
are as follows:
Year ended June 30,
----------------------------------------
2001 2000 1999
------- ------- -------
(In thousands)
Tax credit and net operating loss carryforwards $ 2,123 $ 1,845 $ 1,707
Reserves and accruals (1,086) (401) (360)
Depreciation and amortization (62) (3,127) (2,449)
Deferred taxes on Puerto Rico earnings 339 (81) (622)
Change in valuation allowance (5,560) (475) 1,282
------- ------- -------
(4,246) (2,239) (442)
Deferred taxes on other comprehensive income (5,684) 6,802 -
------- ------- -------
$(9,930) $ 4,563 $ (442)
======= ======= =======
The effective income tax rate differs from the federal statutory income
tax rate as follows:
Year ended June 30,
----------------------------------------
2001 2000 1999
------- ------- -------
Federal statutory income tax rate 35.0% 35.0% 35.0%
Federal tax benefit of Puerto Rico operations (11.2) (28.7) (52.9)
Puerto Rico taxes 4.3 5.6 9.1
State income taxes, net of federal benefit 3.6 0.2 2.0
Other (1.0) 3.9 (3.1)
Change in valuation allowance (13.3) (11.6) 30.9
------- ------- -------
Effective income tax rate 17.4% 4.4% 21.0%
======= ======= =======
38
The principal components of deferred tax assets and liabilities are as
follows:
June 30,
--------------------
2001 2000
------- -------
(In thousands)
Deferred tax assets:
Tax credit carryforwards $ 3,749 $ 5,872
Reserves and accruals 3,973 2,887
Depreciation and amortization 6,654 6,592
------- -------
14,376 15,351
Valuation allowance (3,749) (9,309)
------- -------
10,627 6,042
------- -------
Deferred tax liabilities:
Unrealized gains in comprehensive income 1,118 6,802
Unremitted Puerto Rico earnings 2,119 1,780
------- -------
3,237 8,582
------- -------
Net deferred tax asset (liability) $ 7,390 $(2,540)
======= =======
Net deferred tax assets (liabilities) are comprised of the following:
June 30,
--------------------
2001 2000
------- -------
(In thousands)
Current assets $ 3,350 $ --
Non-current assets 4,565 2,407
Current liabilities -- (4,744)
Non-current liabilities (525) (203)
------- -------
Net deferred tax assets (liabilities) $ 7,390 $(2,540)
======= =======
At June 30, 2001, for federal income tax purposes, we had research and
development tax credit carry-forwards of approximately $930,000, which expire in
the years 2010 through 2013, and alternative minimum tax credit carryforwards of
approximately $2,261,000, which have no expiration date. Additionally, for state
income tax purposes, we had research and development tax credit carryforwards of
approximately $550,000, which have no expiration date.
Based on our assessment of the future realizability of deferred tax
assets, a valuation allowance has been provided, as it is more likely than not
that sufficient taxable income will not be generated to realize certain deferred
tax assets. At June 30, 2001, $3,749,000 of the valuation allowance was
attributable to the potential tax benefit of stock option transactions, which
will be credited to common stock if realized.
We operate a subsidiary in Puerto Rico under a grant providing for a
partial exemption from Puerto Rico taxes through fiscal 2008. In addition, this
subsidiary is taxed under Section 936 of the U.S. Internal Revenue Code, which
exempts qualified Puerto Rico source earnings, subject to certain wage-based
limitations, from federal income taxes through fiscal 2006. This exemption will
be further limited during fiscal years 2003 through 2006 based on certain prior
year's Puerto Rico earnings. Appropriate taxes have been provided on this
subsidiary's earnings, all of which are intended to be remitted to the parent
company. At June 30, 2001, the total unremitted earnings of the Puerto Rico
subsidiary and the related tax liability were approximately $24,000,000 and
$2,119,000, respectively.
39
Note H--Contingencies
In January 1994, a securities class action complaint was filed against
us and certain of our former officers and directors in the United States
District Court, Northern District of California. The action was filed on behalf
of a putative class of purchasers of the Company's stock during the period April
6, 1993 through November 10, 1993. The complaint sought unspecified money
damages and alleges that we and certain of our former officers and directors
violated federal securities laws in connection with various public statements
made during the putative class period. The Court granted summary judgment to us
and our former officers and directors in August 2000. The plaintiff has filed a
notice of appeal to the United States Court of Appeals for the Ninth Circuit.
The Company and its officers believe that the complaint is entirely without
merit and intend to continue to defend the action vigorously, if necessary.
We are also a party to certain other claims in the normal course of our
operations. While the results of such claims cannot be predicted with any
certainty, management believes that the final outcome of such matters will not
have a material adverse effect on our financial position and results of
operations.
Note I--Related Party Transactions
In February 2001, we issued a full-recourse promissory note in the
amount of $555,000 to an officer of the Company. The note accrues interest at an
annual rate of 7.75%. Interest payments are to be made annually and the entire
principal balance is due and payable on January 31, 2006. The note is secured by
Company stock pledged by the borrower. As of June 30, 2001, the entire principal
balance was outstanding.
In March 1998, we issued two loans in the amounts of $400,000 and
$500,000 to an executive officer. The $400,000 loan, together with interest at
6% per annum, was forgiven over a three-year period ending June 30, 2001. We
expensed both the loan and the interest that was forgiven during the applicable
fiscal period. The $500,000 loan is interest-free with a term of ten years to be
repaid in 2008. The loan is secured by a deed of trust on the executive
officer's principal home in California. Any loan balance and/or accrued interest
amount will become due and payable if the executive officer resigns or is
terminated for cause. In July 1998, we funded an unsecured loan of $150,000 to
another executive officer, which was interest free and was forgiven in 1999.
During 1999 we paid $113,000, $25,000 and $21,000 for consulting fees
to three directors of the Company, respectively.
Note J--Benefit Plans
401(k) Plans. Our U.S. and Puerto Rico employees are eligible to
participate in our 401(k) plans. Our 401(k) plan (the "Plan") was amended in
January 2001 to increase the Company's matching contributions to 50% of every
employee dollar contributed for the first 50% of employee contributions. Company
matching contributions to the Plan vest at a rate of 25% at the end of the first
year of employment, 25% at the end of the second year of employment and the
remaining 50% at the end of the third year of employment. Prior to 2001, the
Company made discretionary contributions to the Plan, which vested immediately.
Company contributions to the Plan were $134,000 in fiscal 2001, $95,000 in
fiscal 2000, and $94,000 in fiscal 1999.
Note K--Shareholders' Equity
Stock Option Plans. The Company has a stock option plan under which
employees and consultants may be granted non-qualified and incentive options to
purchase shares of the Company's authorized but unissued common stock. Stock
appreciation rights may also be granted under this plan, however, none have been
granted. In addition, the Company has a director stock option plan under which
non-employee directors are granted options each January to purchase 10,000
shares of the Company's authorized but unissued common stock. All options have
been granted at the fair market value of our common stock on the date of grant
and expire no later than ten years from the date of grant. Options granted to
employees and consultants prior to fiscal 1999 and options granted to
non-employee directors are generally exercisable in annual installments of 25%,
25% and 50% at the end of each of the three years
40
following the date of grant, respectively. Options granted to employees and
consultants after fiscal 1998 are gener-ally exercisable at 25% at the end of
the first year and 2.08% for each month thereafter for the following three
years.
On August 4, 2000 the shareholders of Symmetricom amended the 1999
Employee Stock Plan to increase the number of shares reserved for issuance from
900,000 to 2,900,000.
