SYMMETRICOM
TAX DEFERRED SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
Note 1. Description of Plan
The following description of the Symmetricom Tax Deferred Savings Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
General – The Plan is a defined contribution plan, covering substantially all eligible employees of Symmetricom, Inc. (the company) who have attained the age of eighteen (18) as defined in the Plan and who are not leased employees. The Plan was effective April 1, 1989 and was subsequently amended and restated mainly to comply with regulatory changes. The Plan was most recently amended and restated effective January 1, 2006. The Plan is subject to the provisions of the Employee Retirement Income Security Act (ERISA) of 1974.
Contributions – Participants may elect to have the company contribute their eligible pre-tax compensation to the Plan up to the amount allowable under the Plan document, not exceeding the Internal Revenue Code limitations of $15,000 in 2006 and $14,000 in 2005. Participants, who are at least age 50 or older by the end of the calendar year, may also make additional contributions (“catch-up contributions”) of $5,000 in 2006 and $4,000 in 2005.
The company shall make a regular matching contribution of the Plan for each contribution period, as defined, on behalf of each of its participants during the contribution period, who has met the allocation requirements for regular matching contributions. The amount of such regular matching contributions shall be equal to 50% of the participants’ tax-deferred contribution made for the contribution period on behalf of such participant, up to a maximum of 3% of the participant’s eligible compensation. The company made a regular matching contribution of $476,953 and $357,197 during the years ended December 31, 2006 and 2005, respectively.
The company, in its discretion, may elect to make a true-up matching contribution on behalf of its participants during the contribution period in an amount which, when aggregated with the regular matching contribution with respect to the contribution period within the Plan year, will provide the maximum matching contribution. The company made a true-up matching contribution of $46,566 and $49,803 during the years ended December 31, 2006 and 2005, respectively.
The company may also make an additional matching contribution on behalf of its participants in an amount up to 100% of such participant contributions, up to a maximum of 1% of the participant’s eligible compensation for the applicable six-month period. Such additional matching contribution is determined in the first or second six-consecutive month period of a
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calendar year, and shall be made as of June 30 and December 31. The company made an additional matching contribution of $178,147 and $160,443 during the years ended December 31, 2006 and 2005, respectively.
Participant Accounts – Each participant’s account is credited with the participant’s contribution, and allocations of regular and additional matching contributions by the company and Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings on account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting – Participants are immediately vested in their elective deferral and rollover, plus actual earnings thereon. Participants are likewise 100% vested in the company’s regular and true-up matching contributions, plus actual earnings thereon, allocated to the participant’s account prior to January 1, 2001 and between January 1, 2002 and June 30, 2003. A participant’s vested interest in his or her additional matching contribution shall be at all times 100%.
A participant’s vested interest in the regular and true-up matching contributions allocated to his or her account during the 2001 plan year and on and after July 1, 2003 shall be determined in accordance with the following schedule:
Years of Vesting Service | | Percentage Vested | |
| | | |
Less than 1 | | 0 | % |
1 | | 25 | % |
2 | | 50 | % |
3 | | 100 | % |
For the above purpose, a “vesting service” shall be computed to the nearest 1/12th of a year treating each calendar month or potion of a calendar month in which a participant is credited continuous service as 1/12th year of vesting service.
Participant Loans – The Plan allows the participants to borrow a portion of the balance in their plan accounts, subject to the approval of the Plan Administrator. A participant may borrow an amount not to exceed the lesser of 50% of his or her total vested account balance or $50,000, less the highest outstanding loan balance during the previous twelve-month period. The term for repayment of any loan may not exceed five years, unless the loan is used to purchase a primary residence which may be repaid within ten year-period. The loans are secured by the balance in the participants account and bear interest at rates that range from 5% and 10.5%, which are commensurate with local prevailing rates as determined by the Plan Administrator. Principal and interest repayments are paid ratably through semi-monthly payroll deductions.
Withdrawals and Benefits Paid to Participants – In the event of a termination of employment due to death, disability, retirement or for other reasons, a participant will be entitled to receive his or her vested account balance in
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lump sum amount. If the value of the participant’s vested account balance exceeds $1,000, distribution of such vested interest shall not commence to such participant without the participant’s written consent. If the value of the participant’s vested account balance is equal to or less than $1,000, distribution of such vested interest shall be made to the participant in a single lump sum payment or through a direct rollover as soon a reasonably practicable.
