NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation and Recently Issued Accounting Pronouncements
The condensed consolidated financial statements of Symmetricom, Inc. (“Symmetricom,” “we,”
“us,” the “Company,” or “our”) included herein are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of the management, necessary for a fair presentation
of the financial position, results of operations 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 July 1, 2012. The results of operations for the three months ended September 30, 2012 are not necessarily indicative of the results to be
anticipated for the entire fiscal year ending June 30, 2013.
The condensed consolidated balance sheet as of July 1,
2012 has been derived from the audited consolidated financial statements as of that date but does not include all of the information and footnotes required by US GAAP for complete financial statements.
Fiscal Quarter
Our fiscal quarter is 13 weeks ending on the Sunday closest to the end of the calendar quarter.
Note 2. Financial Instruments
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based
on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value
measurement in its entirety. These levels are:
|
|
•
|
|
Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
|
|
|
•
|
|
Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
|
|
|
•
|
|
Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in
pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
|
7
Financial assets and liabilities measured at fair value on a recurring basis consisted of
the following types of instruments as of September 30, 2012 and July 1, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
as
of
September 30, 2012
|
|
|
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant Other
Unobservable Inputs
(Level 3)
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
11,006
|
|
|
$
|
11,006
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
31,931
|
|
|
|
—
|
|
|
|
31,931
|
|
|
|
—
|
|
|
Government sponsored enterprise debt securities
|
|
|
9,016
|
|
|
|
—
|
|
|
|
9,016
|
|
|
|
—
|
|
|
Mutual funds
|
|
|
2,864
|
|
|
|
2,864
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
43,811
|
|
|
|
2,864
|
|
|
|
40,947
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
54,817
|
|
|
$
|
13,870
|
|
|
$
|
40,947
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
598
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
598
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
as
of
July 1, 2012
|
|
|
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant Other
Unobservable Inputs
(Level 3)
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
8,650
|
|
|
$
|
8,650
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
23,703
|
|
|
|
—
|
|
|
|
23,703
|
|
|
|
—
|
|
|
Government sponsored enterprise debt securities
|
|
|
12,515
|
|
|
|
—
|
|
|
|
12,515
|
|
|
|
—
|
|
|
Mutual funds
|
|
|
3,062
|
|
|
|
3,062
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
39,280
|
|
|
|
3,062
|
|
|
|
36,218
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
47,930
|
|
|
$
|
11,712
|
|
|
$
|
36,218
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
540
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
540
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 and 2 financial assets:
The fair values of our money market funds and mutual funds were derived from quoted market prices as active markets for these instruments
exist. The fair values of corporate debt securities and government sponsored enterprise debt securities were derived from non-binding market consensus prices that are corroborated by observable market data.
8
The investments in mutual funds are held in a Rabbi trust to support the terms of our
deferred compensation plan. The following table summarizes available-for-sale and trading securities recorded as cash and cash equivalents or short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross Unrealized
Gains (Losses)
|
|
|
Fair Value
|
|
|
September 30, 2012
|
|
(In thousands)
|
|
|
Money market funds
|
|
$
|
11,006
|
|
|
$
|
—
|
|
|
$
|
11,006
|
|
|
Corporate debt securities
|
|
|
31,903
|
|
|
|
28
|
|
|
|
31,931
|
|
|
Government sponsored enterprise debt securities
|
|
|
9,012
|
|
|
|
4
|
|
|
|
9,016
|
|
|
Mutual funds
|
|
|
2,864
|
|
|
|
—
|
|
|
|
2,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
54,785
|
|
|
$
|
32
|
|
|
$
|
54,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross Unrealized
Gains (Losses)
|
|
|
Fair Value
|
|
|
July 1, 2012
|
|
(In thousands)
|
|
|
Money market funds
|
|
$
|
8,650
|
|
|
$
|
—
|
|
|
$
|
8,650
|
|
|
Corporate debt securities
|
|
|
23,705
|
|
|
|
(2
|
)
|
|
|
23,703
|
|
|
Government sponsored enterprise debt securities
|
|
|
12,513
|
|
|
|
2
|
|
|
|
12,515
|
|
|
Mutual funds
|
|
|
3,062
|
|
|
|
—
|
|
|
|
3,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
47,930
|
|
|
$
|
—
|
|
|
$
|
47,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the contractual maturities of fixed income securities (Corporate debt
securities and Government sponsored enterprise debt securities) recorded as short-term investments as of September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Less than 1 year
|
|
$
|
24,627
|
|
|
$
|
24,652
|
|
|
Due in 1 to 3 years
|
|
|
16,288
|
|
|
|
16,295
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,915
|
|
|
$
|
40,947
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities may differ from the contractual maturities because borrowers may have the right to call
or prepay certain obligations.
