UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
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 0-02287
SYMMETRICOM, INC.
(Exact name of registrant as specified in our charter)
Delaware | No. 95-1906306 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
2300 Orchard Parkway, San Jose, California 95131-1017
(Address of principal executive offices)
Registrants telephone number: (408) 433-0910
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate number of shares outstanding of each of the issuers classes of common stock, as of the latest practical date:
Class |
Outstanding as of April 28, 2013 | |
Common Stock | 40,982,073 |
FORM 10-Q
INDEX
Page | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. |
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Condensed Consolidated Balance SheetsMarch 31, 2013 and July 1, 2012 |
3 | |||||
4 | ||||||
5 | ||||||
Condensed Consolidated Statements of Cash FlowsNine months ended March 31, 2013 and April 1, 2012 |
6 | |||||
7 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
19 | ||||
Item 3. |
25 | |||||
Item 4. |
25 | |||||
PART II. OTHER INFORMATION | ||||||
Item 1. |
26 | |||||
Item 1A. |
26 | |||||
Item 2. |
26 | |||||
Item 3. |
26 | |||||
Item 4. |
26 | |||||
Item 5. |
26 | |||||
Item 6. |
27 | |||||
28 |
2
Item 1. | Financial Statements |
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
March 31, 2013 |
July 1, 2012 |
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ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 22,371 | $ | 27,659 | ||||
Short-term investments |
47,351 | 39,280 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $683 and $108 |
38,870 | 45,952 | ||||||
Inventories |
47,195 | 47,618 | ||||||
Prepaids and other current assets |
17,379 | 16,943 | ||||||
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Total current assets |
173,166 | 177,452 | ||||||
Property, plant and equipment, net |
23,148 | 22,702 | ||||||
Intangible assets, net |
3,519 | 3,458 | ||||||
Deferred taxes and other assets |
28,898 | 27,413 | ||||||
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Total assets |
$ | 228,731 | $ | 231,025 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 10,343 | $ | 9,300 | ||||
Accrued compensation |
11,923 | 14,574 | ||||||
Accrued warranty |
1,455 | 1,722 | ||||||
Other accrued liabilities |
10,748 | 11,841 | ||||||
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Total current liabilities |
34,469 | 37,437 | ||||||
Long-term obligations |
4,938 | 5,472 | ||||||
Deferred income taxes |
334 | 334 | ||||||
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Total liabilities |
39,741 | 43,243 | ||||||
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Commitments and contingencies (Note 10) |
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Stockholders equity: |
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Preferred stock, $0.0001 par value; 500 shares authorized, none issued |
| | ||||||
Common stock, $0.0001 par value; 70,000 shares authorized, 52,676 shares issued and 40,982 outstanding at March 31, 2013; 51,500 shares issued and 40,952 outstanding at July 1, 2012 |
195,821 | 193,478 | ||||||
Accumulated other comprehensive loss |
(208 | ) | (232 | ) | ||||
Accumulated deficit |
(6,623 | ) | (5,464 | ) | ||||
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Total stockholders equity |
188,990 | 187,782 | ||||||
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Total liabilities and stockholders equity |
$ | 228,731 | $ | 231,025 | ||||
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See notes to the condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
|||||||||||||
Net revenue |
$ | 53,349 | $ | 60,438 | $ | 158,891 | $ | 175,110 | ||||||||
Cost of sales: |
||||||||||||||||
Cost of products and services |
28,654 | 35,638 | 88,415 | 97,693 | ||||||||||||
Acquisition-related costs |
237 | 74 | 719 | 445 | ||||||||||||
Restructuring charges |
375 | 65 | 371 | 1,156 | ||||||||||||
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Total cost of sales |
29,266 | 35,777 | 89,505 | 99,294 | ||||||||||||
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Gross profit |
24,083 | 24,661 | 69,386 | 75,816 | ||||||||||||
Operating expenses: |
||||||||||||||||
Research and development |
8,291 | 7,129 | 24,409 | 20,575 | ||||||||||||
Selling, general and administrative |
14,593 | 14,281 | 45,598 | 43,955 | ||||||||||||
Amortization of intangible assets |
87 | 52 | 259 | 156 | ||||||||||||
Restructuring charges |
947 | (76 | ) | 2,148 | 123 | |||||||||||
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Total operating expenses |
23,918 | 21,386 | 72,414 | 64,809 | ||||||||||||
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Operating income (loss) |
165 | 3,275 | (3,028 | ) | 11,007 | |||||||||||
Interest income, net of amortization (accretion) of premium (discount) on investments |
98 | 225 | 240 | (5 | ) | |||||||||||
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Income (loss) before taxes |
263 | 3,500 | (2,788 | ) | 11,002 | |||||||||||
Income tax provision (benefit) |
(556 | ) | 1,296 | (1,629 | ) | 3,604 | ||||||||||
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Net income (loss) |
$ | 819 | $ | 2,204 | $ | (1,159 | ) | $ | 7,398 | |||||||
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Earnings (loss) per share: |
||||||||||||||||
Basic |
$ | 0.02 | $ | 0.05 | $ | (0.03 | ) | $ | 0.18 | |||||||
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Diluted |
$ | 0.02 | $ | 0.05 | $ | (0.03 | ) | $ | 0.17 | |||||||
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Shares used in computing earnings (loss) per share: |
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Weighted average shares outstanding - basic |
40,502 | 41,795 | 40,456 | 42,258 | ||||||||||||
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Weighted average shares outstanding - diluted |
40,956 | 42,615 | 40,456 | 42,937 | ||||||||||||
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See notes to the condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
|||||||||||||
Net income (loss) |
$ | 819 | $ | 2,204 | $ | (1,159 | ) | $ | 7,398 | |||||||
Other comprehensive income (loss), net of taxes: |
||||||||||||||||
Foreign currency translation adjustments |
(86 | ) | 110 | 32 | (126 | ) | ||||||||||
Unrealized gain (loss) on investments |
(10 | ) | 41 | (8 | ) | 10 | ||||||||||
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Other comprehensive income (loss) |
(96 | ) | 151 | 24 | (116 | ) | ||||||||||
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Total comprehensive income (loss) |
$ | 723 | $ | 2,355 | $ | (1,135 | ) | $ | 7,282 | |||||||
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See notes to the condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended | ||||||||
March 31, 2013 |
April 1, 2012 |
|||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (1,159 | ) | $ | 7,398 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
4,869 | 4,163 | ||||||
Deferred income taxes |
(1,895 | ) | 2,925 | |||||
Loss on disposal of fixed assets |
356 | 139 | ||||||
Stock-based compensation |
5,250 | 4,581 | ||||||
Allowance for doubtful accounts |
566 | (102 | ) | |||||
Provision for excess and obsolete inventory |
2,148 | 2,617 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
6,516 | 205 | ||||||
Inventories |
(1,725 | ) | 3,219 | |||||
Prepaids and other assets |
799 | (3,671 | ) | |||||
Accounts payable |
621 | (6,226 | ) | |||||
Accrued compensation |
(2,651 | ) | (1,834 | ) | ||||
Other accrued liabilities |
(2,244 | ) | (3,040 | ) | ||||
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Net cash provided by operating activities |
11,451 | 10,374 | ||||||
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Cash flows from investing activities: |
||||||||
Purchases of short-term investments |
(33,292 | ) | (20,171 | ) | ||||
Maturities/sale of short-term investments |
24,500 | 26,816 | ||||||
Purchases of property, plant and equipment |
(4,370 | ) | (3,152 | ) | ||||
Payment to acquire business and other assets |
(702 | ) | (1,400 | ) | ||||
Remaining cash proceeds from sale of discontinued operations |
| 210 | ||||||
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Net cash provided by (used in) investing activities |
(13,864 | ) | 2,303 | |||||
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
2,733 | 2,796 | ||||||
Repurchase of common stock |
(5,640 | ) | (10,115 | ) | ||||
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Net cash used in financing activities |
(2,907 | ) | (7,319 | ) | ||||
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Effect of exchange rate changes on cash |
32 | (126 | ) | |||||
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Net increase (decrease) in cash and cash equivalents |
(5,288 | ) | 5,232 | |||||
Cash and cash equivalents at beginning of period |
27,659 | 20,318 | ||||||
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Cash and cash equivalents at end of period |
$ | 22,371 | $ | 25,550 | ||||
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Non-cash investing and financing activities: |
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Unrealized gain (loss) on investments, net |
$ | (8 | ) | $ | 10 | |||
Property, plant and equipment purchases included in accounts payable |
607 | 185 | ||||||
Unpaid Purchase consideration for acquired businesses |
200 | 540 | ||||||
Cash payments for: |
||||||||
Income taxes |
1,652 | 697 |
See notes to the condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation and Recently Issued Accounting Pronouncements
The condensed consolidated financial statements of Symmetricom, Inc. (Symmetricom, we, us, the Company, or our) included herein are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of the management, necessary for a fair presentation of the financial position, results of operations, comprehensive income loss and cash flows for the interim periods presented. In presenting the financial statements in accordance with accounting principles generally accepted in the United States (US GAAP), management makes certain estimates and assumptions that impact the amounts reported and related disclosures. Estimates, by their nature, are judgments based upon available information. Accordingly, actual results could differ from those estimates.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Symmetricoms Annual Report on Form 10-K for the fiscal year ended July 1, 2012. The results of operations for the three and nine months ended March 31, 2013 are not necessarily indicative of the results to be anticipated for the entire fiscal year ending June 30, 2013.
