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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 December 26, 2010
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)
Registrant’s 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 ¨ 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 issuer’s classes of common stock, as of the latest practical date:
Class | Outstanding as of January 24, 2011 | |
| Common Stock | 43,457,708 |
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SYMMETRICOM, INC.
FORM 10-Q
| Page | ||||||
| PART I. FINANCIAL INFORMATION | ||||||
Item 1. | Financial Statements: | |||||
Condensed Consolidated Balance Sheets—December 26, 2010 and June 27, 2010 | 3 | |||||
| 4 | ||||||
| 5 | ||||||
| 6 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||||
Item 3. | 26 | |||||
Item 4. | 26 | |||||
| PART II. OTHER INFORMATION | ||||||
Item 1. | Legal Proceedings | 27 | ||||
Item 1A. | Risk Factors | 27 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 | ||||
Item 3. | Defaults Upon Senior Securities | 27 | ||||
Item 4. | Removed and Reserved | 27 | ||||
Item 5. | Other Information | 27 | ||||
Item 6. | Exhibits | 28 | ||||
| 29 | ||||||
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| Item 1. | Financial Statements |
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
| December 26, 2010 | June 27, 2010 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 25,722 | $ | 21,794 | ||||
Short-term investments | 52,739 | 53,825 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $433 and $427 | 25,527 | 40,075 | ||||||
Inventories | 41,665 | 37,229 | ||||||
Prepaids and other current assets | 14,650 | 15,108 | ||||||
Total current assets | 160,303 | 168,031 | ||||||
Property, plant and equipment, net | 22,570 | 23,077 | ||||||
Intangible assets, net | 3,068 | 3,745 | ||||||
Deferred taxes and other assets | 38,077 | 36,534 | ||||||
Total assets | $ | 224,018 | $ | 231,387 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 7,136 | $ | 6,768 | ||||
Accrued compensation | 13,849 | 18,731 | ||||||
Accrued warranty | 2,002 | 2,900 | ||||||
Other accrued liabilities | 12,277 | 10,506 | ||||||
Total current liabilities | 35,264 | 38,905 | ||||||
Long-term obligations | 6,560 | 8,296 | ||||||
Deferred income taxes | 334 | 334 | ||||||
Total liabilities | 42,158 | 47,535 | ||||||
Commitments and contingencies (Note 10) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.0001 par value; 500 shares authorized, none issued | — | — | ||||||
Common stock, $0.0001 par value; 70,000 shares authorized, 50,357 shares issued and 43,386 outstanding at December 26, 2010; 49,933 shares issued and 43,699 outstanding at June 27, 2010 | 200,622 | 202,450 | ||||||
Accumulated other comprehensive loss | (216 | ) | (356 | ) | ||||
Accumulated deficit | (18,546 | ) | (18,242 | ) | ||||
Total stockholders’ equity | 181,860 | 183,852 | ||||||
Total liabilities and stockholders’ equity | $ | 224,018 | $ | 231,387 | ||||
See notes to the condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
Net revenue | $ | 41,844 | $ | 56,862 | $ | 96,223 | $ | 109,130 | ||||||||
Cost of sales: | ||||||||||||||||
Cost of products and services | 23,222 | 30,884 | 49,828 | 60,421 | ||||||||||||
Amortization of purchased technology | 267 | 368 | 554 | 736 | ||||||||||||
Restructuring charges | 3,910 | 931 | 7,657 | 1,793 | ||||||||||||
Total cost of sales | 27,399 | 32,183 | 58,039 | 62,950 | ||||||||||||
Gross profit | 14,445 | 24,679 | 38,184 | 46,180 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 6,738 | 6,113 | 13,344 | 11,827 | ||||||||||||
Selling, general and administrative | 13,596 | 14,259 | 26,395 | 27,798 | ||||||||||||
Amortization of intangible assets | 61 | 62 | 123 | 157 | ||||||||||||
Restructuring charges | 38 | 535 | (843 | ) | 1,011 | |||||||||||
Total operating expenses | 20,433 | 20,969 | 39,019 | 40,793 | ||||||||||||
Operating income (loss) | (5,988 | ) | 3,710 | (835 | ) | 5,387 | ||||||||||
Interest income, net of amortization (accretion) of premium (discount) on investments | 331 | 505 | 223 | 966 | ||||||||||||
Interest expense | — | (1,270 | ) | (55 | ) | (2,544 | ) | |||||||||
Income (loss) from continuing operations before taxes | (5,657 | ) | 2,945 | (667 | ) | 3,809 | ||||||||||
Income tax provision (benefit) | (2,181 | ) | 1,055 | (285 | ) | 1,370 | ||||||||||
Income (loss) from continuing operations | $ | (3,476 | ) | $ | 1,890 | $ | (382 | ) | $ | 2,439 | ||||||
Income (loss) from discontinued operations, net of tax | (49 | ) | (391 | ) | 78 | (766 | ) | |||||||||
Net income (loss) | $ | (3,525 | ) | $ | 1,499 | $ | (304 | ) | $ | 1,673 | ||||||
Earnings per share - basic: | ||||||||||||||||
Income (loss) from continuing operations | $ | (0.08 | ) | $ | 0.04 | $ | (0.01 | ) | $ | 0.06 | ||||||
Income (loss) from discontinued operations | — | (0.01 | ) | — | (0.02 | ) | ||||||||||
Net income (loss) | $ | (0.08 | ) | $ | 0.03 | $ | (0.01 | ) | $ | 0.04 | ||||||
Weighted average shares outstanding - basic | 43,272 | 43,313 | 43,351 | 43,245 | ||||||||||||
Earnings per share - diluted: | ||||||||||||||||
Income (loss) from continuing operations | $ | (0.08 | ) | $ | 0.04 | $ | (0.01 | ) | $ | 0.06 | ||||||
Income (loss) from discontinued operations | — | (0.01 | ) | — | (0.02 | ) | ||||||||||
Net income (loss) | $ | (0.08 | ) | $ | 0.03 | $ | (0.01 | ) | $ | 0.04 | ||||||
Weighted average shares outstanding - diluted | 43,272 | 43,708 | 43,351 | 43,771 | ||||||||||||
See notes to the condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended | ||||||||
| December 26, 2010 | December 27, 2009 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (304 | ) | $ | 1,673 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 3,879 | 3,903 | ||||||
Non-cash interest on convertible bonds | — | 1,534 | ||||||
Deferred income taxes | (723 | ) | 1,101 | |||||
Loss on disposal of fixed assets | 5 | — | ||||||
Stock-based compensation | 1,456 | 1,794 | ||||||
Allowance for doubtful accounts | 31 | 27 | ||||||
Provision for excess and obsolete inventory | 333 | 1,029 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 14,517 | 4,680 | ||||||
Inventories | (4,769 | ) | (864 | ) | ||||
Prepaids and other assets | (122 | ) | 479 | |||||
Accounts payable | 341 | (798 | ) | |||||
Accrued compensation | (4,882 | ) | (2,961 | ) | ||||
Other accrued liabilities | (863 | ) | 2,163 | |||||
Net cash provided by operating activities | 8,899 | 13,760 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of short-term investments | (23,384 | ) | (43,452 | ) | ||||
Maturities of short-term investments | 23,819 | 5,006 | ||||||
Purchases of property, plant and equipment | (2,673 | ) | (4,841 | ) | ||||
Net cash used for investing activities | (2,238 | ) | (43,287 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of common stock | 1,343 | 549 | ||||||
Repurchase of common stock | (4,163 | ) | (885 | ) | ||||
Net cash used for financing activities | (2,820 | ) | (336 | ) | ||||
Effect of exchange rate changes on cash | 87 | (125 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 3,928 | (29,988 | ) | |||||
Cash and cash equivalents at beginning of period | 21,794 | 72,064 | ||||||
Cash and cash equivalents at end of period | $ | 25,722 | $ | 42,076 | ||||
Non-cash investing and financing activities: | ||||||||
Unrealized gain (loss) on investments, net | $ | 53 | $ | (129 | ) | |||
Property, plant and equipment purchases included in accounts payable | 160 | 251 | ||||||
Cash payments for: | ||||||||
Interest | $ | — | $ | 924 | ||||
Income taxes | 160 | 661 | ||||||
See notes to the condensed consolidated financial statements.