Stock option activity for the three years ended June 30, 2001 is as
follows:
Options Outstanding
---------------------------------
Shares Weighted
Available Number Average
For Grant of Shares Exercise Price
------------- ------------- ------------------
(In thousands, except per share amounts)
Balances at July 1, 1998 728 3,188 $ 8.33
Authorized 709 --
Granted (2,759) 2,759 4.20
Exercised -- (29) 1.87
Canceled 2,621 (2,621) 9.13
------------- ------------- ------------------
Balances at June 30, 1999 1,299 3,297 4.30
Authorized 1,800 -- --
Granted (1,935) 1,935 5.65
Exercised -- (942) 4.14
Canceled 600 (600) 4.82
Expired (210) -- --
------------- ------------- ------------------
Balances at June 30, 2000 1,554 3,690 4.96
Authorized 2,000 -- --
Granted (1,344) 1,344 12.16
Exercised -- (1,121) 4.54
Canceled 715 (715) 6.26
Expired (560) -- --
------------- ------------- ------------------
Balances at June 30, 2001 2,365 3,198 $ 7.85
============= ============= ==================
On August 18, 2000 the Company effected a three-for-two stock split in
the form of a stock dividend. Shareholders of record as of August 7, 2000
received three shares of common stock for every two shares they owned on the
record date. Share and per data for all periods presented herein have been
adjusted to give effect to the three-for-two stock split.
41
The following table summarizes information about stock options
outstanding as of June 30, 2001:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------- ----------------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices of Shares Contractual Life Exercise Price of Shares Exercise Price
----------------------------------------------------------------------------------- ----------------------------------------------
(In thousands) (In years) (In thousands)
$2.42 - $4.29 656 5.70 $4.14 588 $4.16
$4.67 - $5.08 534 7.28 4.82 390 4.80
$5.13 - $5.83 549 8.20 5.63 213 5.65
$5.92 - $10.67 280 7.94 7.98 99 7.08
$10.92 - $10.92 604 9.10 10.92 0 0.00
$11.25 - $18.00 575 9.37 13.71 7 15.35
--------------------- -------------- --------------
$2.42 - $18.00 3,198 7.89 $7.85 1,297 $4.89
============== =============
Stock-Based Compensation. Under APB 25, the Company generally recognizes no
compensation expense with respect to stock-based awards to employees. As
discussed in Note A, we account for our stock-based awards using the intrinsic
value method in accordance with APB 25 and its related interpretations. SFAS 123
requires the disclosure of pro forma net income and earnings per share as if we
had adopted the fair value method as of the beginning of 1996. At June 30, 2001,
2000, and 1999, the number of shares and weighted average exercise price
underlying exercisable options were 1,297,000 at $4.89, 1,392,000 at $4.38 and
1,636,000 at $4.29, respectively. The weighted average estimated fair value of
options granted was $6.46 in 2001, $3.11 in 2000 and $1.28 in 1999. Our
calculations were made using the Black-Scholes option-pricing model. The fair
value of the Company's stock-based awards to employees was estimated assuming no
expected dividend and the following weighted-average assumptions for fiscal
2001, 2000 and 1999:
Stock Option Plans
----------------------------------
2001 2000 1999
------ ------ ------
Expected life (in years) 1.5 0.5 0.5
Risk-free interest rate 5.1% 6.0% 5.0%
Volatility 76.0% 68.0% 58.0%
Employee Stock Purchase Plan. The Company has an employee stock purchase
plan under which eligible employees may authorize payroll deductions of up to
10% of their compensation to purchase shares of our common stock at 85% of the
fair market value at certain specified dates. Under this plan, 448,213 shares of
common stock have been reserved and were available for issuance as of June 30,
2001. The weighted average fair value of those purchase rights granted in 2001,
2000 and 1999 was $5.50, $1.83 and $1.63, respectively. During fiscal 2001,
101,860 shares were purchased at an average price of $7.50 per share. In fiscal
2000, 100,107 shares were purchased at an average price of $6.35 per share.
Under SFAS 123, the fair value of the employees' purchase rights was
estimated using the Black-Scholes option-pricing model assuming that no
dividends were paid during the period and with the following weighted average
assumptions for fiscal 2001, 2000, and 1999:
Employee Stock Purchase Plan
----------------------------------
2001 2000 1999
------ ------ ------
Expected life (in years) 0.5 1.0 0.5
Risk-free interest rate 5.1% 6.0% 5.4%
Volatility 76.0% 68.0% 58.0%
42
The Company's pro forma net income and earnings per share data under SFAS No.
123 is as follows:
Years ended June 30,
-----------------------------------------
2001 2000 1999
---------- ---------- ----------
(In thousands, except per share amounts)
Net income (loss)
As reported under APB 25 $29,330 $5,043 $(1,195)
Pro Forma under SFAS No. 123 28,339 2,721 (5,324)
Earnings (loss) per share - basic
As reported under APB 25 1.25 0.22 (0.05)
Pro Forma under SFAS No. 123 1.21 0.12 (0.23)
Earnings (loss) per share - diluted
As reported under APB 25 1.17 0.21 (0.05)
Pro Forma under SFAS No. 123 1.13 0.12 (0.23)
Stock Repurchase Program. In January 2001, October 1999 and September 1998
our Board of Directors authorized programs to repurchase up to 500,000 shares,
1,125,000 shares and 1,500,000 shares, respectively, of the Company's common
stock. We repurchased 485,200 shares, 628,000 shares and 1,494,000 shares in
fiscal 2001, 2000 and 1999, respectively.
Note L--Business Segment Information
We have five reportable segments: Synchronization ("Sync") Products,
Wireless Products, Transmission Products, Contract Manufacturing, and Broadband
Access Products. Sync Products consist principally of Digital Clock Distributors
(DCDs) based on quartz, rubidium and Global Positioning System (GPS)
technologies. Revenues for the Sync Products consist of sales of these products
as well as services. Our Sync Products provide highly accurate and
uninterruptible timing to meet the synchronization requirements of digital
networks. Our Wireless base station timing products are designed to deliver
stable timing to cellular/PCS base station through a GPS receiver to capture a
cesium-based time signals produced by GPS satellites. Our Transmission Products
include Secure7, Secure7 Lite and the Integrated Digital Services Terminal
(IDST). These products are used primarily to support intelligent,
fault-tolerant, digital transmission terminal that automatically reroutes
disrupted high priority telephone data links. The IDST network access system is
deployed as a transmission, monitoring and test access vehicle for the
maintenance personnel. Contract Manufacturing involves the utilization of the
Company's production facilities to manufacture third-party products. We generate
revenue by fabricating finished goods inventory of third-party products on a
contract basis. Our Broadband Access Products include GoLong, a product which
allows telecommunications providers to offer Digital Subscriber Line (DSL)
services to customers beyond the current 15,000 foot limit. We recently
introduced GoWide, a product which will provide a low-cost, high-bandwidth
solution for medium-sized businesses without access to optical networks.
These segments are the segments of the Company for which separate
financial information is available and for which gross profit amounts are
evaluated regularly by executive management in deciding how to allocate
resources and in assessing performance. The Company does not allocate assets or
specific operating expenses to these individual operating segments. Therefore,
segment information reported includes only net sales and gross profit.