The condensed consolidated balance sheet as of July 1, 2012 has been derived from the audited consolidated financial statements as of that date but does not include all of the information and footnotes required by US GAAP for complete financial statements.
Fiscal Quarter
Our fiscal quarter is 13 weeks ending on the Sunday closest to the end of the calendar quarter.
Note 2. Financial Instruments
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
| Level 1inputs are based upon unadjusted quoted prices for identical instruments traded in active markets; |
| Level 2inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and |
| Level 3inputs are generally unobservable and typically reflect managements estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. |
7
Financial assets measured at fair value on a recurring basis consisted of the following types of instruments as of March 31, 2013 and July 1, 2012:
Fair Value as of March 31, 2013 |
Quoted prices in Active Markets Identical Assets (Level 1) |
Significant Observable (Level 2) |
Significant Other Unobservable (Level 3) |
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(In thousands) | ||||||||||||||||
Assets: |
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Money market funds |
$ | 7,641 | $ | 7,641 | $ | | ||||||||||
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Short-term investments: |
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Certificates of deposit |
2,450 | | 2,450 | |||||||||||||
Corporate debt securities |
33,819 | | 33,819 | | ||||||||||||
Government sponsored enterprise debt securities |
8,258 | | 8,258 | | ||||||||||||
Mutual funds |
2,824 | 2,824 | | | ||||||||||||
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Total short-term investments |
47,351 | 2,824 | 44,527 | | ||||||||||||
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Total financial assets |
$ | 54,992 | $ | 10,465 | $ | 44,527 | $ | | ||||||||
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Liabilities: |
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Contingent consideration |
$ | 650 | $ | | $ | | $ | 650 | ||||||||
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Total financial liabilities |
$ | 650 | $ | | $ | | $ | 650 | ||||||||
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Fair Value as of July 1, 2012 |
Quoted prices in Active Markets for Identical Assets (Level 1) |
Significant Other Inputs (Level 2) |
Significant
Other Unobservable Inputs (Level 3) |
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(In thousands) | ||||||||||||||||
Assets: |
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Money market funds |
$ | 8,650 | $ | 8,650 | $ | | $ | | ||||||||
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Short-term investments: |
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Corporate debt securities |
23,703 | | 23,703 | | ||||||||||||
Government sponsored enterprise debt securities |
12,515 | | 12,515 | | ||||||||||||
Mutual funds |
3,062 | 3,062 | | | ||||||||||||
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Total short-term investments |
39,280 | 3,062 | 36,218 | | ||||||||||||
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Total financial assets |
$ | 47,930 | $ | 11,712 | $ | 36,218 | $ | | ||||||||
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Liabilities: |
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Contingent consideration |
$ | 540 | $ | | $ | | $ | 540 | ||||||||
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Total financial liabilities |
$ | 540 | $ | | $ | | $ | 540 | ||||||||
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The fair values of our money market funds and mutual funds were derived from quoted market prices as active markets for these instruments exist. The fair values of certificates of deposit, corporate debt securities and government sponsored enterprise debt securities were derived from non-binding market consensus prices that are corroborated by observable market data.
The investments in mutual funds are held in a Rabbi trust to support the terms of our deferred compensation plan.
8
The following table summarizes available-for-sale and trading securities recorded as cash and cash equivalents or short-term investments:
Amortized Cost |
Gross Unrealized Gains (Losses) |
Fair Value | ||||||||||
March 31, 2013 | (In thousands) | |||||||||||
Money market funds |
$ | 7,641 | $ | | $ | 7,641 | ||||||
Certificates of deposit |
2,450 | | 2,450 | |||||||||
Corporate debt securities |
33,830 | (11 | ) | 33,819 | ||||||||
Government sponsored enterprise debt securities |
8,260 | (2 | ) | 8,258 | ||||||||
Mutual funds |
2,824 | | 2,824 | |||||||||
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Total financial assets |
$ | 55,005 | $ | (13 | ) | $ | 54,992 | |||||
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Amortized Cost |
Gross Unrealized Gains (Losses) |
Fair Value | ||||||||||
July 1, 2012 | (In thousands) | |||||||||||
Money market funds |
$ | 8,650 | $ | | $ | 8,650 | ||||||
Corporate debt securities |
23,705 | (2 | ) | 23,703 | ||||||||
Government sponsored enterprise debt securities |
12,513 | 2 | 12,515 | |||||||||
Mutual funds |
3,062 | | 3,062 | |||||||||
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Total financial assets |
$ | 47,930 | $ | | $ | 47,930 | ||||||
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The following table summarizes the contractual maturities of fixed income securities (certificates of deposit, corporate debt securities and government sponsored enterprise debt securities) recorded as short-term investments as of March 31, 2013:
Amortized Cost |
Fair Value |
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(In thousands) | ||||||||
Less than 1 year |
$ | 19,518 | $ | 19,521 | ||||
Due in 1 to 3 years |
25,022 | 25,006 | ||||||
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Total |
$ | 44,540 | $ | 44,527 | ||||
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|
Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.
Level 3 financial liability:
The following table reconciles the beginning and ending balances for Level 3 liabilities for the first nine months of 2013 (in thousands):
Contingent consideration |
||||
Balance as of July 1, 2012 |
$ | 540 | ||
Add: Adjustment to present value of contingent consideration |
110 | |||
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Balance as of March 31, 2013 |
$ | 650 | ||
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9
Contingent consideration on acquired business is measured at fair value on a recurring basis using Level 3 inputs as defined in the fair value hierarchy. The following table presents certain information about the significant unobservable inputs used in the fair value measurement for the contingent consideration measured at fair value on a recurring basis using significant unobservable inputs:
Description |
Valuation Techniques |
Significant Unobservable Inputs | ||
Liabilities: Contingent consideration | Present value of a Probability Weighted Earnout model using an appropriate discount rate. | Estimate of future revenue associated with acquired technology. Revenue of $4.9 million over a range of 3.5 years to 4 years. |
An increase in the revenue growth percentage could result in a significantly higher estimated fair value of the contingent consideration liability. Alternatively, a decrease in the revenue growth percentage could result in a significantly lower estimated fair value of contingent consideration liability.
The fair value of contingent consideration was derived from a probability weighted earn-out model of future contingent payments. The cash payments, if any, are expected to be made quarterly, based upon revenue generated from the acquired product line, starting in the fourth quarter of fiscal 2013. No payments were made in the first nine months of fiscal 2013. The valuation of this liability is estimated based upon a collaborative effort of the Companys marketing and finance departments. These future contingent payments are calculated based on estimates of future revenue attributable to the acquired technology (Note 12). To obtain a current valuation of these projected cash flows, an expected present value technique is applied using an appropriate discount rate. The cash flow projections and discount rates will be reviewed quarterly and updated as and when necessary. Potential valuation adjustments will be made as future revenue projections are updated which affect the calculation of the related contingent consideration payments. These adjustments will be recorded in the condensed consolidated statement of operations.
10
Note 3. Inventories
Components of inventories were as follows:
March 31, 2013 | July 1, 2012 | |||||||
(In thousands) | ||||||||
Raw materials |
$ | 18,105 | $ | 21,003 | ||||
Work-in-process |
11,524 | 10,440 | ||||||
Finished goods |
17,566 | 16,175 | ||||||
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Inventories |
$ | 47,195 | $ | 47,618 | ||||
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Note 4. Intangible Assets
Intangible assets consist of:
Gross Carrying Amount |
Accumulated Amortization |
Net Intangible Assets |
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(in thousands) | ||||||||||||
Purchased technology |
$ | 26,871 | $ | (24,424 | ) | $ | 2,447 | |||||
Customer lists and trademarks |
7,303 | (6,231 | ) | 1,072 | ||||||||
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Total as of March 31, 2013 |
$ | 34,174 | $ | (30,655 | ) | $ | 3,519 | |||||
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Purchased technology |
$ | 25,970 | $ | (23,845 | ) | $ | 2,125 | |||||
Customer lists and trademarks |
7,303 | (5,970 | ) | 1,333 | ||||||||
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Total as of July 1, 2012 |
$ | 33,273 | $ | (29,815 | ) | $ | 3,458 | |||||
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11
The estimated future amortization expense by fiscal year is as follows:
Fiscal year: | (in thousands) | |||
2013 (Remaining 3 months) |
$ | 296 | ||
2014 |
1,149 | |||
2015 |
776 | |||
2016 |
602 | |||
2017 |
295 | |||
Thereafter |
401 | |||
|
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Total amortization |
$ | 3,519 | ||
|
|
Intangible asset amortization expense for the third quarter of fiscal 2013 and 2012 was $0.3 million and $0.1 million, respectively. Intangible asset amortization expense for the first nine months of fiscal 2013 and 2012 was $0.8 million and $0.6 million, respectively.