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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 management, necessary for a fair presentation of the financial position, results of operations 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 Symmetricom’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010. The results of operations for the three and six months ended December 26, 2010 are not necessarily indicative of the results to be anticipated for the entire fiscal year ending July 3, 2011.
The condensed consolidated balance sheet as of June 27, 2010 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.
Recently Adopted Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry specific software revenue recognition guidance. In October 2009, the FASB also amended the standards for multiple deliverable revenue arrangements to:
| (i) | provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the arrangement consideration should be allocated among its elements; |
| (ii) | require an entity to allocate the revenue using best estimate of selling price (BESP) of the deliverables if there is no vendor specific objective evidence (VSOE) or third party evidence of selling price (TPE); and |
| (iii) | eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. |
We adopted this guidance for transactions that were entered into or materially modified on or after June 28, 2010 using the prospective basis of adoption. The adoption of this authoritative guidance had no material impact on our financial position, results of operations or cash flows in the periods presented.
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price is fixed or determinable and collectability is reasonably assured. Our standard arrangement for our domestic and international customers includes a signed purchase order or contract and no right of return of delivered products. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
We assess collectability based on the creditworthiness of the customer and past transaction history. We perform periodic credit evaluations of our customers and do not require collateral from our customers. However, for many of our international customers, we require an irrevocable letter of credit to be issued by the customer before the product is shipped. If we determine that collection of the invoice is not reasonably assured, we recognize revenue at the time that collection becomes reasonably assured, which is generally upon the receipt of cash.
Generally, product revenue is generated from the sale of synchronization and timing equipment with embedded software that is incidental to product functionality. Service revenue is recognized as the services are performed, provided collection of the related receivable is reasonably assured. Our sales to distributors are made under agreements allowing for returns or credits under certain circumstances. Accordingly, we record an estimate of returns from distributors based on a historical average of distributor returns. We record commission expense both when orders are received and shipped, at which times the commission is both earned and payable.
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Our multiple element product offerings generally include hardware, software and PCS services, which are considered separate units of accounting.
The new guidance does not generally change the units of accounting for our revenue transactions. Most of the products and services continue to qualify as separate units of accounting. For multiple-element arrangements entered into prior to the first quarter of fiscal 2011, we recognized revenue based on the then relevant revenue recognition guidance that allowed us to utilize the residual method to determine the amount of revenue to be recognized on the delivered elements of the arrangement provided VSOE existed for the undelivered elements. Under the residual method, the fair value of the undelivered elements was deferred, such as post-contract support, and the remaining portion of the arrangement consideration was recognized as revenue. VSOE of fair value is limited to the price charged when the same element is sold separately. VSOE of fair value is established for post-contractual support based on the volume and pricing of the stand-alone sales within a narrow range. The fair value of the post-contractual support is recognized on a straight-line basis over the term of the related support period. In evaluating the revenue recognition for multiple element arrangements under the new accounting guidance, the total arrangement fees are allocated to all the deliverables based on their respective relative selling prices and the residual method is no longer permitted. The relative selling price is determined using VSOE when available. When VSOE cannot be established, we attempt to establish the selling price of deliverables based on relevant TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of our competitors, and offerings may contain a significant level of proprietary technology, customization or differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, we typically are not able to determine TPE.
When we are unable to establish selling price using VSOE or TPE, we use a best estimate of selling price (“BESP”) for the allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or service was sold on a stand-alone basis. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. We determine BESP for a product or service by considering multiple factors including, but not limited to:
- the price list established by our management which is typically based on general pricing practices, market conditions, geographies and targeted gross margin of products and services sold;
- analysis of pricing history of new arrangements, including multiple element and stand-alone transactions.
Our future revenue recognition for multiple element arrangements is not expected to differ materially from the results in the current period. However, as our marketing and product strategies evolve, we may modify our pricing practices, which could result in changes in selling prices, including both VSOE and BESP which could impact future revenues.
Note 2. Financial Instruments
The following table presents our financial instruments that are measured at fair value on a recurring basis and categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs.
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
| Balance as of December 26, 2010 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | ||||||||||
| (In thousands) | ||||||||||||
Assets: | ||||||||||||
Money market funds | $ | 11,212 | $ | 11,212 | $ | — | ||||||
Short-term investments: | ||||||||||||
Corporate debt securities | 31,317 | — | 31,317 | |||||||||
Government sponsored enterprise debt securities | 18,098 | 18,098 | — | |||||||||
Mutual funds | 3,324 | 2,513 | 811 | |||||||||
Total short-term investments | 52,739 | 20,611 | 32,128 | |||||||||
Total financial assets | $ | 63,951 | $ | 31,823 | $ | 32,128 | ||||||
| Balance as of June 27, 2010 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | ||||||||||
| (In thousands) | ||||||||||||
Assets: | ||||||||||||
Money market funds | $ | 9,729 | $ | 9,729 | $ | — | ||||||
Short-term investments: | ||||||||||||
Corporate debt securities | 37,264 | — | 37,264 | |||||||||
Government sponsored enterprise debt securities | 13,336 | 13,336 | — | |||||||||
Mutual funds | 3,225 | 2,500 | 725 | |||||||||
Total short-term investments | 53,825 | 15,836 | 37,989 | |||||||||
Total financial assets | $ | 63,554 | $ | 25,565 | $ | 37,989 | ||||||
Our valuation techniques used to measure the fair values of our money market funds, government sponsored entity securities, and certain mutual funds were derived from quoted market prices as active markets for these instruments exist. Our valuation techniques used to measure the fair values of corporate debt securities and certain mutual funds were derived from non-binding market consensus prices that are corroborated by observable market data.