43
Year ended June 30,
--------------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
(In thousands)
Net sales:
Sync Products $ 112,503 $ 77,465 $ 64,449
Wireless Products 28,073 16,464 --
Transmission Products 3,132 4,531 8,056
Contract Manufacturing 8,550 9,097 4,410
Broadband Access Products 410 -- --
-------------- -------------- --------------
Total net sales $ 152,668 $ 107,557 $ 76,915
============== ============== ==============
Cost of sales:
Sync Products $ 61,217 $ 41,187 $ 32,869
Wireless Products 15,123 9,488 --
Transmission Products 1,721 2,205 3,706
Contract Manufacturing 6,556 8,167 3,594
Broadband Access Products 386 -- --
-------------- -------------- --------------
Total cost of sales $ 85,003 $ 61,047 $ 40,169
============== ============== ==============
Gross profit:
Sync Products $ 51,286 $ 36,278 $ 31,580
Wireless Products 12,950 6,976 --
Transmission Products 1,411 2,326 4,350
Contract Manufacturing 1,994 930 816
Broadband Access Products 24 -- --
-------------- -------------- --------------
Total gross profit $ 67,665 $ 46,510 $ 36,746
============== ============== ==============
Gross margin:
Sync Products 45.6% 46.8% 49.0%
Wireless Products 46.1% 42.4% --
Transmission Products 45.1% 51.3% 54.0%
Contract Manufacturing 23.3% 10.2% 18.5%
Broadband Access Products 5.9% -- --
-------------- -------------- --------------
Total gross margin 44.3% 43.2% 47.8%
============== ============== ==============
Our export sales accounted for 29%, 25%, and 29% of our net sales in
2001, 2000 and 1999, respectively. The geographical components of sales are as
follows:
Year ended June 30,
--------------------------------------------
2001 2000 1999
------------- -------------- -------------
United States 71% 75% 71%
International
Far East 3% 3% 1%
Europe 10% 10% 14%
Canada 2% 2% 2%
Latin America 9% 7% 8%
Rest of the world 5% 3% 4%
Two customers accounted for 13.5% and 15.5% of our net sales in fiscal
2001 and no single customer accounted for 10% or more of our net sales in fiscal
2000 or fiscal 1999.
44
Note M--Quarterly Results and Stock Market Data (Unaudited)
Quarterly results and stock market data are as follows:
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------------- ------------- ------------- ------------- -------------
(In thousands, except per share amounts)
Fiscal Year 2001
Net sales $ 35,999 $ 38,143 $ 39,286 $ 39,240 $152,668
Gross profit 15,420 16,966 17,065 18,214 67,665
Operating income 5,067 5,448 5,468 5,801 21,784
Earnings from continuing operations before
income taxes 7,311 15,379 5,950 6,237 34,877
Earnings from continuing operations 5,483 13,567 4,736 5,038 28,824
Gain on discontinued operations - - - 506 506
Net earnings 5,483 13,567 4,736 5,544 29,330
Basic earnings per share from continuing
operations .24 .58 .20 .21 1.23
Basic earnings per share from discontinued
operations - - - .02 .02
Basic net earnings per share .24 .58 .20 .23 1.25
Diluted earnings per share from continuing
operations .22 .54 .19 .20 1.15
Diluted earnings per share from discontinued
operations - - - .02 .02
Diluted net earnings per share .22 .54 .19 .22 1.17
Fiscal Year 2000
Net sales $ 19,617 $ 22,968 $ 30,574 $ 34,398 $107,557
Gross profit 9,039 9,821 12,963 14,687 46,510
Operating income (loss) 679 (8,745) 7,782 3,938 3,654
Earnings (loss) before income taxes 1,180 (8,399) 8,155 4,337 5,273
Net earnings (loss) 885 (7,404) 7,955 3,607 5,043
Basic net earnings (loss) per share .04 (.33) .35 .16 .22
Diluted net earnings (loss) per share .04 (.33) .33 .15 .21
Note N--Subsequent Event
Common Share Purchase Rights. On August 4, 2001 the Board of Directors
adopted a shareholder rights plan and declared a dividend at the rate of one
right for each share of common stock. The rights will be distributed as a
non-taxable dividend and will expire August 2011. The rights will be exercisable
only in the event that a person or group acquires 15% or more of our outstanding
common stock. Under these circumstances, all rights holders, except the
acquiring person or group, will be entitled to buy our common stock at a
discount.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
45
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item (with respect to Directors) is
incorporated by reference from the information under the caption "Election of
Directors - Nominees" contained in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the solicitation
of proxies for the Company's 2001 Annual Meeting of Shareholders to be held on
November 9, 2001 (the "Proxy Statement").
Item 405 of Regulation S-K calls for disclosure of any known late
filing or failure by an insider to file a report required by Section 16(a) of
the Exchange Act. This information is contained in the section called "Other
Information--Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from
the sections entitled "Director Compensation" and "Executive Officer
Compensation" contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from
the section entitled "Other Information--Share Ownership by Principal
Shareholders and Management" contained in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from
the section entitled "Certain Transactions" contained in the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedule
Reference is made to the Index to Consolidated Statements of
Symmetricom, Inc. under Item 8 of Part II hereof.
2. Financial Statement Schedule. The following financial
statement schedule of the Company for the years ended June 30, 2001, 2000, and
1999 is filed as part of this report on Form 10-K and should be read in
conjunction with the financial statements. Schedule II -- Valuation and
Qualifying Accounts and Reserves. All other schedules have been omitted because
they are not applicable, not required, or the required information is included
in the Consolidated Financial Statements or notes thereto.
3. Exhibits:
See Item 14(c) below. Each management contract or compensatory plan or
arrangement required to be filed has been identified.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended June
30, 2001.
46
(c) Exhibits
Exhibit
Number Description of Exhibits
----------- -------------------------------------------------------------------
3(i)(1) Certificate of Amendment of the Articles of Incorporation filed
November 27, 2000, with the Certificate of Amendment of the
Articles of Incorporation filed December 11, 1990, the Certificate
of Amendment of the Articles of Incorporation filed October 27,
1993, and the Restated Articles of Incorporation filed June 9,
1989.
3(ii)(1) Certificate of Amendment of the Bylaws dated October 31, 2000, with
the Bylaws (as amended October 23, 2000).
4.1(15) Rights Agreement dated as of August 9, 2001 between the Company and
Mellon Investor Services.
10.1(4)# Amended and Restated Non-Qualified Stock Option Plan (1982), with
form of Employee Non-Qualified Stock Option (1982 Plan).
10.2(9)# 1990 Director Option Plan (as amended through October 25, 1995).
10.3(4)# Form of Director Option Agreement.
10.4(13)# 1990 Employee Stock Plan (as amended through June 29, 1998).
10.5(4)# Forms of Stock Option Agreement, Restricted Stock Purchase
Agreement, Tandem Stock Option/SAR Agreement, and Stock
Appreciation Right Agreement for use with the 1990 Employee Stock
Plan.
10.6(11)# 1994 Employee Stock Purchase Plan (as amended through July 27,
1998).
10.7(13)# Consulting Agreement between the Company and Richard W. Oliver
dated June 1, 1998.
10.8(13)# Consulting Agreement between the Company and William D. Rasdal
dated August 1, 1998.
10.9(10) Lease Agreement by and between the Company and Nexus Equity, Inc.
dated June 10, 1996.
10.10(5) Form of Indemnification Agreement.
10.11(13)# Employment offer letter by and between the Company and Thomas W.
Steipp, President and Chief Operating Officer, Telecom Solutions
dated February 19, 1998.
10.12(13)# Promissory Notes Secured by Deed of Trust issued by Thomas W.
Steipp to the Company dated March 24, 1998.
10.13(12)# Promissory Note issued by Thomas W. Steipp to the Company dated
January 25, 1999.
10.14(12)# Promissory Note Secured by Deed of Trust issued by Thomas W. Steipp
to the Company dated January 25, 1999.