Note 5. Warranty
Changes in our accrued warranty liability were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
|||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Beginning balance |
$ | 1,492 | $ | 1,835 | $ | 1,722 | $ | 1,601 | ||||||||
Provision for warranty |
798 | 717 | 2,040 | 1,948 | ||||||||||||
Accruals related to change in estimate |
(164 | ) | 54 | (259 | ) | 397 | ||||||||||
Less: Actual warranty costs |
(671 | ) | (708 | ) | (2,048 | ) | (2,048 | ) | ||||||||
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|
|
|
|
|
|
|
|||||||||
Ending balance |
$ | 1,455 | $ | 1,898 | $ | 1,455 | $ | 1,898 | ||||||||
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|
|
|
|
12
Note 6. Long-term Obligations
Long-term obligations consist of:
March 31, 2013 | July 1, 2012 | |||||||
(In thousands) | ||||||||
Long-term obligations: |
||||||||
Deferred revenue |
$ | 2,031 | $ | 2,254 | ||||
Lease loss accrual, net |
895 | 1,240 | ||||||
Rent accrual |
1,010 | 1,102 | ||||||
Post-retirement benefits |
190 | 173 | ||||||
Income tax |
216 | 216 | ||||||
Consideration for acquired businesses |
596 | 487 | ||||||
|
|
|
|
|||||
Total |
$ | 4,938 | $ | 5,472 | ||||
|
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|
|
Note 7. Stockholders Equity
Stock Options and Awards Activity
Stock award activity for the nine months ended March 31, 2013 is as follows:
Non Performance-based Options Outstanding |
Restricted Stock Outstanding | |||||||||||||||||||
Shares Available For Grant |
Number of Shares |
Weighted Average Exercise Price Per Share |
Number of Shares |
Weighted Average Grant-Date Fair Value |
||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||
Balances at July 1, 2012 |
2,889 | 7,316 | $ | 5.54 | 261 | $ | 5.68 | |||||||||||||
Amendment of 2006 Plan |
2,000 | |||||||||||||||||||
Granted - options |
(1,475 | ) | 1,475 | 6.09 | ||||||||||||||||
Granted - restricted shares |
(522 | ) | 261 | 6.12 | ||||||||||||||||
Exercised |
(602 | ) | 4.43 | |||||||||||||||||
Vested |
(162 | ) | 5.84 | |||||||||||||||||
Cancelled |
231 | (231 | ) | 5.81 | ||||||||||||||||
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|
|
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|
|
|
|||||||||||
Balances at March 31, 2013 |
3,123 | 7,958 | $ | 5.71 | 360 | $ | 5.93 | |||||||||||||
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|
|
|
|
On October 26, 2012 at our annual meeting of shareholders, the shareholders approved an amendment to the 2006 Incentive Award Plan that included an additional 2.0 million shares for future issuance.
13
Stock options outstanding, vested and expected to vest, and exercisable as of March 31, 2013 were as follows:
Options |
Number of Shares |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price |
Aggregate Intrinsic Value |
||||||||||||
(In thousands) | (In years) | (In thousands) | ||||||||||||||
Outstanding |
7,958 | 4.50 | $ | 5.71 | $ | 103 | ||||||||||
Vested and expected to vest |
7,754 | 4.46 | $ | 5.71 | $ | 102 | ||||||||||
Exercisable |
4,375 | 3.58 | $ | 5.73 | $ | 77 |
The aggregate intrinsic value in the preceding table represents the total pre-tax value of stock options outstanding as of March 31, 2013, based on our common stock closing price of $4.54 on March 28, 2013, which would have been received by the option holders had all option holders exercised their options as of that date.
The total intrinsic value of options exercised during the third quarter of fiscal 2013 and 2012 was approximately $0.5 million and $0.4 million, respectively.
For the third quarter of fiscal 2013 and 2012, the weighted-average estimated fair value of options granted was $2.56 and $2.57 per share, respectively. For the nine months ended March 31, 2013 and April 1, 2012, the weighted-average estimated fair value of options granted was $2.87 and $2.45 per share, respectively. Our calculations were made using the Black-Scholes option-pricing model. The fair value of Symmetricom stock-based awards to employees was estimated assuming no expected dividend and the weighted-average assumptions for the three and nine months ended March 31, 2013 and April 1, 2012 as follows:
Three months ended | Nine Months ended | |||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2012 |
April 1, 2012 |
|||||||||||||
Expected life (in years) |
4.3 | 4.4 | 4.9 | 4.9 | ||||||||||||
Risk-free interest rate |
0.6 | % | 0.7 | % | 0.5 | % | 0.7 | % | ||||||||
Volatility |
56.7 | % | 56.9 | % | 56.8 | % | 56.4 | % |
We calculated the stock-based compensation expense in the third quarter of fiscal 2013 and 2012, using an estimated annual forfeiture rate of 4.6% and 6.6%, respectively. At March 31, 2013, the total cumulative compensation cost related to unvested stock-based awards granted to employees, directors and consultants under the Companys stock option plans, but not yet recognized, was approximately $6.0 million, net of estimated forfeitures of $0.8 million. This cost will be amortized on an accelerated method basis over a period of approximately 1.3 years and will be adjusted for subsequent changes in estimated forfeitures.
14
The following table shows total stock-based compensation costs included in the condensed consolidated statements of operations:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
|||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Cost of sales |
$ | 275 | $ | 272 | $ | 815 | $ | 606 | ||||||||
Research and development |
306 | 312 | 984 | 896 | ||||||||||||
Selling, general and administrative |
1,209 | 1,154 | 3,451 | 3,079 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pre-tax stock-based compensation expense |
1,790 | 1,738 | 5,250 | 4,581 | ||||||||||||
Less: Income tax effect |
662 | 643 | 1,943 | 1,695 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,128 | $ | 1,095 | $ | 3,307 | $ | 2,886 | ||||||||
|
|
|
|
|
|
|
|
The above table includes expense of $0.1 million and $0.4 million, relating to the employee stock purchase plan (ESPP) for the third quarter and first nine months of both fiscal 2013 and 2012.
Performance Awards
In the second quarter of fiscal 2013, the Company communicated its intention to grant 103,000 shares of performance - based restricted stock to its executive management employees subject to the achievement of certain financial performance targets. The number of stock awards that will ultimately be granted depends on actual business performance measured for fiscal 2013 against certain targets for revenue and profitability for the Companys business as well as continued employment with the Company.
In the second quarter of fiscal 2012, the Company had communicated its intention to grant 110,000 shares of performance - based restricted stock to its executive management employees. During the first quarter of fiscal 2013, 92,620 restricted shares were granted based on achievement against certain revenue and profitability targets.
Stock Repurchases
We repurchased 33,000 shares in the third quarter of fiscal 2013 for an aggregate price of approximately $0.2 million to cover the cost of employee income taxes on option exercises.
As of March 31, 2013, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 1.9 million.
Note 8. Restructuring Charges
The following table shows the details of the restructuring cost accruals, which consist of facilities, severance costs, and consulting and outside services, at March 31, 2013 and July 1, 2012:
July 1, 2012 |
Expense Additions |
Payments | March 31, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Lease loss accrual (fiscal 2004) |
$ | 137 | $ | 16 | $ | (31 | ) | $ | 122 | |||||||
All other restructuring changes (fiscal 2004) |
68 | 30 | (56 | ) | 42 | |||||||||||
Lease loss accrual (fiscal 2009) |
902 | 69 | (231 | ) | 740 | |||||||||||
All other restructuring changes (fiscal 2010) |
75 | (165 | ) | 163 | 73 | |||||||||||
Lease loss accrual (fiscal 2011) |
170 | 12 | (38 | ) | 144 | |||||||||||
Lease loss accrual (fiscal 2012) |
698 | 34 | (231 | ) | 501 | |||||||||||
All other restructuring changes (fiscal 2012) |
159 | 203 | (360 | ) | 2 | |||||||||||
All other restructuring changes (fiscal 2013) |
| 2,320 | (2,007 | ) | 313 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,209 | $ | 2,517 | $ | (2,789 | ) | $ | 1,937 | |||||||
|
|
|
|
|
|
|
|
During the first nine months of fiscal 2013, we incurred approximately $2.5 million in severance, consulting, and outside service charges related to our reduction in work-force, reduction in facilities, and closing of research and development operations in China.
15
The lease loss accruals are subject to periodic revisions based on current market estimates. The lease loss accruals as of March 31, 2013 will be paid over the next three years.
Note 9. Net Income (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options, employee stock purchase plan and restricted stock using the treasury stock method, except when antidilutive.