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table summarizes Symmetricom’s available-for-sale and trading securities recorded as cash, cash equivalents or short-term investments:
| Cost Basis | Gross Unrealized Gains | Fair Value | ||||||||||
| December 26, 2010 | (In thousands) | |||||||||||
Short-term investments and money market funds | $ | 60,614 | $ | 13 | $ | 60,627 | ||||||
Less amounts classified as cash equivalents | (11,212 | ) | — | (11,212 | ) | |||||||
Deferred compensation plan assets | 2,980 | — | 3,324 | |||||||||
Total short-term investments | $ | 52,382 | $ | 13 | $ | 52,739 | ||||||
June 27, 2010 | ||||||||||||
Short-term investments and money market funds | $ | 60,265 | $ | 64 | $ | 60,329 | ||||||
Less amounts classified as cash equivalents | (9,729 | ) | — | (9,729 | ) | |||||||
Deferred compensation plan assets | 2,854 | — | 3,225 | |||||||||
Total short-term investments | $ | 53,390 | $ | 64 | $ | 53,825 | ||||||
Deferred compensation plan assets are classified as trading securities in order to maintain consistency with the method in which the Company accounts for deferred compensation obligations. As a result, all unrealized gains and losses related to the deferred compensation plan assets have been included in earnings.
Note 3. Inventories
Components of inventories were as follows:
| December 26, 2010 | June 27, 2010 | |||||||
| (In thousands) | ||||||||
Raw materials | $ | 23,178 | $ | 19,419 | ||||
Work-in-process | 7,614 | 8,593 | ||||||
Finished goods | 10,873 | 9,217 | ||||||
Inventories | $ | 41,665 | $ | 37,229 | ||||
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 4. Intangible Assets
Intangible assets as of December 26, 2010 and June 27, 2010 consist of:
| Gross Carrying Amount | Accumulated Amortization | Net Intangible Assets | ||||||||||
| (in thousands) | ||||||||||||
Purchased technology | $ | 24,357 | $ | (22,707 | ) | $ | 1,650 | |||||
Customer lists and trademarks | 7,025 | (5,607 | ) | 1,418 | ||||||||
Total as of December 26, 2010 | $ | 31,382 | $ | (28,314 | ) | $ | 3,068 | |||||
Purchased technology | $ | 24,357 | $ | (22,150 | ) | $ | 2,207 | |||||
Customer lists and trademarks | 7,025 | (5,487 | ) | 1,538 | ||||||||
Total as of June 27, 2010 | $ | 31,382 | $ | (27,637 | ) | $ | 3,745 | |||||
The estimated future amortization expense by fiscal year is as follows:
| Fiscal year: | (in thousands) | |||
2011 (Remaining 6 months) | $ | 636 | ||
2012 | 726 | |||
2013 | 502 | |||
2014 | 502 | |||
2015 | 232 | |||
Thereafter | 470 | |||
Total amortization | $ | 3,068 | ||
Intangible asset amortization expense for the second quarter of fiscal 2011 and 2010 was $0.3 million and $0.4 million, respectively. Intangible asset amortization for the first six months of fiscal 2011 and 2010 was $0.7 million and $0.9 million, respectively.
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 5. Long-term Obligations
Long-term obligations consist of:
| December 26, 2010 | June 27, 2010 | |||||||
| (In thousands) | ||||||||
Long-term obligations: | ||||||||
Lease loss accrual, net | $ | 3,297 | $ | 4,784 | ||||
Deferred revenue | 1,664 | 1,919 | ||||||
Rent accrual | 1,086 | 1,066 | ||||||
Income tax | 300 | 300 | ||||||
Post-retirement benefits | 213 | 227 | ||||||
Total | $ | 6,560 | $ | 8,296 | ||||
Note 6. Stockholders’ Equity
Stock Award Activity
Stock award activity for the six months ended December 26, 2010 is as follows:
| Non Performance-based Options Outstanding | Restricted Stock Outstanding | |||||||||||||||||||
| Shares Available For Grant | Number of Shares | Weighted Average Exercise Price | Number of Shares | Weighted Average Grant-Date Fair Value | ||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||||||
Balances at June 27, 2010 | 5,697 | 6,043 | $ | 5.84 | 219 | $ | 5.20 | |||||||||||||
Granted - options | (1,716 | ) | 1,716 | 6.19 | — | — | ||||||||||||||
Granted - restricted shares | (310 | ) | — | 155 | 6.23 | |||||||||||||||
Exercised | — | (282 | ) | 4.76 | — | — | ||||||||||||||
Vested | — | — | (175 | ) | 5.19 | |||||||||||||||
Cancelled | 883 | (695 | ) | 7.40 | (12 | ) | 5.25 | |||||||||||||
Expired | (69 | ) | — | — | — | — | ||||||||||||||
Balances at December 26, 2010 | 4,485 | 6,782 | $ | 5.82 | 187 | $ | 6.06 | |||||||||||||
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
In-the-money options outstanding, vested and expected to vest, and exercisable as of December 26, 2010 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 | 6,782 | 4.72 | $ | 5.82 | $ | 11,689 | ||||||||||
Vested and expected to vest | 6,048 | 4.60 | $ | 5.87 | $ | 10,258 | ||||||||||
Exercisable | 2,656 | 2.95 | $ | 6.41 | $ | 3,951 | ||||||||||
The aggregate intrinsic value of options outstanding in the preceding table represents the total pre-tax value of stock options outstanding as of December 26, 2010, based on our common stock closing price of $7.31 on December 23, 2010, 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 second quarter of fiscal 2011 was approximately $334,550.
For the quarter ended December 26, 2010 and December 27, 2009, the weighted-average estimated fair value of options granted was $3.10 and $2.39 per share, respectively. For the six months ended December 26, 2010 and December 27, 2009, the weighted-average estimated fair value of options granted was $3.08 and $2.41 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 six months ended December 26, 2010 and December 27, 2009 as follows:
| Three months ended | Six months ended | |||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
Expected life (in years) | 5.1 | 5.2 | 5.1 | 4.9 | ||||||||||||
Risk-free interest rate | 1.1 | % | 1.9 | % | 1.1 | % | 1.9 | % | ||||||||
Volatility | 56.7 | % | 56.8 | % | 56.9 | % | 55.8 | % | ||||||||
We recorded stock-based compensation expense of $1.1 million and $1.2 million in the second quarter of fiscal 2011 and 2010, respectively. We calculated these stock-based compensation expenses using a net cumulative impact of 8% to estimate future annual forfeitures. At December 26, 2010, the total cumulative compensation cost related to unvested stock-based awards granted to employees, directors and consultants under the Company’s stock option plans, but not yet recognized, was approximately $7.1 million, net of estimated forfeitures of $1.6 million. This cost will be amortized on an accelerated method basis over a period of approximately 1.5 years and will be adjusted for subsequent changes in estimated forfeitures.
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations:
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
Cost of sales | $ | 230 | $ | 262 | $ | 253 | $ | 472 | ||||||||
Research and development | 184 | 228 | 322 | 428 | ||||||||||||
Selling, general and administrative | 704 | 700 | 995 | 894 | ||||||||||||
Stock compensation expense from continuing operations | 1,118 | 1,190 | 1,570 | 1,794 | ||||||||||||
Stock compensation expense from discontinued operations | — | — | (114 | ) | — | |||||||||||
Total | $ | 1,118 | $ | 1,190 | $ | 1,456 | $ | 1,794 | ||||||||
Stock Repurchases
During the second quarter of fiscal 2011, we repurchased 280,341 shares of common stock pursuant to our repurchase program for an aggregate price of approximately $1.8 million. During the first six months of fiscal 2011, we repurchased approximately 677,000 shares of common stock pursuant to our repurchase program for an aggregate price of approximately $3.8 million. A further 60,781 shares were repurchased by us in the first six months of fiscal 2011 for an aggregate price of approximately $0.3 million to cover the cost of taxes on vested restricted stock.