10.15(12)# Rider to Deed of Trust by Thomas W. Steipp and Debra L. Steipp, as
Trustor, to First American Title Insurance Company, as Trustee, for
the benefit of Symmetricom, Inc., a California corporation, as
Beneficiary.
10.16(16)# Full Recourse Promissory Note of Thomas Steipp dated February 1,
2001.
10.17(16)# Security Agreement by Thomas Steipp dated February 1, 2001.
10.18# Employment Agreement between the Company and Thomas W. Steipp dated
July 1, 2001.
10.19# Change of Control Retention Agreement between the Company and
Thomas W. Steipp dated July 1, 2001.
10.20(14)# 1999 Director Stock Plan.
10.21(17)# Certificate of Amendment of 1999 Director Stock Option Plan dated
October 23, 2001.
10.22(14)# Form of Director Option Agreement.
10.23(17)# 1999 Employee Stock Plan (as amended through October 23, 2001).
47
Exhibit
Number Description of Exhibits
----------- -------------------------------------------------------------------
10.24(14)# Form of Stock Option Agreement.
10.25(16)# Symmetricom, Inc. Deferred Compensation Plan effective October 1,
1999.
10.26(16)# Symmetricom, Inc. Senior Executive Loan Plan as adopted January 19,
2001.
21.1 Subsidiaries of the Company.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney (see page 50 of this Form 10-K).
----------
# Indicates a management contract or compensatory plan or arrangement.
(1) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
(2) Incorporated by reference from Exhibits to Registration Statement on Form
8-A filed with the Securities and Exchange Commission on December 8, 1990.
(3) Incorporated by reference from Exhibits to Registration Statement on Form
8-A filed with the Securities and Exchange Commission on February 11,
1993.
(4) Incorporated by reference from Exhibits to Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on December 24,
1990.
(5) Incorporated by reference from Exhibits to the 1990 Proxy Statement filed
with the Securities Exchange Commission.
(6) Incorporated by reference from Exhibits to Current Report on Form 8-K
filed with the Securities and Exchange Commission on September 2, 1993.
(7) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1993.
(8) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1994.
(9) Incorporated by reference from Exhibits to Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on January 19, 1996.
(10) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
(11) Incorporated by reference from Exhibits to the 1998 Proxy Statement filed
with the Securities and Exchange Commission on October 5, 1998.
(12) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998.
(13) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1998.
(14) Incorporated by reference from Exhibits to the 1999 Proxy Statement filed
with the Securities and Exchange Commission on September 23, 1999.
(15) Incorporated by reference from Exhibits to Form 8-A filed with the
Securities and Exchange Commission on August 9, 2001
(16) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001.
(17) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q
for the quarter ended December 31, 2000.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
48
SCHEDULE II
SYMMETRICOM, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Balance at Charged to
Beginning of Costs and Deductions Balance at
Year Expenses (1) End of Year
------------ ---------- ---------- -----------
Year ended June 30, 2001:
Accrued warranty expense .............................. $ 4,471 $ 1,671 $ 614 $ 5,528
Allowance for doubtful accounts ....................... $ 322 $ 910 $ 238 $ 994
Allowance for excess and obsolete inventory ........... $ 3,524 $ 1,357 $ 542 $ 4,339
Year ended June 30, 2000:
Accrued warranty expense .............................. $ 4,319 $ 2,227 $ 2,075 $ 4,471
Allowance for doubtful accounts ....................... $ 180 $ 210 $ 68 $ 322
Allowance for excess and obsolete inventory ........... $ 3,217 $ 2,098 $ 1,791 $ 3,524
Year ended June 30, 1999:
Accrued warranty expense .............................. $ 3,994 $ 1,925 $ 1,600 $ 4,319
Allowance for doubtful accounts........................ $ 329 $ 86 $ 235 $ 180
Allowance for excess and obsolete inventory ........... $ 3,072 $ 573 $ 428 $ 3,217
(1) Deductions represent costs charged or amounts written off against the
reserve or allowance.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SYMMETRICOM, INC.
By /s/ THOMAS W. STEIPP
--------------------------------------
Thomas W. Steipp
Chief Executive Officer
(Principal Executive Officer)
Date: September 20, 2001
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Thomas W. Steipp and William Slater, and
each of them, his true and lawful attorneys-in-fact, each with full power of
substitution, for him or her in any and all capacities, to sign any amendments
to this report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or their substitute or substitutes may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ THOMAS W. STEIPP Chief Executive Officer September 20, 2001
------------------------------------ (Principal Executive Officer) and
Thomas W. Steipp Director
/s/ WILLIAM SLATER Chief Financial Officer and Secretary September 20, 2001
------------------------------------ (Principal Financial and Accounting
William Slater Officer)
/s/ RICHARD W. OLIVER Chairman of the Board September 20, 2001
------------------------------------
Richard W. Oliver
/s/ ROBERT T. CLARKSON Director September 20, 2001
------------------------------------
Robert T. Clarkson
/s/ ROBERT M. NEUMEISTER JR. Director September 20, 2001
------------------------------------
Robert M. Neumeister Jr.
/s/ KRISH A. PRABHU Director September 20, 2001
------------------------------------
Krish A. Prabhu
/s/ RICHARD N. SNYDER Director September 20, 2001
------------------------------------
Richard N. Snyder
50
EXHIBIT INDEX
Exhibit Number Index of Exhibits
-------------- -----------------
3(i)(1) Certificate of Amendment of the Articles of Incorporation
filed November 27, 2000, with the Certificate of Amendment
of the Articles of Incorporation filed December 11, 1990,
the Certificate of Amendment of the Articles of
Incorporation filed October 27, 1993, and the Restated
Articles of Incorporation filed June 9, 1989.
3(ii)(1) Certificate of Amendment of the Bylaws dated October 31,
2000, with the Bylaws (as amended October 23, 2000).
4.1(15) Rights Agreement dated as of August 9, 2001 between the
Company and Mellon Investor Services.
10.1(4)# Amended and Restated Non-Qualified Stock Option Plan
(1982), with form of Employee Non-Qualified Stock Option
(1982 Plan).
10.2(9)# 1990 Director Option Plan (as amended through October 25,
1995).
10.3(4)# Form of Director Option Agreement.
10.4(13)# 1990 Employee Stock Plan (as amended through June 29,
1998).
10.5(4)# Forms of Stock Option Agreement, Restricted Stock Purchase
Agreement, Tandem Stock Option/SAR Agreement, and Stock
Appreciation Right Agreement for use with the 1990
Employee Stock Plan.
10.6(11)# 1994 Employee Stock Purchase Plan (as amended through
July 27, 1998).
10.7(13)# Consulting Agreement between the Company and Richard W.
Oliver dated June 1, 1998.
10.8(13)# Consulting Agreement between the Company and William D.
Rasdal dated August 1, 1998.
10.9(10) Lease Agreement by and between the Company and Nexus
Equity, Inc. dated June 10, 1996.
10.10(5) Form of Indemnification Agreement.
10.11(13)# Employment offer letter by and between the Company and
Thomas W. Steipp, President and Chief
Operating Officer, Telecom Solutions dated February 19,
1998.
10.12(13)# Promissory Notes Secured by Deed of Trust issued by Thomas
W. Steipp to the Company dated March 24, 1998.
10.13(12)# Promissory Note issued by Thomas W. Steipp to the Company
dated January 25, 1999.
10.14(12)# Promissory Note Secured by Deed of Trust issued by Thomas
W. Steipp to the Company dated January 25, 1999.
10.15(12)# Rider to Deed of Trust by Thomas W. Steipp and Debra L.