The following table reconciles the number of shares utilized in the net income (loss) per share calculations:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, 2013 | April 1, 2012 | March 31, 2013 | April 1, 2012 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) |
$ | 819 | $ | 2,204 | $ | (1,159 | ) | $ | 7,398 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Shares (denominator): |
||||||||||||||||
Weighted average common shares outstanding |
40,862 | 42,056 | 40,816 | 42,494 | ||||||||||||
Weighted average common shares outstanding subject to repurchase |
(360 | ) | (261 | ) | (360 | ) | (236 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average shares outstandingbasic |
40,502 | 41,795 | 40,456 | 42,258 | ||||||||||||
Weighted average dilutive share equivalents from stock options |
338 | 741 | | 578 | ||||||||||||
Weighted average dilutive common shares subject to repurchase |
116 | 79 | | 101 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Weighted average shares outstanding diluted |
40,956 | 42,615 | 40,456 | 42,937 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Earnings (loss) per share: |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic |
$ | 0.02 | $ | 0.05 | $ | (0.03 | ) | $ | 0.18 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.02 | $ | 0.05 | $ | (0.03 | ) | $ | 0.17 | |||||||
|
|
|
|
|
|
|
|
Unvested restricted stock is subject to repurchase by the Company and therefore is not included in the calculation of the weighted-average shares outstanding for basic earnings per share.
The following common stock equivalents were excluded from the earnings (loss) per share calculation as their effect would have been anti-dilutive:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, 2013 | April 1, 2012 | March 31, 2013 | April 1, 2012 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Stock options |
5,203 | 4,310 | 3,116 | 4,028 | ||||||||||||
Common shares subject to repurchase |
| | 360 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total shares of common stock excluded from diluted net income (loss) per share calculation |
5,203 | 4,310 | 3,476 | 4,028 | ||||||||||||
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Note 10. Litigation and Contingencies
LitigationThe Company is or was a party to the following material litigations:
Former Texas Facility Environmental Cleanup
We formerly leased a tract of land in Texas for our operations. Those operations involved the use of solvents and, at the end of the lease, we remediated an area where the solvents had been deposited on the ground and obtained regulatory approval for that remedial activity. In 1996, an environmental investigation of the property detected those same contaminants in groundwater in excess of then current regulatory standards. The groundwater contamination has migrated to some adjacent properties. We have entered into the Texas Natural Resource Conservation Commissions Voluntary Cleanup Program (the Voluntary Cleanup Program) to obtain regulatory approval for closure of this site and a release from liability to the State of Texas for subsequent landowners and lenders. We have notified adjacent property owners affected by the contamination of participation in the Voluntary Cleanup Program. On May 20, 2004, we received a demand from the owner of several adjacent lots for damages in the amount of $1.3 million, as well as seeking an indemnity for the contamination and a promise to remediate the contamination. On March 14, 2006, the adjacent property owner filed suit in Probate Court No. 1, Travis County, Texas (Anna B. Miller, Individually and as Executrix of the Estate of Robert L. Miller, et al. vs. Austron, Inc., et al.), seeking damages. Symmetricom has not yet been served in this matter, but we intend to defend this lawsuit vigorously. We are continuing to work on the remediation of the formerly leased site as well as the adjacent properties, and have also taken steps to begin work on the Miller property. As of March 31, 2013, we had an accrual of $42,000 for remediation costs and other ongoing monitoring costs which has been included within other accrued liabilities on our condensed consolidated balance sheet.
16
Michael E. McNeil, et al. vs. Jason Book, et al.
On or around May 25, 2010, Symmetricom was served with the first amended complaint in the case of Michael E. McNeil, et al. vs. Jason Book, et al. (Case No. CV165643) filed in Santa Cruz County Superior Court, California. The first amended complaint added Symmetricom and several other parties to the lawsuit, which had been originally filed in 2009 by plaintiffs against their former attorney for legal malpractice in connection with certain settlement agreements in 1999 between plaintiffs and Datum (a company acquired by Symmetricom) in which they assigned to Datum certain intellectual property rights. The complaint has since been amended for the second time and Symmetricom was served with the second amended complaint on or around January 7, 2011. The second amended complaint alleges several causes of action, including claims against Symmetricom for contract rescission, breach of contract, conversion and unjust enrichment, and seeks unspecified monetary damages along with equitable relief. Management believes that this lawsuit has no merit or basis and intends to defend this lawsuit vigorously and as a result, no accrual has been made in relation to this litigation. Management believes the final outcome of this matter will not have a material adverse effect on our financial position and results of operations.
General
Under the indemnification provisions of our standard sales contracts, we agree to defend the customer against third party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the reseller/customer. The exposure to us under these indemnification provisions is generally limited to the total amount paid by the customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement. To date, there have been no claims under such indemnification provisions. We believe the estimated fair value of these indemnification agreements is not material.
We are also a party to certain other claims in the normal course of our operations. While the results of these claims cannot be predicted with any certainty, we believe that the final outcome of these matters will not have a material adverse effect on our consolidated financial position and results of operations.
Note 11. Business Segment Information
Symmetricom has two operating segments: Communications and Government and Enterprise. These two operating segments are also our reporting segments. The Chief Operating Decision Maker (CODM), as defined by authoritative accounting guidance on Segment Reporting, is our President and Chief Executive Officer (CEO). Our CEO allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest and taxes.
With the exception of intangible assets, we do not identify or allocate assets by operating segment, nor does our CEO evaluate operating segments using discrete asset information. We do not allocate restructuring charges, interest and other income, interest expense, or income taxes to operating segments.
The following describes our two reporting segments:
Communications
Our Communications business supplies timing technologies and services for worldwide communications infrastructure. Products include primary reference sources, synchronization distribution systems and embedded components and software, all of which support the timing and synchronization requirements of telecommunications and cable networks and equipment.
Government and Enterprise
Our Government and Enterprise business provides time technology products for aerospace/defense, Power, IT infrastructure and science and metrology applications. Precision time and frequency systems enable a range of critical operations, including the international time scale, global navigation, the management of power grids, synchronization of complex control systems, and signals intelligence for securing communications in remote and hostile environments.
17
Segment revenue, gross profit, and operating income (loss) were as follows during the periods presented:
Three months ended March 31, 2013 | ||||||||||||||||
Communications | Government and Enterprise |
Corporate | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Net revenue |
$ | 29,958 | $ | 23,391 | $ | | $ | 53,349 | ||||||||
Cost of sales |
14,144 | 14,753 | 369 | 29,266 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
15,814 | 8,638 | (369 | ) | 24,083 | |||||||||||
Operating expenses |
8,916 | 7,137 | 7,865 | 23,918 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
$ | 6,898 | $ | 1,501 | $ | (8,234 | ) | $ | 165 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Three months ended April 1, 2012 | ||||||||||||||||
Communications | Government and Enterprise |
Corporate | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Net revenue |
$ | 32,646 | $ | 27,792 | $ | | $ | 60,438 | ||||||||
Cost of sales |
16,672 | 19,041 | 64 | 35,777 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
15,974 | 8,751 | (64 | ) | 24,661 | |||||||||||
Operating expenses |
9,121 | 6,697 | 5,568 | 21,386 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
$ | 6,853 | $ | 2,054 | $ | (5,632 | ) | $ | 3,275 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Nine Months ended March 31, 2013 | ||||||||||||||||
Communications | Government and Enterprise |
Corporate | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Net revenue |
$ | 87,585 | $ | 71,306 | $ | | $ | 158,891 | ||||||||
Cost of sales |
42,779 | 46,351 | 375 | 89,505 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
44,806 | 24,955 | (375 | ) | 69,386 | |||||||||||
Operating expenses |
27,705 | 20,994 | 23,715 | 72,414 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
$ | 17,101 | $ | 3,961 | $ | (24,090 | ) | $ | (3,028 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Nine Months ended April 1, 2012 | ||||||||||||||||
Communications | Government and Enterprise |
Corporate | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Net revenue |
$ | 99,523 | $ | 75,587 | $ | | $ | 175,110 | ||||||||
Cost of sales |
49,807 | 48,332 | 1,155 | 99,294 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
49,716 | 27,255 | (1,155 | ) | 75,816 | |||||||||||
Operating expenses |
28,369 | 19,712 | 16,728 | 64,809 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
$ | 21,347 | $ | 7,543 | $ | (17,883 | ) | $ | 11,007 | |||||||
|
|
|
|
|
|
|
|
The information in the Corporate category above represents corporate-related costs that are not allocated to either of our two segments for the purpose of evaluating their performance. The following table outlines our major corporate-related costs:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, 2013 | April 1, 2012 | March 31, 2013 | April 1, 2012 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Selling, general and administrative costs |
$ | 6,912 | $ | 5,643 | $ | 21,571 | $ | 16,604 | ||||||||
Restructuring charges |
1,322 | (11 | ) | 2,519 | 1,279 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Corporate-related total |
$ | 8,234 | $ | 5,632 | $ | 24,090 | $ | 17,883 | ||||||||
|
|
|
|
|
|
|
|
18
Note 12. Business Combination
During the third quarter of fiscal 2012, the Company acquired a product line (existing technology, customer relationships, fixed assets and employees) to enhance the Companys product offerings in embedded timing and synchronization solutions for residential small cell solutions. This transaction was recorded as an acquisition of a business. The transaction price was approximately $2.4 million, of which $1.4 million was paid in cash and approximately $1.0 million is contingent consideration payable as a royalty upon future sales of such products.