On October 28, 2010, the Company’s Board of Directors authorized management to repurchase an additional 1.6 million shares of Symmetricom common stock in addition to the remaining shares available for repurchase under previously approved programs. As of December 26, 2010, the total number of shares available for repurchase under the repurchase programs authorized by the Board of Directors was approximately 2.2 million.
Note 7. Restructuring Charges
The following table shows the details of the restructuring cost accruals included in other accrued liabilities and long-term obligations on our condensed consolidated balance sheet, which consist of facilities and severance costs, at December 26, 2010 and June 27, 2010:
| Balance at June 27, 2010 | Expense Additions | Payments and Non-cash Settlements | Balance at December 26, 2010 | |||||||||||||
| (in thousands) | ||||||||||||||||
Lease loss accrual (fiscal 2004) | $ | 198 | $ | 2 | $ | (20 | ) | $ | 180 | |||||||
All other restructuring charges (fiscal 2004) | 85 | 22 | (38 | ) | 69 | |||||||||||
Lease loss accrual (fiscal 2009) | 5,330 | (875 | ) | (336 | ) | 4,119 | ||||||||||
Additional depreciation charges (fiscal 2009 & 2010) | — | 945 | (945 | ) | — | |||||||||||
All other restructuring charges (fiscal 2009 & 2010) | 2,604 | 6,538 | (7,708 | ) | 1,434 | |||||||||||
Lease loss accrual (fiscal 2010) | 304 | 182 | 13 | 499 | ||||||||||||
Total | $ | 8,521 | $ | 6,814 | $ | (9,034 | ) | $ | 6,301 | |||||||
During the first six months of fiscal 2011, we incurred approximately $6.8 million in severance, manufacturing transfer consulting services, lease loss charges and additional depreciation on leasehold improvements. These expenses included $6.5 million of the severance, consulting and other charges for our Puerto Rico facility closure. The lease loss accrual was reduced by $0.9 million due to the sublease of part of the Santa Rosa facility. The lease loss accruals are subject to periodic revisions based on current market estimates. The balance of these lease loss accruals will be paid over the next eight years.
During the first six months of fiscal 2011, we also incurred approximately $1.0 million in additional depreciation on property, plant and equipment at our Puerto Rico facility.
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Over the next six months, we expect to incur restructuring charges amounting to $0.8 million in other restructuring related charges.
Note 8. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of two components: net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under US GAAP are recorded as an element of stockholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) is comprised of unrealized gains and losses, net of taxes, on marketable securities categorized as available-for-sale and foreign currency translation adjustments. The components of comprehensive income (loss), net of tax, are as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
Net income (loss) | $ | (3,525 | ) | $ | 1,499 | $ | (304 | ) | $ | 1,673 | ||||||
Other comprehensive income (loss), net of taxes: | ||||||||||||||||
Foreign currency translation adjustments | (176 | ) | (124 | ) | 87 | (125 | ) | |||||||||
Unrealized gain (loss) on investments | (53 | ) | (120 | ) | 53 | (129 | ) | |||||||||
Other comprehensive income (loss) | (229 | ) | (244 | ) | 140 | (254 | ) | |||||||||
Total comprehensive income (loss) | $ | (3,754 | ) | $ | 1,255 | $ | (164 | ) | $ | 1,419 | ||||||
Note 9. Net Income (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period less unvested shares of restricted common stock. Diluted earnings (loss) per share is calculated by dividing net income by the weighted-average number of common shares outstanding and common equivalent shares from stock options and unvested restricted stock using the treasury method, except when anti-dilutive.
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table reconciles the number of shares utilized in the net income (loss) per share calculations:
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
| (In thousands, except per share amounts) | (In thousands, except per share amounts) | |||||||||||||||
Numerator: | ||||||||||||||||
Income (loss) from continuing operations | $ | (3,476 | ) | $ | 1,890 | $ | (382 | ) | $ | 2,439 | ||||||
Income (loss) from discontinued operations | (49 | ) | (391 | ) | 78 | (766 | ) | |||||||||
Net income (loss) | $ | (3,525 | ) | $ | 1,499 | $ | (304 | ) | $ | 1,673 | ||||||
Shares (denominator): | ||||||||||||||||
Weighted average common shares outstanding | 43,405 | 43,670 | 43,480 | 43,659 | ||||||||||||
Weighted average common shares outstanding subject to repurchase | (133 | ) | (357 | ) | (129 | ) | (414 | ) | ||||||||
Weighted average shares outstanding—basic | 43,272 | 43,313 | 43,351 | 43,245 | ||||||||||||
Weighted average dilutive share equivalents from stock options | — | 168 | — | 225 | ||||||||||||
Weighted average dilutive common shares subject to repurchase | — | 227 | — | 301 | ||||||||||||
Weighted average shares outstanding— diluted | 43,272 | 43,708 | 43,351 | 43,771 | ||||||||||||
Earnings (loss) per share — basic: | ||||||||||||||||
Income (loss) from continuing operations | $ | (0.08 | ) | $ | 0.04 | $ | (0.01 | ) | $ | 0.06 | ||||||
Income (loss) from discontinued operations | — | (0.01 | ) | — | (0.02 | ) | ||||||||||
Net income (loss) | $ | (0.08 | ) | $ | 0.03 | $ | (0.01 | ) | $ | 0.04 | ||||||
Earnings (loss) per share — diluted: | ||||||||||||||||
Income (loss) from continuing operations | $ | (0.08 | ) | $ | 0.04 | $ | (0.01 | ) | $ | 0.06 | ||||||
Income (loss) from discontinued operations | — | (0.01 | ) | — | (0.02 | ) | ||||||||||
Net income (loss) | $ | (0.08 | ) | $ | 0.03 | $ | (0.01 | ) | $ | 0.04 | ||||||
The following common stock equivalents were excluded from the net income (loss) per share calculation as their effect would have been anti-dilutive:
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
Stock options | 6,456 | 4,467 | 6,182 | 3,736 | ||||||||||||
Common shares subject to repurchase | 133 | — | 129 | — | ||||||||||||
Total shares of common stock excluded from diluted net income (loss) per share calculation | 6,589 | 4,467 | 6,311 | 3,736 | ||||||||||||
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 10. Contingencies
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 Commission’s 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 December 26, 2010, we had an accrual of $69,000 for remediation costs and other ongoing monitoring costs.
Shipments of Product with Lead-free Solder
From the fourth quarter of fiscal 2007 until the third quarter of fiscal 2008, we inadvertently shipped certain products that included lead-free solder in the product backplanes to two customers whose contracts specified that the products would be made with lead solder. As of December 26, 2010, we have received a waiver from one of these customers to use lead-free solder. The total sales value of product shipped with lead-free solder to the customer that has not as yet granted us the waiver is $1.2 million. Management believes that this customer will not request that the parts be replaced and that our existing warranty accrual is adequate to cover any potential product failures. Also, since March 2008, new product shipments to this customer have included lead solder.