Steipp, as Trustor, to First American Title Insurance
Company, as Trustee, for the benefit of Symmetricom, Inc.,
a California corporation, as Beneficiary.
10.16(16)# Full Recourse Promissory Note of Thomas Steipp dated
February 1, 2001.
10.17(16)# Security Agreement by Thomas Steipp dated February 1,
2001.
10.18# Employment Agreement between the Company and Thomas W.
Steipp dated July 1, 2001.
10.19# Change of Control Retention Agreement between the Company
and Thomas W. Steipp dated July 1, 2001.
10.20(14)# 1999 Director Stock Plan.
10.21(17)# Certificate of Amendment of 1999 Director Stock Option
Plan dated October 23, 2001.
Exhibit Number Index of Exhibits
-------------- -----------------
10.22(14)# Form of Director Option Agreement.
10.23(17)# 1999 Employee Stock Plan (as amended through October 23,
2000).
10.24(14)# Form of Stock Option Agreement.
10.25(16)# Symmetricom, Inc. Deferred Compensation Plan effective
October 1, 1999.
10.26(16)# Symmetricom, Inc. Senior Executive Loan Plan as adopted
January 19, 2001.
21.1 Subsidiaries of the Company.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney (see page 50 of this Form 10-K).
----------
# Indicates a management contract or compensatory plan or arrangement.
(1) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
(2) Incorporated by reference from Exhibits to Registration Statement
on Form 8-A filed with the Securities and Exchange Commission on
December 8, 1990.
(3) Incorporated by reference from Exhibits to Registration Statement
on Form 8-A filed with the Securities and Exchange Commission on
February 11, 1993.
(4) Incorporated by reference from Exhibits to Registration Statement
on From S-8 filed with the Securities and Exchange Commission on
December 24, 1990.
(5) Incorporated by reference from Exhibits to the 1990 Proxy Statement filed
with the Securities Exchange Commission.
(6) Incorporated by reference from Exhibits to Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 2, 1993.
(7) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1993.
(8) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1994.
(9) Incorporated by reference from Exhibits to Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on January 19,
1996.
(10) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
(11) Incorporated by reference from Exhibits to the 1998 Proxy Statement filed
with the Securities and Exchange Commission on October 5, 1998.
(12) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998.
(13) Incorporated by reference from Exhibits to Annual Report on Form 10-K for
the fiscal year ended June 30, 1998.
(14) Incorporated by reference from Exhibits to the 1999 Proxy Statement filed
with the Securities and Exchange Commission on September 23, 1999.
(15) Incorporated by reference from Exhibits to Form 8-A filed with the
Securities and Exchange Commission on August 9, 2001
(16) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001.
(17) Incorporated by reference from Exhibits to Quarterly Report on Form 10-Q
for the quarter ended December 31, 2000.
EX-10.18
3
dex1018.txt
EMPLOYMENT AGREEMENT
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement"), effective as of July 1, 2001, is entered into
by and between, THOMAS W. STEIPP ("Executive") and SYMMETRICOM, INC. (the
"Company").
1. Employment Period.
----------------
(a) Basic Term. Company shall employ Executive from the date of this
----------
Agreement through December 31, 2001 (the "Term Date"), or such later date
through which this Agreement may be extended under Section 1(b), unless
Executive is terminated sooner in accordance with Section 4.
(b) Renewal. Unless terminated sooner in accordance with Section 4, this
-------
Agreement shall be renewed for an additional one (1) year period on the Term
Date and on each anniversary thereof, unless one party gives to the other
advance written notice of nonrenewal at least sixty (60) days prior to such
date. Company may elect not to renew this Agreement only for Cause, within the
meaning of Section 4(g).
2. Position and Responsibilities.
-----------------------------
(a) Position. Executive accepts employment with Company as Chief Executive
--------
Officer and shall perform all services appropriate to that position.
(b) Outside Activity. Except upon the prior written consent of Company,
----------------
Executive, during his employment with Company, shall not engage, directly or
indirectly, in any other business, commercial, or professional activity (whether
or not pursued for pecuniary advantage) that is or may be competitive with
Company, create a conflict of interest with Company, or otherwise interfere with
the business of Company or any of its affiliates.
3. Compensation and Benefits.
-------------------------
(a) Base Salary. Executive's base salary shall be at the annual rate of
-----------
$345,000 for fiscal 2001. At or near each fiscal year thereafter, Executive's
annual base salary shall be increased by an amount mutually determined by
Executive and the Board of Directors; provided, however, that in no event shall
the annual increase be less than the percentage increase during the preceding
calendar year as determined with reference to the U.S. Department of Labor and
Bureau of Labor Statistics' Consumer Price Index for the San Francisco
Metropolitan Area.
(b) Incentive Compensation. Executive shall participate in the Company's
----------------------
Management Incentive Plan, the terms of which shall be determined each fiscal
year by the Board of Directors. For fiscal year 2001 and subsequent years,
Executive shall be eligible to earn up to 130% of Executive's Base Salary as
Incentive Compensation ("Target Bonus"). The balance of Executive's fiscal 2001
Incentive Compensation shall be determined according to the profit-
1
based formula previously established by the Board of Directors at its first
regularly scheduled fiscal year 2002 meeting.
(c) Equity Compensation. The parties acknowledge that Executive has the
-------------------
same right to participate in the Company's current Stock Option Plan and in
future Stock Option Plans as other Company executives.
(d) Relocation Assistance. The parties acknowledge that Company has
---------------------
provided Executive certain assistance in relocating to the San Francisco Bay
Area from Atlanta, Georgia, including the extension of two loans, the principal
terms and conditions of which are as follows:
(i) Interest-Bearing Loan. Company has loaned Executive the principal
---------------------
amount of $400,000, with an interest rate of 6.0% (the "Interest-Bearing
Loan"), and has agreed to forgive such principal and interest in four equal
installments. The first three forgiveness installments were made on June
30, 1998, June 30, 1999 and June 30, 2000. The final forgiveness
installment is due on June 30, 2001. Except as provided in Section 4,
Executive shall be responsible for paying any income taxes that may become
due on any income he may realize as a result of such forgiveness
installments.
(ii) Interest-Free Loan. Company has loaned Executive the principal
------------------
amount of $500,000, free of interest (the "Interest-Free Loan"). This loan
is intended to qualify as a relocation loan under Section 7872 of the
Internal Revenue Code. Except as provided in Section 4 of this Agreement,
the Interest-Free Loan shall become: (y) due and payable in a single
installment on the tenth (10th) anniversary of its making; and (z)
interest-bearing in the event Executive ceases to be an employee of
Company.
(e) Benefits. Executive shall receive the following benefits:
--------
(i) eligibility to participate in the SymmetriCom Executive Medical
Plan;
(ii) long-term disability insurance coverage;
(iii) life insurance coverage;
(iv) eligibility to participate in Company's retirement and deferred
compensation plans; and
(v) four weeks' annual paid vacation.
(f) Business Equipment. Company shall furnish Executive with such
------------------
computers, software, peripheral equipment and Internet access as Executive shall
reasonably require for his business and home offices, and shall pay the
associated monthly maintenance and access costs therefor. Company also shall
furnish Executive with a cellular telephone, and shall pay the monthly telephone
bill therefor.