The withdrawals and benefits paid to participants were $5,727,309 and $5,006,728 during the years ended December 31, 2006 and 2005, respectively.
Rollover Contributions – Participants may rollover part or all of an eligible rollover distribution participants’ received from a prior employer’s qualified plan.
Forfeited Accounts – Forfeited nonvested accounts will be used to reduce employer contributions and Plan expenses. The total forfeited nonvested accounts used to reduce employer contributions and administrative expenses were $23,047 and $52,176 during the years ended December 31, 2006 and 2005, respectively.
Administrative Expenses – Administrative expenses, which include legal, accounting and data processing fees, are substantially paid by the company.
Note 2. Summary of Significant Accounting Policies
Basis of Accounting – The accompanying financial statements have been prepared on the accrual basis of accounting.
Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires the plan administrator to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Investment Valuation and Income Recognition – The Plan’s investments are stated at fair value except for its benefit-responsive investment contract which is valued at contract value. See Note 4. Quoted market prices are used to value investments. Participant loans are valued at cost, which approximates fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Payment of Benefits – Benefits are recorded when paid.
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Note 3. Investments
The following table presents investments that represent 5% or more of the Plan’s net assets as of December 31, 2006 and 2005:
| | 2006 | | 2005 | |
| | | | | |
Guaranteed Income Fund | | $ | 8,325,610 | | $ | 8,894,864 | |
Large Cap Value/AJO Fund | | 4,683,886 | | 4,106,855 | |
Symmetricom, Inc. Common Stock | | 4,232,964 | | 4,642,055 | |
Fdlty Adv Equity Growth | | 3,911,771 | | 4,077,276 | |
Dryden S&P 500 Index Fund | | 3,110,633 | | 3,571,169 | |
SSGA Pass Interm Bnd Ind | | 1,989,953 | | 1,912,029 | |
Other funds individually less than 5% of net assets | | 13,158,957 | | 10,638,843 | |
| | | | | |
| | 39,413,774 | | 37,843,091 | |
| | | | | |
Participant loans | | 496,534 | | 419,747 | |
| | | | | |
Total assets held for investment purposes | | $ | 39,910,308 | | $ | 38,262,838 | |
Participants may elect to have their account balance invested in a single investment fund or in any combination of investment funds. The investment funds are held and managed by Prudential Retirement Insurance and Annuity Company and Prudential Bank & Trust, F.S.B. (collectively known as Prudential), the Plan’s trustee (custodians). The company has no authority on how each fund is managed or invested.
The Plan’s investments (including gains and losses on investments bought, sold and held during the year) appreciated in fair value by $3,284,233 and $481,943 during the years ended December 31, 2006 and 2005, respectively as follows:
| | 2006 | | 2005 | |
| | | | | |
Pooled separate accounts | | $ | 3,057,231 | | $ | 1,117,999 | |
Common stock | | 227,002 | | (636,056 | ) |
| | | | | |
| | $ | 3,284,233 | | $ | 481,943 | |
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Note 4. Investment Contract
The Plan entered into a benefit-responsive investment contract with the Prudential Retirement Insurance and Annuity Company, the Plan’s trustee (custodian). The Plan trustee (custodian) maintains the contributions in a general account. The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The contract is included in the financial statements at the contract value, which approximates fair value, as reported to the Plan by the Plan trustee (custodian). The contract value represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at its fair market value.
There were no reserves against the contract value for the credit risk of the contract issuer or otherwise. The average yield or crediting interest rates were approximately 3.15% to 3.55% and 3.05% to 3.15 % during the years ended December 31, 2006 and 2005, respectively. The crediting interest was based on a formula agreed upon with the issuer by considering projected investment earnings, current interest environment and profit-risk component for the six-month period, among others. Such interest rates are reviewed every six months for resetting.