Other
Under the indemnification provisions of our standard sales contracts, we agree to defend our customers 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 financial position and results of operations.
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Note 11. Business Segment Information
In the third quarter of fiscal 2010, we changed our segment reporting structure from four operating and reporting segments to two operating and reporting segments. This change was effected to better reflect how the Chief Operating Decision Maker (CODM) makes decisions about resource allocation and segment performance. The 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. Symmetricom is now organized into two operating segments corresponding to our two divisions: Communications and Government. Given the measure of profit reviewed by our CEO, we have changed our segment profit measure to operating income (loss). Prior to this change, the CEO used gross margin as the segment profit measure.
During the first quarter of fiscal 2011, the Company changed its method of allocating revenue between its two reportable segments. Such revenue is now allocated based on the nature of the product sold versus the end customer (as presented in previous reporting periods). As a result of this change, the Company has revised the applicable segment financial information for the three and six months ended December 27, 2009 to be presented on a consistent basis.
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 taxes to operating segments.
During the second quarter of fiscal 2010, we classified our Quality of Experience Assurance (QoE) business as a discontinued operation and its respective assets as held for sale. During the third quarter of fiscal 2010, we sold our QoE business. QoE was a reportable segment within our Telecom Solutions Division segment under previous segment presentation. Due to this sale, the results of QoE have been removed from the Communications segment, shown as discontinued operations, and all comparative information from prior periods has been updated to reflect this change.
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, embedded components and software, and test and measurement equipment, all of which support the timing and synchronization requirements of telecommunications and cable networks and equipment.
Government
Our Government business provides time technology products for aerospace/defense, 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.
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The comparative information from prior periods related to the following tables has been updated to reflect our change in segment reporting. Segment revenue, gross profit and operating income (loss) were as follows during the periods presented:
Three months ended December 26, 2010
| Communications | Government | Corporate | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
Net revenue | $ | 20,369 | $ | 21,475 | $ | — | $ | 41,844 | ||||||||
Cost of sales | 11,752 | 11,737 | 3,910 | 27,399 | ||||||||||||
Gross profit | 8,617 | 9,738 | (3,910 | ) | 14,445 | |||||||||||
Operating expenses | 8,767 | 5,803 | 5,863 | 20,433 | ||||||||||||
Operating income (loss) | $ | (150 | ) | $ | 3,935 | $ | (9,773 | ) | $ | (5,988 | ) | |||||
Three months ended December 27, 2009
| Communications | Government | Corporate | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
Net revenue | $ | 35,752 | $ | 21,110 | $ | — | $ | 56,862 | ||||||||
Cost of sales | 18,803 | 12,449 | 931 | 32,183 | ||||||||||||
Gross profit | 16,949 | 8,661 | (931 | ) | 24,679 | |||||||||||
Operating expenses | 9,605 | 5,586 | 5,778 | 20,969 | ||||||||||||
Operating income (loss) | $ | 7,344 | $ | 3,075 | $ | (6,709 | ) | $ | 3,710 | |||||||
Six months ended December 26, 2010
| Communications | Government | Corporate | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
Net revenue | $ | 53,518 | $ | 42,705 | $ | — | $ | 96,223 | ||||||||
Cost of sales | 27,247 | 23,135 | 7,657 | 58,039 | ||||||||||||
Gross profit | 26,271 | 19,570 | (7,657 | ) | 38,184 | |||||||||||
Operating expenses | 17,183 | 11,770 | 10,066 | 39,019 | ||||||||||||
Operating income (loss) | $ | 9,088 | $ | 7,800 | $ | (17,723 | ) | $ | (835 | ) | ||||||
Six months ended December 27, 2009
| Communications | Government | Corporate | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
Net revenue | $ | 68,706 | $ | 40,424 | $ | — | $ | 109,130 | ||||||||
Cost of sales | 36,764 | 24,393 | 1,793 | 62,950 | ||||||||||||
Gross profit | 31,942 | 16,031 | (1,793 | ) | 46,180 | |||||||||||
Operating expenses | 18,758 | 10,472 | 11,563 | 40,793 | ||||||||||||
Operating income (loss) | $ | 13,184 | $ | 5,559 | $ | (13,356 | ) | $ | 5,387 | |||||||
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SYMMETRICOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
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 | Six Months Ended | |||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
Selling, general and administrative costs | $ | 5,825 | $ | 5,243 | $ | 10,909 | $ | 10,552 | ||||||||
Restructuring charges | 3,948 | 1,466 | 6,814 | 2,804 | ||||||||||||
Corporate-related total | $ | 9,773 | $ | 6,709 | $ | 17,723 | $ | 13,356 | ||||||||
Note 12. Warranty
Changes in our accrued warranty liability during the second quarter and first six months of fiscal 2011 and 2010 were as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
Beginning balance | $ | 2,339 | $ | 3,775 | $ | 2,900 | $ | 3,737 | ||||||||
Provision for warranty | (52 | ) | 198 | 2 | 817 | |||||||||||
Accruals related to change in estimate | 237 | 122 | 422 | (60 | ) | |||||||||||
Less: Actual warranty costs | (522 | ) | (447 | ) | (1,322 | ) | (846 | ) | ||||||||
Ending balance | $ | 2,002 | $ | 3,648 | $ | 2,002 | $ | 3,648 | ||||||||
Note 13. Subsequent Event
On February 2, 2011, the Company announced a restructuring plan to move its Government Business Unit’s engineering and new product introduction team from Santa Rosa, California to its San Jose office to focus on networking platform development and promote collaboration with other San Jose based engineering resources. In connection with the plan, the Company will also move the Santa Rosa manufacturing operation to its facility in Beverly, Massachusetts and transition the manufacture of certain parts from Santa Rosa to a contract manufacturer.
The company plans to eliminate approximately 55 positions from the Santa Rosa facility and add approximately 35 new or replacement positions in its San Jose and Beverly facilities. The Company expects to incur approximately $2.5 million in cash restructuring charges for severance and relocation. The engineering transition will begin in February 2011 and the manufacturing transition is expected to begin in July 2011. The transition is expected to be completed by December 2011.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read 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.
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, the transition of our manufacturing operations in Puerto Rico to 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 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.
Overview
Symmetricom, a worldwide leader in precision time and frequency technologies, sets the world’s standard for time. We generate, distribute and apply precise time for the communications, aerospace/defense, IT infrastructure and metrology industries. Symmetricom’s 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 today’s 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.
Quarter ended December 26, 2010 Summary
For the quarter ended December 26, 2010, Symmetricom recorded revenues of $41.8 million, down 26% compared to the same quarter of the previous year. The decrease in revenue is due to product supply and fulfillment delays associated with the company’s transition to an outsourced manufacturing and logistics model. Symmetricom ceased manufacturing operations in Puerto Rico in December 2010 and expects to complete the transition to an outsourced manufacturing and logistics model in the third quarter.
The company’s order volume was at expected levels for the quarter. Total sales backlog was $64.2 million as of December 26, 2010, compared to $54.4 million as of September 26, 2010.