4. Termination of Employment.
-------------------------
(a) By Death. Executive's employment shall terminate upon his death. In the
--------
event of such termination, Company shall: (i) pay to Executive's estate each
month through the end of the second month following the month in which
Executive's death occurred an amount equal to the monthly salary to which
Executive was entitled under Section 3(a) at the time of his death;
2
(ii) promptly transfer to Executive's estate any accrued but unpaid incentive
compensation to which Executive may have been entitled under Section 3(b); and
(iii) promptly reimburse Executive's estate for any outstanding reasonable
business expenses incurred by Executive prior to his death. Thereafter,
Company's obligations hereunder shall terminate. This Section shall not affect
entitlement of Executive's estate or beneficiaries to death benefits under any
benefit provided to Executive by Company.
(b) By Disability. This Agreement shall terminate as of the end of the
-------------
calendar month in which Executive: (i) is and has been during each of the
immediately preceding five (5) or more consecutive whole calendar months unable
to perform his duties under this Agreement because of mental or physical illness
or injury; and (ii) has been determined by the insurer that issued the Company's
long-term disability policy in effect pursuant to Section 3(e) to be eligible to
commence receiving long-term disability benefits. In the event of such
termination, Company shall: (w) pay Executive the salary to which he is entitled
pursuant to Section 3(a) through the date of termination; (x) promptly transfer
to Executive's estate any accrued but unpaid incentive compensation to which
Executive may have been entitled under Section 3(b); and (y) promptly reimburse
Executive for any outstanding reasonable business expenses incurred by Executive
prior to his termination. Thereafter, the obligations of Company shall
terminate. This Section shall not in any way diminish Executive's right to
receive disability insurance proceeds.
(c) By Company For Cause. Company may terminate Executive's employment for
--------------------
Cause (as defined in Section 4(g)) without notice at any time after the written
warning and minimum cure period have been provided in accordance with Section
4(g). In the event of such termination, Company shall: (i) pay Executive the
salary to which he is entitled pursuant to Section 3(a) through the date of
termination; (ii) promptly transfer to Executive any accrued but unpaid
incentive compensation to which he is entitled pursuant to Section 3(b); and
(iii) promptly pay any outstanding reasonable business expenses incurred by
Executive prior to such termination. Thereafter, the obligations of Company
shall terminate.
(d) By Company Other Than For Cause or By Executive For Good Reason. Except
---------------------------------------------------------------
as expressly provided in Section 4(b) or 4(e), if Executive is terminated from
Company other than for Cause, or if Company fails to renew this Agreement other
than for Cause, or if Executive resigns from Company for Good Reason within a
reasonable period following the event constituting Good Reason, then Company
shall:
(i) within thirty (30) days of such termination, pay Executive a lump
sum equal to the sum of (A) Executive's annual base salary as in effect as of
the date of such termination, and (B) 100% of Executive's Target Bonus for the
year prior to the year in which the termination occurs;
(ii) provide to Executive one hundred percent (100%) Company-paid
health, dental, vision and life insurance coverage at the same level of coverage
as was provided to Executive immediately prior to the date of termination (the
"Company-Paid Coverage"). If such coverage included the Executive's dependents
immediately prior to the date of termination, such dependents shall also be
covered at Company expense. Company-Paid Coverage shall continue until the
earlier of (x) the end of the eighteenth (18th) month following the month in
which the
3
date of termination occurred, or (y) the date that the Executive and
his dependents become covered under another employer's group health, dental,
vision and life insurance plans that provide Executive and his dependents with
comparable benefits and levels of coverage. For purposes of Title X of the
Consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date of the
"qualifying event" for Executive and his dependents shall be the date upon which
the Company-Paid Coverage terminates.
(iii) forgive any remaining amounts due on the loans described in
Section 3(d), and within 30 days of such forgiveness of indebtedness shall pay
Executive in a single lump sum an amount ("Gross-Up Payment") such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes and excise tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the total federal and state taxes
imposed upon the forgiveness of indebtedness.
(e) By Executive Other Than For Good Reason. At any time after the Term
---------------------------------------
Date, Executive may terminate his employment, other than for Good Reason, by
providing Company at least sixty (60) days' advance written notice. Company
shall have the option, in its complete discretion, to make Executive's
termination effective at any time prior to the end of such notice period. Should
Executive terminate his employment under this provision, Company shall pay
Executive all salary and incentive compensation earned through the last day
actually worked, plus an amount equal to the base salary Executive would have
earned through the balance of the above notice period, not to exceed sixty (60)
days. Thereafter, except as set forth herein, all of Company's obligations under
this Agreement shall cease.
(f) Termination of Employment After Change in Control. Upon the occurrence
-------------------------------------------------
of a Change of Control, as defined in the Change of Control Retention Agreement
dated ___________, between Company and Executive, Executive shall become
entitled to retention or severance benefits in accordance with that agreement,
and the provisions of this Section 4 shall no longer apply.
(g) Definitions.
-----------
(i) Cause. Termination shall be for "Cause" if:
-----
(A) Executive grossly neglects significant duties he is required
to perform or egregiously violates a material written policy of Company, other
than as a result of incapacity due to physical or mental illness, and, after (A)
being warned in writing, and (B) having had a reasonable opportunity to cure
(the length of such cure period to be determined by taking into account the
nature of the conduct resulting in the warning, but in no event to be less than
30 days), continues to grossly neglect such duties or egregiously violate the
specified Company policy;
(B) Executive commits a material act of dishonesty or fraud; or
(C) Executive is convicted of any serious felony.
4
(ii) Good Reason. "Good Reason" means any one or more of the
-----------
following:
(A) a significant reduction in Executive's title, authority,
duties or reporting relationships provided, however, that "Good Reason" shall
not exist merely by reason of a Change of Control to the extent that after such
Change of Control, Executive is the Chief Executive Officer of the Company;
(B) without Executive's express written consent, the relocation
of Executive's principal place of employment to a location more than thirty (30)
miles from Executive's residence;
(C) any failure by Company or its affiliates to pay, or any
reduction by Company or its affiliates of, Executive's Base Salary, Incentive
Compensation, Equity Compensation, Relocation Assistance, or Benefits under
Sections 3(a)-(e), unless such failure to pay or reduction is completely cured
by Company within the thirty (30) day period immediately following written
notice from Executive to Company of such failure or reduction;
(iii) Other than for Cause. Termination shall be "other than for
--------------------
Cause" unless Executive is terminated for engaging in conduct described in
Section 4(g)(i)(A)-(C).
5. No Solicitation/Raiding of Employees. Executive acknowledges and agrees that
------------------------------------
Company has invested substantial time and effort in assembling its staff.
Accordingly, Executive agrees and covenants that, for a period of eighteen (18)
months following the termination of his employment with Company pursuant to
Section 4(d), above, Executive will not, directly or indirectly, attempt to
recruit, induce or solicit any employee to leave his/her employment with
Company.
6. Non-Disclosure. Executive agrees to maintain in strict confidence any
--------------
confidential and proprietary information pertaining to the business of Company,
its agents, representatives, officers, staff and all related entities.
7. Consideration for No Solicitation/Raiding of Employees and Non-Disclosure.
-------------------------------------------------------------------------
In consideration of Executive's covenants and promises herein contained in
paragraphs 5 and 6, and notwithstanding any provision in any Stock Option Plan
or Stock Agreement, 1/3 of the shares subject to unvested stock options held by
Executive, and 1/3 of any unvested restricted stock held by Executive, shall be
vested immediately upon the termination of his employment with the Company
pursuant to section 4(d) above. Executive shall have until the first anniversary
of the date of termination to exercise any such options as to which the vesting
shall have been accelerated in accordance with this section 7.