The fair value of the contingent consideration arrangement at the acquisition date was $0.5 million. We estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model (See Note 2). The purchase price was determined as follows (amounts in thousands):
Initial cash payment |
$ | 1,400 | ||
Fair value of contingent consideration |
540 | |||
|
|
|||
Total |
$ | 1,940 | ||
|
|
This purchase price was allocated to fixed assets and intangible assets based on their estimated fair values as follows (amounts in thousands):
Fixed assets |
$ | 50 | ||
Intangible assets |
1,890 | |||
|
|
|||
Total |
$ | 1,940 | ||
|
|
The estimated fair value of intangible assets acquired under the transaction consists of the following (in thousands):
Existing technology (estimated useful life 4 years) |
$ | 1,612 | ||
Customer relationships (estimated useful life 2 years) |
278 | |||
|
|
|||
Total |
$ | 1,890 | ||
|
|
The fair value of the acquired non-monetary assets, summarized above, were derived from significant unobservable inputs (Level 3 inputs) determined by the Company based on market analysis, income analysis (discounted cash flow model), or cost approach. The fair value of fixed assets acquired was determined using market data for similar assets. The fair value of existing technology was determined using a discounted cash flow model from cash flow projections prepared by management, including estimated undiscounted cash flows of approximately $3 million during the five to six year period after the acquisition, and a weighted average cost of capital. The fair value of customer relationships was determined using a cost approach which includes an estimate of time and expenses required to recreate the intangible asset.
During the second quarter of fiscal 2013, the Company acquired a product line (existing technology, inventories, and support from the former owner) to enhance the Companys product offerings of test and measurement solutions. This transaction has been recorded as an acquisition of a business. The transaction price was approximately $0.5 million payable in cash in periodic installments to the former owner. The purchase price was entirely allocated to existing technology (the acquired intangible asset) which has an estimated useful life of 5 years.
Pro forma results of operations have not been presented because the effect of the business combinations described in this Note was not material to our condensed consolidated results of operations. Revenue and earnings per share for the acquired businesses from the date of acquisition through March 31, 2013, were not material.
Note 13. Subsequent Event
Effective as of April 29, 2013, the Board of Directors of the Company appointed Elizabeth A. Fetter, a member of the Board of Directors of the Company, as the Companys Chief Executive Officer. Ms. Fetter replaces David G. Côté, who resigned as Chief Executive Officer and as a member of the Board of Directors of the Company effective as of the same date.
Item 2. Managements 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 together with the condensed consolidated financial statements and related notes included elsewhere in this report.
When used in this discussion or elsewhere in this report, the words expects, anticipates, estimates, believes, plans, will, intend, can and similar expressions are intended to identify forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
19
These risks and uncertainties include, but are not limited to, 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, our reliance on our contract manufacturer, the effects of increasing competition and competitive pricing pressure, uncertainties associated with changing intellectual property laws, developments in and expenses related to litigation, inability to obtain sufficient amounts of key components, the rescheduling or cancellations of key customer orders, 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, potential short-term investment losses and other risks due to credit market dislocation, geopolitical risks and risk of terrorist activities, the risks associated with attempting to integrate other companies and businesses we acquire, and the other risks set forth below in Part II, Item 1A, Risk Factors.
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 or on which any such statement is based.
All references to Symmetricom, we, us, and our mean Symmetricom, Inc. and its subsidiaries, except where it is made clear that the term means only the parent company. Dollar amounts in the tables in this Managements Discussion and Analysis of Financial Condition and Results of Operations are in thousands.
Overview
Symmetricom is a leading source worldwide of highly precise timekeeping technologies, instruments and solutions. We generate, distribute and apply precise time for the communications, aerospace/defense, power, IT infrastructure and metrology industries. Symmetricoms customers, from communications service providers and network equipment manufacturers to governments and their suppliers worldwide, are able to build more reliable networks and systems by using our advanced timing technologies, atomic clocks, services and solutions. Our products support todays precise timing standards, including GPS-based timing, IEEE 1588 (PTP), Network Time Protocol (NTP), Synchronous Ethernet, Building Integrated Timing Supply (BITS) and Data Over Cable Service Interface Specifications (DOCSIS(R)) timing.
Effective as of April 29, 2013, the Board of Directors of Symmetricom appointed Elizabeth A. Fetter, a member of Symmetricoms Board of Directors, as the Chief Executive Officer of Symmetricom. Ms. Fetter replaces David G. Côté, who resigned as Chief Executive Officer and as a member of the Board of Directors of Symmetricom effective as of the same date.
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures at the date of our financial statements. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. We believe that there have been no significant changes during the three and nine months ended March 31, 2013 to the items that we disclosed as our critical accounting policies and estimates in Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended July 1, 2012.
Known Trends and Uncertainties Impacting Future Results of Operations
Current macro-economic factors are dynamic and uncertain and are likely to remain so for the remainder of fiscal year 2013. If economic conditions remain uncertain or worsen, or if there are further reductions in government and/or defense spending, our customers may delay or reduce capital expenditures. Among other things, these factors could result in reductions in sales of our products and services, longer sales cycles, difficulties in collecting accounts receivable, additional excess and obsolete inventory, gross margin deterioration, slower adoption of new technologies, increased price competition and supplier difficulties.
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Results of Operations
The following table presents selected items in our condensed consolidated statements of operations as a percentage of total net revenue for the three and nine months ended March 31, 2013 and April 1, 2012:
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
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Net revenue |
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Communications |
56.2 | % | 54.0 | % | 55.1 | % | 56.8 | % | ||||||||
Government and Enterprise |
43.8 | % | 46.0 | % | 44.9 | % | 43.2 | % | ||||||||
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Total net revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of products and services |
53.7 | % | 59.0 | % | 55.6 | % | 55.8 | % | ||||||||
Acquisition-related costs |
0.4 | % | 0.1 | % | 0.5 | % | 0.3 | % | ||||||||
Restructuring charges |
0.7 | % | 0.1 | % | 0.2 | % | 0.7 | % | ||||||||
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Gross profit |
45.1 | % | 40.8 | % | 43.7 | % | 43.3 | % | ||||||||
Operating expenses: |
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Research and development |
15.5 | % | 11.8 | % | 15.4 | % | 11.7 | % | ||||||||
Selling, general and administrative |
27.4 | % | 23.6 | % | 28.7 | % | 25.1 | % | ||||||||
Amortization of intangible assets |
0.2 | % | 0.1 | % | 0.2 | % | 0.1 | % | ||||||||
Restructuring charges |
1.8 | % | (0.1 | )% | 1.4 | % | 0.1 | % | ||||||||
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Operating income (loss) |
0.3 | % | 5.4 | % | (1.9 | )% | 6.3 | % | ||||||||
Interest income, net of amortization (accretion) of premium (discount) on investment |
0.2 | % | 0.4 | % | 0.2 | % | (0.0 | )% | ||||||||
Income (loss) before taxes |
0.5 | % | 5.8 | % | (1.8 | )% | 6.3 | % | ||||||||
Income tax provision (benefit) |
(1.0 | )% | 2.1 | % | (1.0 | )% | 2.1 | % | ||||||||
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Net income (loss) |
1.5 | % | 3.6 | % | (0.7 | )% | 4.2 | % | ||||||||
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Net Revenue
Three Months Ended | Change | % Change | Nine Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
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Net Revenue: |
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Communications |
$ | 29,958 | $ | 32,646 | $ | (2,688 | ) | (8.2 | )% | $ | 87,585 | $ | 99,523 | $ | (11,938 | ) | (12.0 | )% | ||||||||||||||
Government and Enterprise |
23,391 | 27,792 | (4,401 | ) | (15.8 | ) | 71,306 | 75,587 | (4,281 | ) | (5.7 | ) | ||||||||||||||||||||
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Total Net Revenue |
$ | 53,349 | $ | 60,438 | $ | (7,089 | ) | (11.7 | )% | $ | 158,891 | $ | 175,110 | $ | (16,219 | ) | (9.3 | )% | ||||||||||||||
Percentage of Revenue |
100.0 | % | 100.0 | % | 100 | % | 100 | % |
Third Quarter of Fiscal 2013: Net revenue consists of sales of products, software licenses, and services. In the third quarter of fiscal 2013, net revenue decreased $7.1 million, or 11.7%, compared to the corresponding quarter of fiscal 2012. The decrease of $2.7 million, or 8.2%, in Communications revenue was due to lower sales of Traditional Synchronization equipment for wireline and cable network infrastructure. The decrease of $4.4 million, or 15.8%, in Government and Enterprise segment revenue was due to lower U.S. government spending partially offset by higher Quantum Chip Scale Atomic Clock (CSAC) revenue.