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 six months ended December 26, 2010 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 27, 2010, with the exception of the Company’s accounting policy for revenue recognition as described in Note 1of Item 1- Basis of Presentation and Recently Issued Accounting Pronouncements.
Known Trends and Uncertainties Impacting Future Results of Operations: Global Market and Economic Conditions
While there has been some improvement in general macro-economic conditions since late calendar year 2009 and continuing in 2010, the current macro-economic factors remain dynamic and uncertain and are likely to remain so into calendar 2011. If difficult economic conditions or the constrained credit environment markedly continue or worsen, our customers may delay or reduce capital expenditures. This could result in reductions in sales of our products, longer sales cycles, difficulties in collecting accounts receivable, additional excess and obsolete inventory, potential impairment charges related to our intangible assets, 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 revenues for the three and six months ended December 26, 2010 and December 27, 2009:
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||
Net revenue | ||||||||||||||||
Communications | 48.7 | % | 62.9 | % | 55.6 | % | 63.0 | % | ||||||||
Government | 51.3 | % | 37.1 | % | 44.4 | % | 37.0 | % | ||||||||
Total net revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of products and services | 55.6 | % | 54.3 | % | 51.7 | % | 55.4 | % | ||||||||
Amortization of purchased technology | 0.6 | % | 0.6 | % | 0.6 | % | 0.7 | % | ||||||||
Restructuring charges | 9.3 | % | 1.7 | % | 8.0 | % | 1.6 | % | ||||||||
Gross profit | 34.5 | % | 43.4 | % | 39.7 | % | 42.3 | % | ||||||||
Operating expenses: | ||||||||||||||||
Research and development | 16.1 | % | 10.8 | % | 13.9 | % | 10.8 | % | ||||||||
Selling, general and administrative | 32.5 | % | 25.1 | % | 27.5 | % | 25.6 | % | ||||||||
Amortization of intangible assets | 0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | ||||||||
Restructuring charges | 0.1 | % | 0.9 | % | (0.9 | )% | 0.9 | % | ||||||||
Operating income (loss) | (14.3 | )% | 6.5 | % | (0.9 | )% | 4.9 | % | ||||||||
Interest income, net of amortization (accretion) of premium (discount) on investments | 0.8 | % | 0.9 | % | 0.3 | % | 0.9 | % | ||||||||
Interest expense | — | % | (2.2 | )% | (0.1 | )% | (2.3 | )% | ||||||||
Income (loss) from continuing operations before taxes | (13.5 | )% | 5.2 | % | (0.7 | )% | 3.5 | % | ||||||||
Income tax provision (benefit) | (5.2 | )% | 1.9 | % | (0.3 | )% | 1.3 | % | ||||||||
Income (loss) from continuing operations | (8.3 | )% | 3.3 | % | (0.4 | )% | 2.2 | % | ||||||||
Income (loss) from discontinued operations, net of tax | (0.1 | )% | (0.7 | )% | 0.1 | % | (0.7 | )% | ||||||||
Net income (loss) | (8.4 | )% | 2.6 | % | (0.3 | )% | 1.5 | % | ||||||||
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Net Revenue:
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Net Revenue(dollars in thousands): | ||||||||||||||||||||||||||||||||
Communications | $ | 20,369 | $ | 35,752 | $ | (15,383 | ) | (43.0 | )% | $ | 53,518 | $ | 68,706 | $ | (15,188 | ) | (22.1 | )% | ||||||||||||||
Government | 21,475 | 21,110 | 365 | 1.7 | 42,705 | 40,424 | 2,281 | 5.6 | ||||||||||||||||||||||||
Total Net Revenue | $ | 41,844 | $ | 56,862 | $ | (15,018 | ) | (26.4 | )% | $ | 96,223 | $ | 109,130 | $ | (12,907 | ) | (11.8 | )% | ||||||||||||||
Percentage of Revenue | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||||||||
Second Quarter of Fiscal 2011:Net revenue consists of sales of products, software licenses and services. In the second quarter of fiscal 2011, net revenue decreased $15.0 million, or 26.4%, compared to the corresponding quarter of fiscal 2010. Communications revenue decreased $15.4 million, or 43.0%, compared to the same quarter for the prior year, due to product supply and fulfillment delays associated with our transition to an outsourced manufacturing and logistics model. Government revenue increased $0.4 million, or 1.7% compared to the same quarter for the prior year, primarily due to an increase in sale of space, defense and avionics and government systems.
First Six Months of Fiscal 2011:In the first six months of fiscal 2011, net revenue decreased $12.9 million, or 11.8%, compared to the corresponding period of fiscal 2010. Communications revenue decreased $15.2 million, or 22.1%, compared to the same period for the prior year, due to product supply and fulfillment delays associated with the company’s transition to an outsourced manufacturing and logistics model. Government revenue increased $2.3 million, or 5.6% compared to the same period for the prior year, primarily due to an increase in sales of systems and enterprise products.
Gross Profit:
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Gross Profit(dollars in thousands): | ||||||||||||||||||||||||||||||||
Communications | $ | 8,617 | $ | 16,949 | $ | (8,332 | ) | (49.2 | )% | $ | 26,271 | $ | 31,942 | $ | (5,671 | ) | (17.8 | )% | ||||||||||||||
Government | 9,738 | 8,661 | 1,077 | 12.4 | 19,570 | 16,031 | 3,539 | 22.1 | ||||||||||||||||||||||||
Corporate related | (3,910 | ) | (931 | ) | (2,979 | ) | 320.0 | (7,657 | ) | (1,793 | ) | (5,864 | ) | 327.0 | ||||||||||||||||||
Total Gross Profit | $ | 14,445 | $ | 24,679 | $ | (10,234 | ) | (41.5 | )% | $ | 38,184 | $ | 46,180 | $ | (7,996 | ) | (17.3 | )% | ||||||||||||||
Percentage of Revenue | 34.5 | % | 43.4 | % | 39.7 | % | 42.3 | % | ||||||||||||||||||||||||
Second Quarter of Fiscal 2011:Gross profit in the second quarter of fiscal 2011 decreased by $10.2 million or 41.5% compared to the corresponding quarter of fiscal 2010. Gross profit as a percentage of revenue in the second quarter of fiscal 2011 decreased to 34.5% as compared to 43.4% in the corresponding quarter of fiscal 2010 primarily due to a decline in revenue resulting from product supply and fulfillment delays associated with our transition to an outsourced manufacturing and logistics model. Gross profit for our Communications segment decreased by $8.3 million, or 49.2%, which was a greater decline than the revenue decrease of 43.0%, due to higher period costs and variances resulting from under absorbed labor and overhead costs and inbound freight costs, partially offset by favorable mix of higher margin products, mainly PackeTime. Gross profit for our Government segment increased $1.1 million, or 12.4%, which was greater than the revenue increase of 1.7% in this segment for the same period, due to a favorable sales mix of higher margin products, space, defense and avionics and government systems.
Corporate related restructuring charges increased by $3.0 million, or 320%, due to severance, product transfer costs and additional depreciation costs related to restructuring activities in the phased closure of our Puerto Rico manufacturing facility, which is anticipated to be completed by the fourth quarter of fiscal 2011.