Level 3 financial liability:
The following table reconciles the beginning and ending balances for Level 3 liabilities for the first quarter of 2013 (in thousands):
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
Balance as of July 1, 2012
|
|
$
|
540
|
|
|
Add: Adjustment to present value of contingent consideration
|
|
|
58
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2012
|
|
$
|
598
|
|
|
|
|
|
|
|
9
Contingent consideration on acquired business was measured at fair value on a recurring
basis using Level 3 inputs as defined in the fair value hierarchy. The following table presents certain information about the significant unobservable inputs used in the fair value measurement for the contingent consideration measured at fair value
on a recurring basis using significant unobservable inputs:
|
|
|
|
|
|
|
Description
|
|
Valuation Techniques
|
|
Significant Unobservable Inputs
|
|
Liabilities: Contingent consideration
|
|
Present value of a Probability Weighted Earnout model using an appropriate discount rate.
|
|
Estimate of future revenue associated with acquired technology. Revenue of $4.9 million over a range of 2.5 years to 3 years.
|
An increase in the revenue growth percentage could result in a significantly higher estimated fair value
of the contingent consideration liability. Alternatively, a decrease in the revenue growth percentage could result in a significantly lower estimated fair value of contingent consideration liability.
The fair value of contingent consideration was derived from a probability weighted earn-out model of future contingent payments. The cash
payments, if any, are expected to be made quarterly, based upon revenue generated from the acquired product line, starting in fiscal 2013. No payments were made in first quarter of fiscal 2013. The valuation of this liability is estimated based upon
a collaborative effort of the Company’s marketing and finance departments. These future contingent payments are calculated based on estimates of future revenue attributable to the acquired technology (Note 12). To obtain a current valuation of
these projected cash flows, an expected present value technique is applied using an appropriate discount rate. The cash flow projections and discount rates will be reviewed quarterly and updated as and when necessary. Potential valuation adjustments
will be made as future revenue projections are updated which affect the calculation of the related contingent consideration payments. These adjustments will be recorded in the income statement.
Note 3. Inventories
Components of inventories were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
|
July 1, 2012
|
|
|
|
|
(In thousands )
|
|
|
|
|
|
|
Raw materials
|
|
$
|
20,419
|
|
|
$
|
21,003
|
|
|
Work-in-process
|
|
|
10,617
|
|
|
|
10,440
|
|
|
Finished goods
|
|
|
14,863
|
|
|
|
16,175
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
45,899
|
|
|
$
|
47,618
|
|
|
|
|
|
|
|
|
|
|
|
Certain inventories, not expected to be consumed within the next 12 months, are included in the condensed
consolidated balance sheet as non-current other assets (within “Deferred Tax and Other Assets”). These inventories consist of raw materials and finished goods and totaled $2.6 million, as of both September 30, 2012 and July 1,
2012, respectively.
10
Note 4. Intangible Assets
Intangible assets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Intangible
Assets
|
|
|
|
|
(in thousands)
|
|
|
Purchased technology
|
|
$
|
25,970
|
|
|
$
|
(24,058
|
)
|
|
$
|
1,912
|
|
|
Customer lists and trademarks
|
|
|
7,303
|
|
|
|
(6,019
|
)
|
|
|
1,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of September 30, 2012
|
|
$
|
33,273
|
|
|
$
|
(30,077
|
)
|
|
$
|
3,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased technology
|
|
$
|
25,970
|
|
|
$
|
(23,845
|
)
|
|
$
|
2,125
|
|
|
Customer lists and trademarks
|
|
|
7,303
|
|
|
|
(5,970
|
)
|
|
|
1,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of July 1, 2012
|
|
$
|
33,273
|
|
|
$
|
(29,815
|
)
|
|
$
|
3,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated future amortization expense by fiscal year is as follows:
|
|
|
|
|
|
|
Fiscal year:
|
|
(in thousands)
|
|
|
|
|
|
2013 (Remaining 9 months)
|
|
$
|
782
|
|
|
2014
|
|
|
1,010
|
|
|
2015
|
|
|
635
|
|
|
2016
|
|
|
461
|
|
|
2017
|
|
|
154
|
|
|
Thereafter
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization
|
|
$
|
3,196
|
|
|
|
|
|
|
|
Intangible asset amortization expense for the first quarter of fiscal 2013 and 2012 was $0.3 million and
$0.2 million, respectively.