First Nine Months of Fiscal 2013: In the first nine months of fiscal 2013, net revenue decreased $16.2 million, or 9.3%, compared to the corresponding period of fiscal 2012. Communications revenue decreased $11.9 million, or 12.0%, compared to the same period for the prior year, due to lower sales of Traditional Synchronization equipment for wireline and cable network infrastructure, partially offset by higher Embedded Systems revenue. Government and Enterprise segment revenue decreased $4.3 million, or 5.7%, compared to the corresponding period of fiscal 2012 due to lower U.S. government spending partially offset by higher CSAC revenue.
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Gross Profit:
Three Months Ended | Change | % Change | Nine Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
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Gross Profit: |
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Communications |
$ | 15,814 | $ | 15,974 | $ | (160 | ) | (1.0 | )% | $ | 44,806 | $ | 49,716 | $ | (4,910 | ) | (9.9 | )% | ||||||||||||||
Government and Enterprise |
8,638 | 8,751 | (113 | ) | (1.3 | ) | 24,955 | 27,255 | (2,300 | ) | (8.4 | ) | ||||||||||||||||||||
Corporate related |
(369 | ) | (64 | ) | (305 | ) | 476.6 | (375 | ) | (1,155 | ) | 780 | (67.5 | ) | ||||||||||||||||||
Total Gross Profit |
$ | 24,083 | $ | 24,661 | $ | (578 | ) | (2.3 | )% | $ | 69,386 | $ | 75,816 | $ | (6,430 | ) | (8.5 | )% | ||||||||||||||
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Percentage of Revenue |
45.1 | % | 40.8 | % | 43.7 | % | 43.3 | % |
Third Quarter of Fiscal 2013: Gross profit as a percentage of revenue in the third quarter of fiscal 2013 increased to 45.1%, compared to 40.8% in the corresponding quarter of fiscal 2012, due to lower manufacturing costs.
In the third quarter of fiscal 2013, gross profit as a percentage of revenue for our Communications segment increased to 52.8%, compared to 48.9% in the same period of the prior year, due to lower manufacturing costs. Gross profit as a percentage of revenue for our Government and Enterprise segment increased to 36.9% in the third quarter of fiscal 2013, compared to 31.5% in the third quarter of fiscal 2012, due to lower manufacturing costs. Corporate related charges increased by $0.3 million, or 476.6%, in the third quarter of fiscal 2013 due to higher restructuring charges.
First Nine Months of Fiscal 2013: Gross profit as a percentage of revenue in the first nine months of fiscal 2013 increased to 43.7% compared to 43.3% in the corresponding period of fiscal 2012 due to lower manufacturing costs and a decline in corporate related charges.
In the first nine months of fiscal 2013, gross profit as a percentage of revenue for our Communications segment increased to 51.2%, compared to 50.0% in the corresponding period of fiscal 2012, due to lower manufacturing costs. Gross profit as a percentage of revenue for our Government and Enterprise segment decreased to 35.0% in the first nine months of fiscal 2013, compared to 36.1% in the corresponding period of fiscal 2012, due to an unfavorable product mix, partially offset by lower manufacturing costs. Corporate related charges decreased $0.8 million due to lower restructuring charges in the first nine months of fiscal 2013.
Operating Expenses:
Research and Development Expense:
Three Months Ended | Change | % Change | Nine Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
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Research and development expense |
$ | 8,291 | $ | 7,129 | $ | 1,162 | 16.3 | % | $ | 24,409 | $ | 20,575 | $ | 3,834 | 18.6 | % | ||||||||||||||||
Percentage of Revenue |
15.5 | % | 11.8 | % | 15.4 | % | 11.7 | % |
Third Quarter of Fiscal 2013: Research and development expense consists primarily of salaries and benefits, prototype expenses and fees paid to outside consultants. These expenses increased in the third quarter of fiscal 2013 due to higher outside consulting fees and prototype expenses for product development. We expect that research and development expenses in the fourth quarter of fiscal 2013 will be similar to the third quarter of fiscal 2013.
First Nine Months of Fiscal 2013: Research and development expenses in the first nine months of fiscal 2013 were higher than the same period of fiscal 2012 due to higher outside consulting fee and prototype expenses for product development.
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Selling, General and Administrative:
Three Months Ended | Change | % Change | Nine Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
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Selling, general and administrative |
$ | 14,593 | $ | 14,281 | $ | 312 | 2.2 | % | $ | 45,598 | $ | 43,955 | $ | 1,643 | 3.7 | % | ||||||||||||||||
Percentage of Revenue |
27.4 | % | 23.6 | % | 28.7 | % | 25.1 | % |
Third Quarter of Fiscal 2013: Selling, general and administrative expenses consist primarily of salaries, benefits, sales commissions and travel-related expenses for our sales and services, marketing, and general and administrative departments. Selling, general, and administrative expenses in the third quarter of fiscal 2013 were comparable to the same quarter of fiscal 2012. We expect that selling, general and administrative expenses in the fourth quarter of fiscal 2013 will be consistent with the third quarter of fiscal 2013.
First Nine Months of Fiscal 2013: Selling, general and administrative expenses were higher in the first nine months of fiscal 2013 than the same period for fiscal 2012 due to an increase in the allowance for doubtful accounts, deferred compensation plan charges, and consulting fees, partially offset by lower sales commissions and incentive compensation.
Amortization of intangible assets:
Three Months Ended | Change | % Change | Nine Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
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Amortization of intangible assets |
$ | 87 | $ | 52 | $ | 35 | 67.3 | % | $ | 259 | $ | 156 | $ | 103 | 66.0 | % | ||||||||||||||||
Percentage of Revenue |
0.2 | % | 0.1 | % | 0.2 | % | 0.1 | % |
Amortization of intangibles increased in the third quarter and first nine months of fiscal 2013 compared to the corresponding period of fiscal 2012 due to higher amortization of intangible assets arising from the assets acquired after the third quarter of fiscal 2012, partially offset by certain assets being fully amortized before or during the first nine months of fiscal 2013.
Restructuring charges:
Three Months Ended | Change | % Change | Nine Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
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Restructuring charges |
$ | 947 | $ | (76 | ) | $ | 1,023 | (1,346 | )% | $ | 2,148 | $ | 123 | $ | 2,025 | 1,646.3 | % | |||||||||||||||
Percentage of Revenue |
1.8 | % | (0.1 | )% | 1.4 | % | 0.1 | % |
Restructuring charges in the third quarter and first nine months of fiscal 2013 consisted of severance, consulting, and outside service charges related to our reduction in work force and facilities, and also due to the closing of our research and development operations in China.
Interest income, net of amortization (accretion) of premium (discount) on investments:
Three Months Ended | Change | % Change | Nine Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
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Interest income, net of amortization (accretion) of premium (discount) on investments |
$ | 98 | $ | 225 | $ | (127 | ) | (56.4 | )% | $ | 240 | $ | (5 | ) | $ | 245 | (4,900.0 | )% | ||||||||||||||
Percentage of Revenue |
0.2 | % | 0.4 | % | 0.2 | % | (0.0 | )% |
Interest income, net of amortization (accretion) of premium (discount) on investments decreased $0.1 million in the third quarter of fiscal 2013 compared to the same period of prior year due to lower yields in the third quarter of fiscal 2013.
Interest income, net of amortization (accretion) of premium (discount) on investments increased $0.2 million in the first nine months of fiscal 2013 compared to the same period of fiscal 2012 due to lower amortization of premium on investments in the first nine months of fiscal 2013.
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Income tax provision (benefit):
Three Months Ended | Change | % Change | Nine Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
March 31, 2013 |
April 1, 2012 |
March 31, 2013 |
April 1, 2012 |
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Income tax provision (benefit) |
$ | (556 | ) | $ | 1,296 | $ | (1,852 | ) | (142.9 | )% | $ | (1,629 | ) | $ | 3,604 | $ | (5,233 | ) | (145.2 | )% | ||||||||||||
Percentage of Revenue |
(1.0 | )% | 2.1 | % | (1.0 | )% | 2.1 | % |
Third Quarter of Fiscal 2013: We recorded an income tax benefit of $0.6 million in the third quarter of fiscal 2013, compared to a provision of $1.3 million in the corresponding quarter of fiscal 2012. Our effective tax rate in the third quarter of fiscal 2013 was -211%, compared to an effective tax rate of 37.0% in the corresponding period of fiscal 2012. We recorded a tax benefit for the third quarter of fiscal 2013 primarily due to the retroactive extension of the Federal research tax credit in the third quarter of fiscal 2013.
On January 2, 2013, the President signed into law The American Taxpayer Relief Act of 2012. Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2011. The 2012 Taxpayer Relief Act extends the research credit for two years to Dec. 31, 2013. The extension of the research credit is retroactive and includes amounts paid or incurred after Dec. 31, 2011. As a result of the retroactive extension, we recognized a benefit of approximately $0.5 million for qualifying amounts incurred in Fiscal 2012, and an estimated benefit of approximately $0.7 million for fiscal 2013.