First Six Months of Fiscal 2011:Gross profit in the first six months of fiscal 2011 decreased by $8.0 million or 17.3% compared to the corresponding period of fiscal 2010. Gross profit as a percentage of revenue in the first six months of fiscal 2011 decreased to 39.7% as compared to 42.3% in the corresponding period of fiscal 2010 primarily due to the decrease in sales of higher margin products such as PackeTime products and an increase in corporate related restructuring charges. Gross profit for our Communications segment decreased by $5.7 million, or 17.8%, which was a smaller decline than the revenue decrease of 22.1%, due to a favorable mix of higher margin products, mainly PackeTime; partially offset by higher period costs and variances. Gross profit for our Government segment increased $3.5 million, or 22.1%, which was greater than the revenue increase of 5.6% in this segment for the same period, due to lower period costs and variances.
Corporate related restructuring charges increased by $5.9 million, or 327%, due to severance, product transfer costs and additional depreciation costs related to restructuring activities in the phased closure of our Puerto Rico manufacturing facility.
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Operating Expenses:
Research and Development Expense:
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Research and development expense (dollars in thousands) | $ | 6,738 | $ | 6,113 | $ | 625 | 10.2 | % | $ | 13,344 | $ | 11,827 | $ | 1,517 | 12.8 | % | ||||||||||||||||
Percentage of Revenue | 16.1 | % | 10.8 | % | 13.9 | % | 10.8 | % | ||||||||||||||||||||||||
Second Quarter of Fiscal 2011:Research and development expense consists primarily of salaries and benefits, prototype expenses and fees paid to outside consultants. Research and development expense in the second quarter of fiscal 2011 increased $0.6 million, or 10.2%, compared to the same quarter of fiscal 2010 primarily due to higher engineering and consulting expenses related to product development projects, partially offset by lower medical costs. We expect that research and development expenses in the third quarter of fiscal 2011 will be consistent with the second quarter of fiscal 2011.
First Six Months of Fiscal 2011: Research and development expense in the first six months of fiscal 2011 increased $1.5 million, or 12.8%, compared to the same period of fiscal 2010 primarily due to higher engineering & consulting expenses related to product development projects.
Selling, General and Administrative:
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Selling, general and administrative(dollars in thousands) | $ | 13,596 | $ | 14,259 | $ | (663 | ) | (4.6 | )% | $ | 26,395 | $ | 27,798 | $ | (1,403 | ) | (5.0 | )% | ||||||||||||||
Percentage of Revenue | 32.5 | % | 25.1 | % | 27.5 | % | 25.6 | % | ||||||||||||||||||||||||
Second Quarter of Fiscal 2011:Selling, general and administrative expenses consist primarily of salaries, benefits, sales commissions and travel-related expenses for our sales and services, marketing, finance, human resources, information technology and facilities departments. These expenses decreased by $0.7 million or 4.6%, to $13.6 million for the second quarter of fiscal 2011, compared to $14.3 million in the corresponding quarter of fiscal 2010. The decrease in expenses consisted primarily of a decrease in compensation-related expenses and commission expenses. The decrease was partially offset by an increase in consulting expenses.
First Six Months of Fiscal 2011: Selling, general and administrative expenses decreased by $1.4 million or 5.0%, to $26.4 million for the first six months of fiscal 2011, compared to $27.8 million in the corresponding period of fiscal 2010. The decrease in expenses consisted primarily of decreases in compensation-related expenses and commission expenses and lower costs on changes in market value of the investments of the deferred compensation plan assets.
Amortization of intangibles:
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Amortization of intangible assets(dollars in thousands) | $ | 61 | $ | 62 | $ | (1 | ) | (1.6 | )% | $ | 123 | $ | 157 | $ | (34 | ) | (21.7 | )% | ||||||||||||||
Percentage of Revenue | 0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | ||||||||||||||||||||||||
Amortization of intangibles decreased in the second quarter and first half of fiscal 2011 compared to the corresponding periods of fiscal 2010 due to certain assets becoming fully amortized during the first six months of fiscal 2011.
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Restructuring charges:
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Restructuring charges(dollars in thousands) | $ | 38 | $ | 535 | $ | (497 | ) | (92.9 | )% | $ | (843 | ) | $ | 1,011 | $ | (1,854 | ) | (183.4 | )% | |||||||||||||
Percentage of Revenue | 0.1 | % | 0.9 | % | (0.9 | )% | 0.9 | % | ||||||||||||||||||||||||
Restructuring charges decreased in the second quarter of fiscal 2011 compared to the same period in fiscal 2010 due to the conclusion of reductions in work force that were previously announced in the second half of fiscal 2009 and completed in the third quarter of fiscal 2010. The restructuring charges decreased in the first six months of fiscal 2011 compared with the same period in fiscal 2010 due to sublease of space in our Santa Rosa facility that had previously been recorded as a lease loss and conclusion of reductions in work force that were previously announced in the second half of fiscal 2009 and completed in the third quarter of fiscal 2010.
Interest income, net of amortization (accretion) of premium (discount) on investments:
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Interest income, net of amortization (accretion) of premium (discount) on investments (dollars in thousands) | $ | 331 | $ | 505 | $ | (174 | ) | (34.5 | )% | $ | 223 | $ | 966 | $ | (743 | ) | (76.9 | )% | ||||||||||||||
Percentage of Revenue | 0.8 | % | 0.9 | % | 0.3 | % | 0.9 | % | ||||||||||||||||||||||||
Interest income, net of amortization (accretion) of premium (discount) on investments, decreased $0.7 million in the first six months of fiscal 2011 compared to the same period in the prior year due to higher accretion of discount on investments in the first six months of fiscal 2010.
Interest expense:
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Interest expense (dollars in thousands) | $ | — | $ | (1,270 | ) | $ | 1,270 | (100.0 | )% | $ | (55 | ) | $ | (2,544 | ) | $ | 2,489 | (97.8 | )% | |||||||||||||
Percentage of Revenue | — | % | (2.2 | )% | (0.1 | )% | (2.3 | )% | ||||||||||||||||||||||||
Interest expense decreased $2.5 million in the first six months of fiscal 2011 compared to the same period in the prior fiscal year due to the repayment of convertible notes in the fourth quarter of fiscal 2010.
Income tax provision (benefit):
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Income tax provision (benefit)(dollars in thousands) | $ | (2,181 | ) | $ | 1,055 | $ | (3,236 | ) | (306.7 | )% | $ | (285 | ) | $ | 1,370 | $ | (1,655 | ) | (120.8 | )% | ||||||||||||
Percentage of Revenue | (5.2 | )% | 1.9 | % | (0.3 | )% | 1.3 | % | ||||||||||||||||||||||||
Second Quarter of Fiscal 2011:Our income tax benefit was $2.2 million in the second quarter of fiscal 2011, compared to a tax provision of $1.1 million in the corresponding quarter of fiscal 2010. Our effective tax rate in the second quarter of fiscal 2011 was 38.5%, compared to an effective tax rate of 35.8% in the corresponding period of fiscal 2010. The effective tax rate for fiscal 2011 is higher than fiscal 2010 due to benefits from losses and federal research credits, which were re-enacted in second quarter of fiscal 2011.