8. Notices.
-------
(a) General. Notices and all other communications contemplated by this
-------
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered, one day following mailing via Federal Express or similar
overnight courier service, upon facsimile transmission, after confirmation of
receipt of such transmission, or as of five business days after deposit in the
United States mail in a sealed envelope, registered or certified, with postage
5
prepaid. In the case of the Executive, mailed notices shall be addressed to him
at the home address that he most recently communicated to the Company in
writing. In the case of the Company, mailed notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the attention of
its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause or by
---------------------
Executive pursuant to a Voluntary Termination for Good Reason shall be
communicated by a notice of termination to the other party hereto given in
accordance with subsection (a), above, and after the period for cure, as
required by Section 4(g), has been provided. Such notice shall indicate the
specific termination provision in this Agreement relied upon, set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated and specify the termination date,
which shall be not more than thirty (30) days after the giving of such notice.
The failure by Executive to include in the notice any fact or circumstance which
contributes to a showing of a voluntary termination for Good Reason shall not
waive any right of Executive hereunder or preclude Executive from asserting such
fact or circumstance in enforcing his rights hereunder.
9. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. Executive shall not be required to mitigate the
-------------------
value of any benefits contemplated by the Agreement, nor shall any such benefits
be reduced by any earnings or benefits that Executive may receive from any other
source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
------
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Executive and an authorized officer of the Company (other than
Executive). No waiver by either party of any breach of, or of compliance with,
any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(c) Entire Agreement. No agreements, representations or understandings
----------------
(whether oral or written, express or implied) which are not expressly set forth
or referenced in this Agreement (including without limitation the
Interest-Bearing Loan, the Interest Free Loan, the Change of Control Retention
Agreement between Executive and Company, dated ________________, the Symmetricom
Executive Medical Plan) have been made or entered into by either party with
respect to the subject matter hereof. This Agreement represents the entire
understanding of the parties hereto with respect to the subject matter hereof.
To the extent the terms of this Agreement conflict in any way with the terms of
any other agreement between the Company and the Executive, the terms of this
Agreement shall control.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, with the exception of its conflict of laws provisions.
6
(e) Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision hereof, which shall remain in full force and effect.
(f) Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same document.
(g) Attorneys' Fees. Company hereby agrees to pay the cost of Executive's
---------------
attorney's fees reasonably incurred in negotiating and documenting the terms of
this Agreement. In the event of a controversy arising in connection with the
interpretation or enforcement of this Agreement, the prevailing party shall be
entitled to receive the cost of his or its reasonable attorney's fees from the
nonprevailing party.
The parties have duly executed this Agreement, effective as of the date
first written above.
THOMAS W. STEIPP SYMMETRICOM, INC.
/s/ /s/
-------------------------------- --------------------------------
Date: July 1, 2001 By: Krish A. Prabhu
------------------------- --------------------------
Its: Chairman, Symmetricom, Inc.
Compensation Committee
Member, Board of Directors,
Symmetricom
--------------------------
Date: July 1, 2001
--------------------------
7
EX-10.19
4
dex1019.txt
CHANGE OF CONTROL
EXHIBIT 10.19
SYMMETRICOM, INC.
CHANGE OF CONTROL RETENTION AGREEMENT
This CHANGE OF CONTROL RETENTION AGREEMENT (the "Agreement") is made and
entered into by and between THOMAS W. STEIPP (the "Executive") and SYMMETRICOM,
INC. (the "Company"), effective as of the latest date set forth by the
signatures of the parties hereto below (the "Effective Date").
RECITALS
--------
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Executive and can cause the Executive
to consider alternative employment opportunities. The Board has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication and objectivity of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and
its stockholders to provide the Executive with an incentive to continue his
employment and to motivate the Executive to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Executive with
retention/severance benefits following a Change of Control which provides the
Executive with enhanced financial security and provides incentive and
encouragement to the Executive to remain with the Company notwithstanding the
possibility of a Change of Control.
D. Certain capitalized terms used in the Agreement are defined in Section 5
below.
The parties hereto agree as follows:
1. Term of Agreement. This Agreement shall terminate on the date that all
-----------------
obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. Coordination with Employment Agreement. Prior to a Change of Control,
--------------------------------------
payments, if any, to Executive upon termination of employment shall be
determined in accordance with the Employment Agreement between Executive and
Company, dated July 1, 2001. After a Change of Control, payments to Executive
upon termination of employment shall be determined in accordance with this
Agreement.
1
3. Change of Control Retention/Severance Benefits.
----------------------------------------------
(a) Involuntary Termination other than for Cause, Death or Disability or
--------------------------------------------------------------------
Voluntary Termination for Good Reason Within 24 Months Following A
------------------------------------------------------------------
Change of Control. If Executive's employment with the Company
-----------------
terminates within twenty four (24) months following a Change of
Control by virtue of (A) an involuntary termination by the Company
other than for Cause, (B) Executive's death or Disability, or (C) a
Voluntary Termination for Good Reason, then the Company shall provide
Executive with the following benefits:
(i) Base Salary and Target Bonus Payment. Within thirty (30) days
------------------------------------
of the triggering event, pay Executive a lump sum equal to
three (3) times the sum of (A) Executive's annual base salary
as in effect as of the date of such termination, and (B) 100%
of Executive's Target Bonus for the year prior to the year in
which the payment occurs;
(ii) Equity Compensation Vesting. Immediately and fully vest
---------------------------
Executive's outstanding stock options and shares of stock, if
any, subject to restricted stock purchase agreements;
(iii) COBRA and Life Insurance. Provide to Executive, upon his
------------------------
termination of employment with the Company, one hundred percent
(100%) Company-paid health, dental, vision and life insurance
coverage at the same level of coverage as was provided to
Executive immediately prior to the date of termination (the
"Company-Paid Coverage"). If such coverage included the
Executive's dependents immediately prior to the date of
termination, such dependents shall also be covered at Company
expense. Company-Paid Coverage shall continue until the earlier
of (x) the end of the eighteenth (18th) month following the
month in which the date of termination occurred, or (y) the date
that the Executive and his dependents become covered under
another employer's group health, dental, vision and life
insurance plans that provide Executive and his dependents with
comparable benefits and levels of coverage. For purposes of
Title X of the Consolidated Budget Reconciliation Act of 1985
("COBRA"), the date of the "qualifying event" for Executive and
his dependents shall be the date upon which the Company-Paid
Coverage terminates.
(b) Voluntary Resignation; Termination for Cause. If the Executive's
--------------------------------------------
employment terminates by reason of the Executive's voluntary
resignation (and is not a Voluntary Termination for Good Reason), or
if the Executive is terminated for Cause, then the Executive shall not
be entitled to receive severance or other benefits except for those
(if any) as may then be established under the Company's then existing
severance and benefits plans or pursuant to other written agreements
with the Company, except that Executive shall receive the Company-Paid
Coverage if he remains employed with the Company for twelve (12)
months following a Change of Control.
2
(c) Termination After the Twenty Four Month Period Following a Change of
--------------------------------------------------------------------
Control. In the event the Executive's employment is terminated for any
-------
reason after the twenty four (24) month period following a Change of
Control, then the Executive shall be entitled to receive severance and
any other benefits only as may then be established under the Company's
existing severance and benefits plans or pursuant to other written
agreements with the Company.
4. Taxation of Severance Benefits. In the event that the benefits provided for
------------------------------
in this Agreement or otherwise payable to the Executive constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and will be subject to the excise tax imposed by
Section 4999 of the Code, then Company shall pay Executive an amount ("Gross-Up
Payment") such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes and excise tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the excise tax
imposed upon the Payments. Unless the Company and Executive otherwise agree in
writing, any determination required under this Section 5 shall be made in
writing by independent public accountants agreed to by the Company and Executive
(the "Accountants"), whose determination shall be conclusive and binding upon
Executive and the Company for all purposes. For purposes of making the
calculations required by this Section 5, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code. The Company and Executive shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section 5. The Company shall
bear all costs the Accountants may reasonable incur in connection with any
calculations contemplated by this Section 5.