First Nine Months of Fiscal 2013: The income tax benefit was $1.6 million in the first nine months of fiscal 2013, compared to an income tax provision of $3.6 million in the corresponding period of fiscal 2012. Our effective tax rate in the first nine months of fiscal 2013 was 58.4%, compared to an effective tax rate of 32.8% in the corresponding period of fiscal 2012. The effective tax rate for the first nine months of fiscal 2013 is higher than the statutory rate due to the retroactive extension of the research tax credit in the third quarter of fiscal 2013. The effective tax rate for the first nine months of fiscal 2012 benefited from the utilization of a capital loss and from the reversal of a reserve on an uncertain tax position due to expiration of the statute of limitation.
Key Operating Metrics
A key operating metric for measuring our performance is sales backlog. A comparison of this metric at the end of the third quarter of fiscal 2013 with the end of fiscal 2012 is below:
Sales Backlog:
Our backlog consists of firm orders that have yet to be shipped to the customer, or may not be shippable to a customer until a future period. Most orders included in backlog can be rescheduled or cancelled by customers without significant penalty. Historically, a substantial portion of net revenue in any fiscal period has been derived from orders received during that fiscal period.
Our backlog totaled $42.8 million as of March 31, 2013, compared to $45.4 million as of July 1, 2012. Our backlog, which is shippable within the next six months totaled $33.2 million as of March 31, 2013, compared to $34.9 million as of July 1, 2012.
Liquidity and Capital Resources
Balance Sheet and Cash Flows
The following table summarizes our cash, cash equivalents and short-term investments:
March 31, 2013 |
July 1, 2012 |
Change | ||||||||||
Cash and cash equivalents |
$ | 22,371 | $ | 27,659 | $ | (5,288 | ) | |||||
Short-term investments |
47,351 | 39,280 | 8,071 | |||||||||
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Total |
$ | 69,722 | $ | 66,939 | $ | 2,783 | ||||||
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As of March 31, 2013, our principal sources of liquidity consisted of cash, cash equivalents, and short-term investments of $69.7 million and accounts receivable of $38.9 million.
As of March 31, 2013, working capital was $138.7 million compared to $140.0 million as of July 1, 2012. Cash, cash equivalents and short-term investments as of March 31, 2013 increased to $69.7 million from $66.9 million as of July 1, 2012.
Our days sales outstanding in accounts receivable was 66 days as of March 31, 2013, compared to 67 days as of July 1, 2012.
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Our principal uses of cash historically have consisted of the purchase of inventories, payroll, and other operating expenses related to the manufacturing of products, development of new products, and purchase of property and equipment.
Cash flows from operating activities
Net cash provided by operating activities in the first nine months of fiscal 2013 was $11.5 million. Net cash provided by operating activities consisted of non-cash charges of $11.3 million and net changes in assets and liabilities of $1.3 million, partially offset by a net loss of $1.2 million. The non-cash charges consisted of $4.9 million in depreciation and amortization, $5.3 million in stock-based compensation, $2.1 million in provision for excess and obsolete inventory, allowance for doubtful accounts of $0.6 million and $0.4 million of loss on disposal of fixed assets, partially offset by a $1.9 million use of deferred income taxes. Net changes in assets and liabilities consisted primarily of a $6.5 million decrease in accounts receivable, a $0.6 million increase in accounts payable, and a decrease in prepaids and other assets of $0.8 million, partially offset by an increase in inventories of $1.7 million, a decrease in accrued compensation of $2.7 million and a decrease in other accrued liabilities of $2.2 million.
Cash flows from investing activities
Net cash used in investing activities was $13.9 million in the first nine months of fiscal 2013, which included the purchase of $33.3 million of short-term investments and $4.4 million of property, plant and equipment, partially offset by the sale/maturities of short-term investments of $24.5 million.
Cash flows from financing activities
Net cash used for financing activities was $2.9 million in the first nine months of fiscal 2013, which represented the repurchase of $5.6 million of common stock, partially offset by 2.7 million of cash generated from the issuance of common stock under our ESPP and stock option program.
Contingencies
See Item 1 of Part I, Financial StatementsNote 10Litigation and Contingencies.
Recently Issued Accounting Pronouncements
See Item 1 of Part I, Financial StatementsNote 1Basis of Presentation and Recently Issued Accounting Pronouncements.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
For quantitative and qualitative disclosures about market risk affecting Symmetricom, see Quantitative and Qualitative Disclosures About Market Risk in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended July 1, 2012. Our exposure to market risk has not changed materially since July 1, 2012.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 1. | Legal Proceedings |
See Item 1 of Part I, Financial StatementsNote 10Litigation and Contingencies.
Item 1A. | Risk Factors |
In addition to the other information set forth in this report and the new risk factors set forth below, you should carefully consider the risk factors discussed in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for our fiscal year ended July 1, 2012. The risks discussed in our Annual Report on Form 10-K and the new risk factors set forth below could materially affect our business, financial condition and results of operations. The risks described in our Annual Report on Form 10-K and the new risk factors set forth below are not the only risks facing us. Other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results. Two new risk factors are set forth below:
Reductions in defense spending could adversely affect our business
In August 2011, Congress enacted the Budget Control Act of 2011 (the BCA), which requires spending caps and certain reductions in security spending over a ten-year period through 2021. Budget cuts (or sequestration) began to be implemented on March 1, 2013, and without additional congressional action, further sequestration as set forth in the BCA may be implemented. The impact of sequestration is yet to be fully determined. Sequestration could have a material adverse effect on our business and results of operations. Significant additional reductions to defense spending could occur over the next decade, which could have a significant adverse impact on us.
A decline in demand for Symmetricoms mature products and technologies has adversely affected, and may continue to adversely affect, our business
A material amount of Symmetricoms revenue is derived from products and technologies that are sold in relatively mature markets, such as the wireline and cable markets within our Communications business. We have experienced declining market demand for these products as our customers shift spending to newer technologies such as wireless infrastructure. We do not currently expect market demand for these and other mature products and technologies to increase. Accordingly, we expect our revenue from these products and technologies to be stagnant or to decline over time. However, the extent to which market demand for these mature products and technologies will affect our business cannot be predicted with certainty. Continuing decreases in market demand for these products and technologies, particularly if we are unable to offset these decreases with other sources of revenue, could materially adversely affect our revenue and profitability.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
a) | Not applicable. |
b) | Not applicable. |
c) | None |
We repurchased 33,000 shares in the third quarter of fiscal 2013 for an aggregate price of approximately $0.2 million to cover the cost of employee income taxes on option exercises.
As of March 31, 2013, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 1.9 million.
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
Not applicable.
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Item 6. | Exhibits |
Exhibit |
Description of Exhibits | |
10.1 | Amendment 3 to Manufacturing Service Agreement , dated as of March 1, 2013, by and between Symmetricom, Inc. and SANMINA Corporation. | |
31 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | Interactive Data File. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.
SYMMETRICOM, INC. | ||||||
(Registrant) | ||||||
Date: May 8, 2013 | By: | /S/ ELIZABETH A. FETTER | ||||
Elizabeth A. Fetter | ||||||
Chief Executive Officer (Principal Executive Officer) and Director | ||||||
Date: May 8, 2013 | By: | /S/ JUSTIN R. SPENCER | ||||
Justin R. Spencer | ||||||
Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) |
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Exhibit 10.1
AMENDMENT 3 TO
MANUFACTURING SERVICE AGREEMENT
This Amendment 3 (Amendment) is made and entered into as of this 1st day of March, 2013 (the Effective Date), by and between SANMINA Corporation (formerly Sanmina-SCI Corporation), a Delaware corporation having a principal place of business at 2700 North First Street, San Jose, California 95134 (SANMINA) and Symmetricom, Inc., a Delaware corporation, having a principal place of business at 2300 Orchard Parkway, San Jose, CA 95131 (CUSTOMER). CUSTOMER and Sanmina- are sometimes collectively referred to as a Party and the Parties.
WHEREAS, the Parties entered into a Manufacturing Services Agreement dated March 22, 2010 (the Agreement):
WHEREAS, the Parties entered into Addendum One, dated September 18, 2009, to add Prepaid Inventory Program ordering process and inventory management to the Agreement;
WHEREAS, the Parties entered into Addendum Two, dated April 2, 2010, to add transition project management services to be provided by Sanmina-SCI in connection with the closure of Customers Puerto Rico facility;
WHEREAS, the Parties entered into Amendment One, dated May 16, 2012 to amend certain terms of the Agreement and add 3PL services to the Agreement;
WHERAS, the Parties entered into Amendment Two, dated July 27, 2012 to add supplier managed inventory to the Agreement;
WHEREAS, the Parties desire to further amend certain terms in the Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby expressly acknowledged, the Parties agree to amend the Agreement as follows:
Section 10.6 is hereby added to the Agreement:
For avoidance of doubt, the Parties agree that Sections 10.5 Migration Assistance. 10.5.1 Migration Fees and 10.5.2 shall also apply in the event of the termination of any agreement between the Parties.