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First Six Months of Fiscal 2011: Our income tax benefit was $0.3 million in the first six months of fiscal 2011, compared to a tax provision of $1.4 million in the corresponding period of fiscal 2010. Our effective tax rate in the first half of fiscal 2011 was 42.7%, compared to an effective tax rate of 36.0% in the corresponding period of fiscal 2010. The effective tax rate for fiscal 2011 is higher than fiscal 2010 due to benefits from loss and federal research credits, which were re-enacted in second quarter of fiscal 2011.
Income (loss) from discontinued operations, net of tax:
| Three Months Ended | $ Change | % Change | Six Months Ended | $ Change | % Change | |||||||||||||||||||||||||||
| December 26, 2010 | December 27, 2009 | December 26, 2010 | December 27, 2009 | |||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax (in thousands) | $ | (49 | ) | $ | (391 | ) | $ | 342 | (87.5 | )% | $ | 78 | $ | (766 | ) | $ | 844 | (110.2 | )% | |||||||||||||
Percentage of Revenue | (0.1 | )% | (0.7 | )% | 0.1 | % | (0.7 | )% | ||||||||||||||||||||||||
Discontinued operations relate to our Quality of Experience business which we sold in the third quarter of fiscal 2010. In the first six months of fiscal 2011, we recorded income of $78,000, net of income taxes, due primarily to the finalization of compensation costs of former employees and miscellaneous expenses. The $0.8 million loss represents the general operating expenses, net of taxes in the first six months of fiscal 2010.
Key Operating Metrics
Key operating metrics for measuring our performance include sales backlog and contract revenue. A comparison of these metrics at the end of the second quarter of fiscal 2011 with the end of fiscal 2010 is discussed 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 amounted to $64.2 million as of December 26, 2010, compared to $42.5 million as of June 27, 2010. The $21.7 million increase in backlog was due to product supply and fulfillment delays in the second quarter of fiscal 2011 associated with our transition to an outsourced manufacturing and logistics model. Our backlog, which is shippable within the next six months, was $47.4 million as of December 26, 2010, compared to $28.7 million as of June 27, 2010.
Contract Revenue:
As of December 26, 2010, we had approximately $14.3 million in contract revenue to be performed and recognized within the next 36 months, compared to $9.5 million in contract revenue that was to be performed and recognized within 36 months following June 27, 2010. These amounts have been included in our sales backlog discussed above.
Liquidity and Capital Resources
Balance Sheet and Cash Flows
The following table summarizes our cash, cash equivalents and short-term investments (in thousands):
| December 26, 2010 | June 27, 2010 | Change | ||||||||||
| $ | ||||||||||||
Cash and cash equivalents | $ | 25,722 | $ | 21,794 | $ | 3,928 | ||||||
Short-term investments | 52,739 | 53,825 | (1,086 | ) | ||||||||
Total | $ | 78,461 | $ | 75,619 | $ | 2,842 | ||||||
As of December 26, 2010, our principal sources of liquidity consisted of cash, cash equivalents and short-term investments of $78.5 million and accounts receivable, net of $25.5 million.
As of December 26, 2010, working capital was $125.0 million compared to $129.1 million as of June 27, 2010. Cash, cash equivalents and short-term investments as of December 26, 2010 increased slightly to $78.5 million from $75.6 million as of June 27, 2010.
Our days sales outstanding in accounts receivable was 56 days as of December 26, 2010, compared to 66 days as of June 27, 2010.
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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 six months of fiscal 2011 was $8.9 million. The net cash provided by operating activities consisted of non-cash charges of $5.0 million partially offset by a net loss of $0.3 million. The non-cash charges consisted primarily of $3.9 million in depreciation and amortization expenses, $1.5 million of stock-based compensation expense and $0.3 million of provisions for excess and obsolete inventories; partially offset by an increase in deferred tax assets of $0.7 million. Cash provided by operating activities during the first six months of fiscal 2011 also reflects net changes in operating assets and liabilities of $4.2 million. Those net changes consisted primarily of a $14.5 million decrease in accounts receivable due to strong collections and lower sales in the second quarter of fiscal 2011. The decrease was partially offset by a $4.8 increase in inventories primarily to support the transfer of manufacturing activity to a third-party contract manufacturer, $4.9 million decrease in accrued compensation, and a $0.9 million decrease in other accrued liabilities.
Cash flows from investing activities
Net cash used for investing activities was $2.2 million in the first six months of fiscal 2011, which represented purchase of short-term investments and property, plant and equipment of $23.4 million and $2.7 million, respectively, partially offset by the maturities of short-term investments of $23.8 million.
Cash flows from financing activities
Net cash used for financing activities was $2.8 million in the first six months of fiscal 2011, which represented the repurchases of common stock of $4.2 million, partially offset by cash generated from the exercise of common stock options of $1.3 million.
Contingencies
See Item 1 of Part I, Financial Statements — Note 10 — Contingencies.
Recently Issued Accounting Pronouncements
See Item 1 of Part I, Financial Statements— Note 1— Basis 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, Inc., 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 June 27, 2010. Our exposure to market risk has not changed materially since June 27, 2010.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed in the reports that we file or submit under the Exchange Act and that such information has been accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There was no material change in our internal control over financial reporting that occurred during the quarter ended December 26, 2010 that has affected, or is 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 Statements — Note 10 — Contingencies.
| Item 1A. | Risk Factors |
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended June 27, 2010. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional 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.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| a) | Not applicable. |
| b) | Not applicable. |
| c) | The following table provides monthly detail regarding our share repurchases during the three months ended December 26, 2010: |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Number of Shares That May Yet Be Purchased Under the Plans or Programs | ||||||||||||
September 26, 2010 through October 24, 2010 | — | $ | — | — | 2,527,316 | |||||||||||
October 24, 2010 through November 21, 2010 | 209,282 | $ | 6.51 | 209,282 | 2,318,034 | |||||||||||
November 21, 2010 through December 26, 2010 | 71,059 | $ | 6.73 | 71,059 | 2,246,975 | |||||||||||
Total | 280,341 | $ | 6.57 | 280,341 | ||||||||||||
During the second quarter of fiscal 2011, we repurchased 280,341 shares of common stock pursuant to our repurchase program for an aggregate price of approximately $1.8 million.
On October 28, 2010, the Company’s Board of Directors authorized management to repurchase an additional 1.6 million shares of Symmetricom common stock in addition to the remaining shares available for repurchase under previously approved programs. As of December 26, 2010, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 2.2 million.
| Item 3. | Defaults Upon Senior Securities |
Not applicable.
| Item 4. | Removed and Reserved |
| Item 5. | Other Information |
Not applicable.
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| Item 6. | Exhibits |
Exhibit Number | Description of Exhibits | |||
| 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. | |||
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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: February 4, 2011 | By: | /S/ DAVID G. CÔTÉ | ||||
| Dave G. CÔTÉ | ||||||
Chief Executive Officer (Principal Executive Officer) and Director | ||||||
Date: February 4, 2011 | 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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