5. Definition of Terms. The following terms referred to in this Agreement
-------------------
shall have the following meanings:
(a) Cause. Termination shall be for "Cause" if:
-----
(i) Executive grossly neglects significant duties he is required to
perform or egregiously violates a material written policy of
Company, other than as a result of incapacity due to physical or
mental illness, and, after (A) being warned in writing, and (B)
having had a reasonable opportunity to cure (the length of such
cure period to be determined by taking into account the nature of
the conduct resulting in the warning, but in no event to be less
than 30 days), continues to grossly neglect such duties or
egregiously violate the specified Company policy;
(ii) Executive commits a material act of dishonesty or fraud; or
(iii) Executive is convicted of any serious felony.
3
(b) Good Reason. "Good Reason" means any one or more of the following:
-----------
(i) a significant reduction in Executive's title, authority, duties
or reporting relationships provided, however, that "Good Reason"
shall not exist merely by reason of a Change of Control to the
extent that after such Change of Control, Executive is the Chief
Executive Officer of the Company;
(ii) without Executive's express written consent, the relocation of
Executive's principal place of employment to a location more
than thirty (30) miles from Executive's current residence;
(iii) any failure by Company or its affiliates to pay, or any
reduction by Company or its affiliates of, Executive's Base
Salary, incentive compensation, equity compensation, relocation
assistance, or other benefits received by Executive prior to the
Change of Control.
(c) Other than for Cause. Involuntary termination shall be "other than for
--------------------
Cause" unless Executive is terminated for engaging in conduct
described in Section 5(a).
(d) Change in Control. "Change in Control" means:
-----------------
(i) the sale, lease, conveyance or other disposition of all or
substantially all of the Company's assets as an entirety or
substantially as an entirety to any person, entity or group of
persons acting in concert;
(ii) any transaction or series of related transactions that results
in any Person (as defined in Section 13(h)(8)(E) under the
Securities Exchange Act of 1934) becoming the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of more than 45% of the aggregate
voting power of all classes of common equity of the Company,
except if such Person is (I) a subsidiary of the Company, (II)
an employee stock ownership plan for employees of the Company or
(III) a company formed to hold the Company's common equity
securities and whose shareholders constituted, at the time such
company became such holding company, substantially all the
shareholders of the Company;
(iii) a change in the composition of the Company's Board of Directors
occurring within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (A) are
directors of the Company as of the date hereof, or (B) are
elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating
to the election of directors to the Company);
4
(iv) the consummation of a merger or consolidation of the Company
with any other corporation other than a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least fifty-five percent (55%) of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger
or consolidation.
6. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, merger,
consolidation, liquidation or otherwise) to all or substantially
all of the Company's business and/or assets shall assume the
obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to
the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes
under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes
and delivers the assumption agreement described in this Section
6(a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement and all
----------------------
rights of the Executive hereunder shall inure to the benefit of,
and be enforceable by, the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notice.
-------
(a) General. Notices and all other communications contemplated by
-------
this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered, one day following
mailing via Federal Express or similar overnight courier service,
upon facsimile transmission, after confirmation of receipt of
such transmission, or as of five business days after deposit in
the United States mail in a sealed envelope, registered or
certified, with postage prepaid. In the case of the Executive,
mailed notices shall be addressed to him at the home address that
he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the
attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Executive pursuant to a Voluntary Termination for Good
Reason shall be communicated by a notice of termination to the
other party hereto given in accordance with Section 7(a) of this
Agreement. Such notice shall indicate the specific termination
provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide
a basis for
5
termination under the provision so indicated, and shall specify the
termination date (which shall be not more than 30 days after the
giving of such notice). The failure by the Executive to include in the
notice any fact or circumstance which contributes to a showing of
Voluntary Termination for Good Reason shall not waive any right of the
Executive hereunder or preclude the Executive from asserting such fact
or circumstance in enforcing his rights hereunder.
8. Miscellaneous Provisions***.
---------------------------
(a) No Duty to Mitigate. The Executive shall not be required to mitigate
-------------------
the value of any benefits contemplated by this Agreement, nor shall
any such benefits be reduced by any earnings or benefits that the
Executive may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
------
discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Executive and by an authorized officer of
the Company (other than the Executive). No waiver by either party of
any breach of, or of compliance with, any condition or provision of
this Agreement by the other party shall be considered a waiver of any
other condition or provision or of the same condition or provision at
another time.
(c) Entire Agreement. No agreements, representations or understandings
----------------
(whether oral or written, express or implied) which are not expressly
set forth or referenced in this Agreement (including without
limitation the Interest-Bearing Loan, the Interest Free Loan, the
Change of Control Retention Agreement, the Symmetricom Executive
Medical Plan) have been made or entered into by either party with
respect to the subject matter hereof. This Agreement represents the
entire understanding of the parties hereto with respect to the subject
matter hereof. To the extent the terms of this Agreement conflict in
any way with the terms of any other agreement between the Company and
the Executive, the terms of this Agreement shall control.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the
State of California, with the exception of its conflict of laws
provisions.
(e) Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in
full force and effect.
(f) Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together will
constitute one and the same document.
6
(g) Attorneys' Fees. Company hereby agrees to pay the cost of Executive's
---------------
attorney's fees reasonably incurred in negotiating and documenting the
terms of this Agreement. In the event of a controversy arising in
connection with the interpretation or enforcement of this Agreement,
the prevailing party shall be entitled to receive the cost of his or
its reasonable attorney's fees from the nonprevailing party.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year set
forth below.
THOMAS W. STEIPP SYMMETRICOM, INC.
/s/ Thomas W. Steipp /s/ Krish A. Prabhu
--------------------------------- ---------------------------------------
Date: July 1, 2001 By: Krish A. Prabhu
-------------------------- -----------------------------
Its: Chairman, Symmetricom, Inc.
Compensation Committee
Member, Board of Directors,
Symmetricom
-----------------------------
Date: July 1, 2001
------------
7
EX-21.1
5
dex211.txt
SUBSIDIARIES OF THE COMPANY
EXHIBIT 21.1
SYMMETRICOM, INC.
SUBSIDIARIES OF THE COMPANY
Analog Solutions, Inc., a California corporation
Telecom Solutions, Inc. a Delaware corporation
Symmetricom Puerto Rico, Inc., a Delaware corporation
Symmetricom, Ltd., a United Kingdom corporation
Navstar Systems Ltd., a United Kingdom corporation
Manufacturing Solutions (Puerto Rico), Inc., Delaware corporation
Symmetricom Hong Kong, Limited, a Hong Kong corporation
Silicon General International Sales Corporation, a California corporation
Symmetricom Global Services, Inc., a Delaware corporation
EX-23.1
6
dex231.txt
INDEPENDENT AUDITORS' CONSENT
EXHIBIT 23.1
SYMMETRICOM, INC.
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the incorporation by reference in Registration Statement Nos.
33-38384, 33-56042, 33-57163, 333-00333, 333-21815, 333-47369, 333-68969,
333-82935, 333-38616, and 333-53180 on Form S-8 of our report dated July 26,
2001 (August 4, 2001 as to Note N) appearing in this Annual Report on Form 10-K
of Symmetricom, Inc. for the year ended June 30, 2001.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of Symmetricom, Inc., listed in item 14a(2). This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
September 17, 2001