Note 5. Related Party Transactions
Plan assets include certain investments being managed by Prudential Retirement Insurance and Annuity Company and Prudential Bank & Trust, F.S.B. (collectively known as Prudential), the Plan’s trustee (custodians). As the trustee (custodians), Prudential performs administrative functions such as handling contributions and benefit payments. Accordingly, such transactions are considered related party transactions. In addition, company personnel and facilities are used to perform various administrative functions on behalf of the Plan, with no charge to the Plan.
As allowed by the Plan, participants may elect to invest a portion of their accounts in the common stock of the company. The aggregate number of shares and fair value of investment in company common stock were 474,548 shares and $4,232,964, and 548,058 shares and $4,642,055 as of December 31, 2006 and 2005, respectively.
Note 6. Plan Termination
Although it has not expressed any intent to do so, the company has the right under the Plan to discontinue or amend its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of a Plan termination, participants will become 100% vested in their accounts.
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Note 7. Income Tax Status
The Plan obtained its latest determination letter dated September 26, 2005, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code.
Note 8. Risk and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rates, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participant’s account balances and the amounts reported in the statement of net assets available for benefits.
Note 9. Other
The Plan did not pass the 401(k) Actual Deferral Percentage (ADP) test for the plan year ended December 31, 2006. As an acceptable corrective action plan, the Plan will make a qualified non-elective contribution totaling $5,736 during the plan year ending December 31, 2007.
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SUPPLEMENTAL SCHEDULE
SYMMETRICOM TAX DEFERRED SAVINGS PLAN
Employer Identification Number: 95-1906306
Plan Number: 001
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2006
(a) | | (b)
Identity of issue, borrower,
lessor, or similar party | | (c)
Description of investment including
maturity date, rate of interest,
collateral, par, or maturity value | | (d)
Current Value | |
| | | | | | | |
| | Prudential Retirement Insurance and Annuity Company / Prudential Bank & Trust, F.S.B: | | | | | |
* | | Guaranteed Income Fund | | Annuity contract | | $ | 8,325,610 | |
* | | Large Cap Value/AJO Fund | | Pooled separate account | | 4,683,886 | |
* | | Fdlty Adv Equity Growth | | Pooled separate account | | 3,911,771 | |
* | | Dryden S&P 500 Index Fund | | Pooled separate account | | 3,110,633 | |
* | | SSGA Pass Interm Bnd Ind | | Pooled separate account | | 1,989,953 | |
* | | Openheimer Global Fund | | Pooled separate account | | 1,828,978 | |
* | | Retirement Goal 2020 Fund | | Pooled separate account | | 1,717,886 | |
* | | Wells Fargo Adv Sm Cap Z | | Pooled separate account | | 1,486,035 | |
* | | Mid Cap Value/Well Mgmt | | Pooled separate account | | 1,470,622 | |
* | | Fidelity Adv Value Strat | | Pooled separate account | | 1,447,399 | |
* | | Turner Mid-Cap Growth Fund | | Pooled separate account | | 1,249,734 | |
* | | Retirement Goal 2030 Fund | | Pooled separate account | | 973,279 | |
* | | AM Century Intl Growth | | Pooled separate account | | 663,296 | |
* | | Templeton Foreign Account | | Pooled separate account | | 633,472 | |
* | | Retirement Goal 2010 Fund | | Pooled separate account | | 513,990 | |
* | | Janus Account | | Pooled separate account | | 450,369 | |
* | | Retirement Goal 2040 Fund | | Pooled separate account | | 335,222 | |
* | | SM Cap Growth/Essex | | Pooled separate account | | 224,828 | |
* | | Retirement Goal Income Fd | | Pooled separate account | | 163,847 | |
* | | Prudential Retirement Brokerage Services | | Symmetricom, Inc. Common Stock | | 4,232,964 | |
| | Participant loans | | 5.00% to 10.50% interest rates | | 496,534 | |
| | | | | | |
| Total assets held for investment purposes | | | | $ | 39,910,308 | |
* Investment managed by party-in-interest to the Plan.
The accompanying independent auditors’ report and notes to financial statements
should be read in conjunction with this schedule.
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EXHIBIT INDEX
Exhibit
Number | | Description |
23.1 | | Consent of Independent Registered Public Accounting Firm |
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