EXHIBIT 99.4
Hewlett-Packard Company
Communications
Synchronization Business
Statements of Tangible Assets Sold and Liabilities
Assumed as of September 30, 1999, and of Net Sales,
Cost of Sales and Direct Operating Expenses for the
Years Ended October 31, 1998, 1997 and 1996
Report of Independent Accountants
To the Board of Directors
Hewlett-Packard Company
We have audited the accompanying statement of tangible assets sold and
liabilities assumed of the Hewlett-Packard Company ("HP") Communications
Synchronization Business (the "Business") as of September 30, 1999, and the
related statements of net sales, cost of sales and direct operating expenses for
the years ended October 31, 1998, 1997 and 1996. These statements are the
responsibility of HP and the Business' management. Our responsibility is to
express an opinion on these statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in these statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements. We believe that
our audits provides a reasonable basis for our opinion.
The accompanying statements were prepared for inclusion in the Securities and
Exchange Commission Current Report on Form 8-K of Symmetricom, Inc. as described
in Note 2 and are not intended to be a complete presentation of the Business'
financial position and results of operation.
In our opinion the statements referred to above present fairly, in all material
respects, the tangible assets sold and liabilities assumed as described in Note
2 as of September 30, 1999, and the net sales, cost of sales and direct
operating expenses as described in Note 2 for the years ended October 31, 1998,
1997 and 1996, of the Business in conformity with generally accepted accounting
principles.
/s/ Pricewaterhouse Coopers LLP
PricewaterhouseCoopers LLP
San Jose, California
November 30, 1999
Hewlett-Packard Company Communications
Synchronization Business
Statement of Tangible Assets Sold and Liabilities Assumed (in thousands)
- -------------------------------------------------------------------------
September 30,
1999
Tangible assets sold:
Raw material inventory $ 269
Finished goods inventory 465
----------
734
----------
Machinery and equipment 1,980
Less: Accumulated depreciation (1,775)
----------
205
----------
Total tangible assets sold $ 939
----------
Liabilities assumed:
Accrued warranties $ 132
Other accrued liabilities 93
----------
Total liabilities assumed $ 225
==========
See accompanying Notes to the Statements of Tangible Assets Sold
and Liabilities Assumed and of Net Sales, Cost of Sales and Direct Operating
Expense.
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Hewlett-Packard Company Communications
Synchronization Business
Statement of Net Sales, Cost of Sales and Direct Operating Expenses
(in thousands)
- -------------------------------------------------------------------------------
For the Nine
Months Ended For the Year Ended
July 31, October 31,
---------------------- -------------------------------
1999 1998 1998 1997 1996
(unaudited)
Net sales $ 33,223 $ 43,327 $ 58,992 $ 69,384 $ 17,132
Cost of sales 29,258 36,180 53,611 41,155 10,680
-------- -------- -------- -------- --------
3,965 7,147 5,381 28,229 6,452
Direct operating expenses:
Research and development 8,556 11,998 15,707 20,842 14,667
Selling, general and administrative 12,499 13,828 18,390 13,496 5,264
--------- --------- --------- -------- ---------
21,055 25,826 34,097 34,338 19,931
--------- --------- --------- -------- ---------
Net deficiency $ (17,090) $ (18,679) $ (28,716) $ (6,109) $ (13,479)
========= ========= ========= ======== =========
Hewlett-Packard Company Communications
Synchronization Business
Notes to Statement of Tangible Assets Sold and Liabilities Assumed and
Statements of Net Sales, Cost of Sales and Direct Operating Expenses
(in thousands)
- -------------------------------------------------------------------------------
1. Description of Business
The Communications Synchronization Business (the "Business"), of the Hewlett-
Packard Company ("HP"), is engaged in the design, manufacture and marketing
of synchronization products for communication networks.
2. Basis of Presentation
On August 30, 1999, HP sold to Symmetricom, Inc. ("Symmetricom" or the
"Company") for cash certain tangible assets and Symmetricom assumed certain
liabilities of the Business in accordance with the Master Asset Purchase
Agreement between HP and Symmetricom dated August 30, 1999 (the "Purchase
Agreement").
The accompanying statements of tangible assets sold and liabilities assumed
as of September 30, 1999 and of net sales, cost of sales and direct operating
expenses for the nine months ended July 31, 1999 (unaudited) and 1998
(unaudited) and the years ended October 31, 1998, 1997, and 1996, have been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Current Report on
Form 8-K of Symmetricom.
The statement of tangible assets sold and liabilities assumed includes the
amounts of certain tangible assets and liabilities of the Business at
September 30, 1999. Tangible assets sold include raw materials and finished
goods inventories and property, plant and equipment as specifically
identified in the Purchase Agreement. The machinery and equipment include
equipment for research and development, manufacturing and testing of
communication synchronization products. The assets purchased by Symmectricom
include miscellaneous equipment with an original cost of $507 which was
expensed upon purchase by HP and which is included in the statement of
tangible assets sold and liabilities assumed. Liabilities assumed include an
estimate of the Business' warranty obligations and certain accrued benefits
earned by former HP employees who transferred to Symmetricom in connection
with the Purchase Agreement.