Section 12.3 Space of Exhibit F Service Level Agreement for 3PL to Amendment One of the Agreement is hereby deleted in its entirety.
Section 6.1(b) of Exhibit F Shipping Terms to Amendment One of the Agreement is hereby deleted and replaced with:
6.1(b): Title transfer of Sanmina supplied Products shall transfer to Customer upon shipment from Sanmina manufacturing facility to the Symmetricom 3PL site.
1. | Entire Agreement. |
The Agreement together with the Addenda, Amendments 1, 2 and this Amendment constitute the entire agreement between the Parties hereto with respect to the subject matter hereof, and supersede all prior or contemporaneous agreements, representations, warranties, statements, promises and undertakings, whether oral or written. In the event of a conflict between the terms and conditions of this Amendment and the terms of the Agreement with respect to the subject matter hereof, the terms of this Amendment shall control. Except
CONFIDENTIAL
Page 1 of 2
as specifically amended by this Amendment 3, all of the provisions of the Agreement shall remain in full force and effect and be binding upon the parties hereto. The Agreement may not be amended, altered or modified except by a writing signed by both.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.
SANMINA CORPORATION | SYMMETRICOM, INC | |||
Authorized Signature |
Authorized Signature | |||
Printed Name |
Printed Name | |||
Title |
Title |
CONFIDENTIAL
Page 2 of 2
Exhibit 31
CERTIFICATION
I, Elizabeth A. Fetter, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Symmetricom, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 8. 2013
/s/ ELIZABETH A. FETTER |
Elizabeth A. Fetter |
Chief Executive Officer and Director |
CERTIFICATION
I, Justin R. Spencer, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Symmetricom, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 8. 2013
/s/ JUSTIN R. SPENCER |
Justin R. Spencer |
Executive Vice President, Chief Financial Officer and Secretary |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Elizabeth A. Fetter, Chief Executive Officer of Symmetricom, Inc. (the Company), pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify to my knowledge that:
i. | the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2013 (the Report) fully complies with the requirements of Section 13 (a) or Section 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
ii. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
DATE: May 8. 2013 | By: | /s/ ELIZABETH A. FETTER | ||||
Elizabeth A. Fetter, | ||||||
Chief Executive Officer |
* * * * *
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Justin R. Spencer, Chief Financial Officer of Symmetricom, Inc. (the Company), pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify to my knowledge that:
i. | the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2013 (the Report) fully complies with the requirements of Section 13 (a) or Section 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
ii. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
DATE: May 8. 2013 | By: | /s/ JUSTIN R. SPENCER | ||||
Justin R. Spencer | ||||||
Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) |
Intangible Assets - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2013
|
Apr. 01, 2012
|
Mar. 31, 2013
|
Apr. 01, 2012
|
|
Goodwill And Intangible Assets Disclosure [Abstract] | ||||
Intangible asset amortization expense | $ 87 | $ 52 | $ 259 | $ 156 |
Business Combination - Additional Information (Detail) (USD $)
|
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2013
|
Dec. 30, 2012
|
Apr. 01, 2012
|
|
Business Combinations [Abstract] | |||
Transaction price for acquisition of business | $ 500,000 | $ 2,400,000 | |
Initial cash payment | 1,400,000 | ||
Contingent consideration payable for acquisition of business | 1,000,000 | ||
Fair value of the contingent consideration arrangement at the acquisition date | 540,000 | ||
Estimated undiscounted cash flow of asset acquired | $ 3,000,000 | ||
Estimated useful life of acquired intangible asset | 5 years |
Restructuring Charges - Additional Information (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2013
|
Apr. 01, 2012
|
Mar. 31, 2013
|
Apr. 01, 2012
|
|
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring activities | $ 947 | $ (76) | $ 2,148 | $ 123 |
Research and development operations [Member]
|
||||
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring activities | $ 2,500 | |||
Lease loss accruals payment period | 3 years |
Business Combination - Purchase Price of Contingent Consideration (Detail) (USD $)
|
Apr. 01, 2012
|
---|---|
Business Combinations [Abstract] | |
Initial cash payment | $ 1,400,000 |
Fair value of contingent consideration | 540,000 |
Total | $ 1,940,000 |
Financial Instruments - Summarizes Available-for-Sale and Trading Securities (Detail) (USD $)
In Thousands, unless otherwise specified |
Mar. 31, 2013
|
Jul. 01, 2012
|
---|---|---|
Investments Debt And Equity Securities [Abstract] | ||
Less than 1 year, Amortized Cost | $ 19,518 | |
Due in 1 to 3 years, Amortized Cost | 25,022 | |
Total, Amortized Cost | 55,005 | 47,930 |
Less than 1 year, Fair Value | 19,521 | |
Due in 1 to 3 years, Fair Value | 25,006 | |
Total, Fair Value | $ 44,527 |
Business Combination - Estimated Fair Value of Intangible Assets Acquired under the Transaction (Detail) (USD $)
In Thousands, unless otherwise specified |
Apr. 01, 2012
|
---|---|
Acquired Finite-Lived Intangible Assets [Line Items] | |
Total | $ 1,890 |
Existing technology [Member]
|
|
Acquired Finite-Lived Intangible Assets [Line Items] | |
Total | 1,612 |
Customer relationships [Member]
|
|
Acquired Finite-Lived Intangible Assets [Line Items] | |
Total | $ 278 |
Long-term Obligations (Tables)
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2013
|
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Text Block [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Obligations | Long-term obligations consist of:
|
Net Income (Loss) Per Share - Schedule of Common Stock Equivalents Excluded from Diluted Earnings per Share Calculation (Detail)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2013
|
Apr. 01, 2012
|
Mar. 31, 2013
|
Apr. 01, 2012
|
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Stock options | 5,203 | 4,310 | 3,116 | 4,028 |
Common shares subject to repurchase | 360 | |||
Stock Options [Member]
|
||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Stock options | 5,203 | 4,310 | 3,476 | 4,028 |
Intangible Assets - Other Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified |
Mar. 31, 2013
|
Jul. 01, 2012
|
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 34,174 | $ 33,273 |
Accumulated Amortization | (30,655) | (29,815) |
Net Intangible Assets | 3,519 | 3,458 |
Purchased technology [Member]
|
||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 26,871 | 25,970 |
Accumulated Amortization | (24,424) | (23,845) |
Net Intangible Assets | 2,447 | 2,125 |
Customer lists and trademarks [Member]
|
||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 7,303 | 7,303 |
Accumulated Amortization | (6,231) | (5,970) |
Net Intangible Assets | $ 1,072 | $ 1,333 |
Business Segment Information - Schedule of business segment information (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2013
|
Apr. 01, 2012
|
Mar. 31, 2013
|
Apr. 01, 2012
|
|
Segment Reporting Information [Line Items] | ||||
Net revenue | $ 53,349 | $ 60,438 | $ 158,891 | $ 175,110 |
Cost of sales | 29,266 | 35,777 | 89,505 | 99,294 |
Gross profit | 24,083 | 24,661 | 69,386 | 75,816 |
Operating expenses | 23,918 | 21,386 | 72,414 | 64,809 |
Operating income (loss) | 165 | 3,275 | (3,028) | 11,007 |
Selling, general and administrative costs | 14,593 | 14,281 | 45,598 | 43,955 |
Restructuring charges | 947 | (76) | 2,148 | 123 |
Intersegment Elimination [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Selling, general and administrative costs | 6,912 | 5,643 | 21,571 | 16,604 |
Restructuring charges | 1,322 | (11) | 2,519 | 1,279 |
Corporate-related total | 8,234 | 5,632 | 24,090 | 17,883 |
Communications [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Net revenue | 29,958 | 32,646 | 87,585 | 99,523 |
Cost of sales | 14,144 | 16,672 | 42,779 | 49,807 |
Gross profit | 15,814 | 15,974 | 44,806 | 49,716 |
Operating expenses | 8,916 | 9,121 | 27,705 | 28,369 |
Operating income (loss) | 6,898 | 6,853 | 17,101 | 21,347 |
Government and Enterprise [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Net revenue | 23,391 | 27,792 | 71,306 | 75,587 |
Cost of sales | 14,753 | 19,041 | 46,351 | 48,332 |
Gross profit | 8,638 | 8,751 | 24,955 | 27,255 |
Operating expenses | 7,137 | 6,697 | 20,994 | 19,712 |
Operating income (loss) | 1,501 | 2,054 | 3,961 | 7,543 |
Corporate [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Net revenue | ||||
Cost of sales | 369 | 64 | 375 | 1,155 |
Gross profit | (369) | (64) | (375) | (1,155) |
Operating expenses | 7,865 | 5,568 | 23,715 | 16,728 |
Operating income (loss) | $ (8,234) | $ (5,632) | $ (24,090) | $ (17,883) |
Inventories
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2013
|
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | Note 3. Inventories Components of inventories were as follows:
|