The statements of net sales, cost of sales and direct operating expenses
includes direct expenses of the Business for research and design,
manufacturing, marketing, distribution, and administration as well as
allocations of costs incurred by HP primarily for selling, administration and
management services that are directly attributed to the operations of the
Business. Corporate overhead, interest expense and income tax incurred by HP
have been excluded from the statements of net sales, cost of sales and direct
operating expenses. These statements do not purport to represent all the
costs and expenses associated with a stand-alone separate company, or the
costs which may be incurred by an unaffiliated company to achieve similar
results. Complete financial statements, including historical balance sheets,
were not prepared as HP did not maintain the Business as a separate business
unit and has not segregated indirect operating cost information or certain
assets and liabilities in the Business' accounting records.
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Hewlett-Packard Company Communications
Synchronization Business
Notes to Statement of Tangible Assets Sold and Liabilities Assumed and
Statements of Net Sales, Cost of Sales and Direct Operating Expenses
(in thousands) (Continued)
- -------------------------------------------------------------------------------
The statements of net sales, cost of sales and direct operating expenses for
the nine months ended July 31, 1999 and 1998 are unaudited; however, in the
opinion of HP and the Business' management, these statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of these statements.
3. Summary of Significant Policies
Use of estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the Business' financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue recognition
Revenue from product sales is recognized at the time the product is shipped
or upon installation and customer acceptance, if the acceptance criteria are
substantive. Provisions are established for estimated costs that may be
incurred for product warranties and post sales support.
The Business sells communication synchronization products to domestic and
international customers. The following table is a summary of sales by major
geographic region (percentage of total sales):
For the Nine Months Ended
July 31, For the Year Ended October 31,
------------------------- ---------------------------------
1999 1998 1998 1997 1996
(unaudited)
United States 24% 46% 44% 20% 24%
Korea 22% 13% 11% 55% 28%
Other international 54% 41% 45% 25% 48%
--------- ---------- --------- --------- ---------
Total 100% 100% 100% 100% 100%
--------- ---------- --------- --------- ---------
The following table is a summary of significant customers each comprising
greater than 10% of sales:
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Hewlett-Packard Company Communications
Sychronization Business
Notes to Statement of Tangible Assets Sold And Liabilities Assumed and
Statements Net Sales, Costs of Sales and Direct Operating Expenses
(in thousands) (Continued)
- --------------------------------------------------------------------------------
For the Nine Months Ended
July 31, For the Year Ended October 31,
------------------------- ------------------------------
1999 1998 1998 1997 1996
------------------------------------------------------------------------
(unaudited)
Company A 22% 13% 11% 56% 28%
Company B - 22% 19% 13% -
Company C - 13% 13% - -
Company D - - - - 15%
Company E - - - - 14%
Company F 14% - - - -
Inventories
Inventories are valued at standard cost which approximates actual cost
computed on a first-in, first-out basis, not in excess of market values.
Property, plant and equipment
Property, plant and equipment are stated at cost. Additions, improvements
and major renewals are capitalized. Maintenance, repairs and minor renewals
are expensed as incurred. Depreciation is provided using accelerated
methods, principally over 3 to 10 years for machinery and equipment.
Depreciation expense amounted to $471 (unaudited), $635 (unaudited) $819,
$655 and $299 during the nine months ended July 31, 1999 and 1998 and the
years ended October 31, 1998, 1997 and 1996, respectively.
Research and development
Research and development costs are expensed as incurred.
Company Allocations
Allocated costs directly related to the operations of the Business primarily
include international cash discounts, field selling costs and certain
management and administrative costs. Such costs are allocated on a basis
considered reasonable by management as discussed below.
International cash discounts
International cash discounts of $102 (unaudited), $231 (unaudited), $280,
$416 and $103 were allocated to the Business during the nine months ended
July 31, 1999 and 1998 and the years ended October 31, 1998, 1997 and 1996,
respectively. These represent international cash discounts that offset
direct revenues earned by the Business and are allocated based on the value
of gross shipments.
Field selling costs
Field selling costs of $5,127 (unaudited), $5,878 (unaudited), $7,604, $6,134
and $2,692 were allocated to the Business during the nine months ended July
31, 1999 and 1998 and the years ended October 31, 1998, 1997 and 1996,
respectively. These costs include salaries and benefits, travel, facilities
and other expenses associated with HP's sales force. These field selling
costs are allocated based on a channel model applicable to a geographic
region.
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Hewlett-Packard Company Communications
Sychronization Business
Notes to Statement of Tangible Assets Sold And Liabilities Assumed and
Statements Net Sales, Costs of Sales and Direct Operating Expenses
(in thousands) (Continued)
- --------------------------------------------------------------------------------
Administrative and management costs
Administrative and management costs of $1,556 (unaudited), $2,245
(unaudited), $3,014, $1,918 and $704 were allocated to the Business during
the nine months ended July 31, 1999 and 1998 and the years ended October 31,
1998, 1997 and 1996, respectively. These costs include certain marketing,
management and administrative services and other international trading
expenses and are allocated based on revenues or, as in personnel related
costs, on headcount.
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