Note 5. Warranty
Changes in our accrued warranty liability were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
2012
|
|
|
October 2,
2011
|
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
1,722
|
|
|
$
|
1,601
|
|
|
Provision for warranty
|
|
|
731
|
|
|
|
505
|
|
|
Accruals related to change in estimate
|
|
|
117
|
|
|
|
92
|
|
|
Less: Actual warranty costs
|
|
|
(791
|
)
|
|
|
(721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,779
|
|
|
$
|
1,477
|
|
|
|
|
|
|
|
|
|
|
|
11
Note 6. Long-term Obligations
Long-term obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
|
July 1,
2012
|
|
|
|
|
(In thousands)
|
|
|
Long-term obligations:
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
2,103
|
|
|
$
|
2,254
|
|
|
Lease loss accrual, net
|
|
|
1,100
|
|
|
|
1,240
|
|
|
Rent accrual
|
|
|
1,074
|
|
|
|
1,102
|
|
|
Post-retirement benefits
|
|
|
203
|
|
|
|
173
|
|
|
Income tax
|
|
|
216
|
|
|
|
216
|
|
|
Contingent consideration for acquired business
|
|
|
545
|
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,241
|
|
|
$
|
5,472
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. Stockholders’ Equity
Stock Options and Awards Activity
Stock award activity for the three months ended September 30, 2012 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 July 1, 2012
|
|
|
2,889
|
|
|
|
7,316
|
|
|
$
|
5.54
|
|
|
|
261
|
|
|
$
|
5.68
|
|
|
Granted—options
|
|
|
(104
|
)
|
|
|
104
|
|
|
|
6.11
|
|
|
|
—
|
|
|
|
—
|
|
|
Granted—restricted shares
|
|
|
(200
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
6.15
|
|
|
Exercised
|
|
|
—
|
|
|
|
(196
|
)
|
|
|
4.97
|
|
|
|
—
|
|
|
|
—
|
|
|
Cancelled and Expired
|
|
|
66
|
|
|
|
(66
|
)
|
|
|
6.09
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2012
|
|
|
2,652
|
|
|
|
7,158
|
|
|
$
|
5.55
|
|
|
|
361
|
|
|
$
|
5.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 26, 2012, the stockholders approved an amendment to the 2006 Incentive Award Plan to
increase the number of shares of common stock authorized for issuance under the plan by 2,000,000 shares.
12
Stock options outstanding, vested and expected to vest, and exercisable as of September 30, 2012 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of
Shares
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
(In thousands)
|
|
|
(In years )
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
7,158
|
|
|
|
4.41
|
|
|
$
|
5.55
|
|
|
$
|
10,948
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
6,902
|
|
|
|
4.37
|
|
|
$
|
5.56
|
|
|
$
|
10,560
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
3,724
|
|
|
|
3.42
|
|
|
$
|
5.67
|
|
|
$
|
5,658
|
|
The aggregate intrinsic value in the preceding table represents the total pre-tax value of stock options
outstanding as of September 30, 2012, based on our common stock closing price of $6.97 on September 28, 2012, 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 first quarter of fiscal 2013 and 2012 was approximately $0.3 million and $0.1
million, respectively.
For the first quarter of fiscal 2013 and 2012, the weighted-average estimated fair value of options
granted was $2.89 and $2.43 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 dividends and the
weighted-average assumptions for the three months ended September 30, 2012 and October 2, 2011 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
September 30,
2012
|
|
|
October 2,
2011
|
|
|
Expected life (in years)
|
|
|
4.9
|
|
|
|
5.1
|
|
|
Risk-free interest rate
|
|
|
0.7
|
%
|
|
|
0.7
|
%
|
|
Volatility
|
|
|
56.6
|
%
|
|
|
55.7
|
%
|
We calculated the stock-based compensation expense in the first quarter of fiscal 2013 and 2012, using an
estimated annual forfeiture rate of 5.6% and 7.5%, respectively. At September 30, 2012, 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 $4.5 million, net of estimated forfeitures of $0.8 million. This cost will be amortized on an accelerated method basis over a period of approximately 1.1 years and will be adjusted for
subsequent changes in estimated forfeitures.
13
The following table shows total stock-based compensation costs included in the condensed
consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
2012
|
|
|
October 2,
2011
|
|
|
|
|
(In thousands )
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
291
|
|
|
$
|
119
|
|
|
Research and development
|
|
|
361
|
|
|
|
289
|
|
|
Selling, general and administrative
|
|
|
1,120
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax stock-based compensation expense
|
|
|
1,772
|
|
|
|
1,163
|
|
|
Less: Income Tax effect
|
|
|
656
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
Net stock-based compensation expense
|
|
$
|
1,116
|
|
|
$
|
733
|
|
|
|
|
|
|
|
|
|
|
|
The above table includes expense of $0.1 million and $0.1 million, relating to the employee stock
purchase plan (ESPP) for the first quarter of fiscal 2013 and 2012, respectively.
Performance Awards
In the second quarter of fiscal 2012, the Company communicated its intention to grant 110,000 shares of performance
based restricted stock to its executive management employees subject to the achievement of certain financial performance targets. The number of stock awards that would ultimately be granted depended on actual business performance measured for fiscal
2012 against certain targets for revenue and profitability for the Company’s business as well as continued employment with the Company. During the first quarter of fiscal 2013, 92,620 restricted shares were granted upon achievement of financial
performance targets.
Stock Repurchases
During the first quarter of fiscal 2013, the Company repurchased 609,633 shares of common stock pursuant to our repurchase program for an aggregate price of approximately $3.8 million. As of
September 30, 2012, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 2.2 million.
Note 8. Restructuring Charges
The following table shows the details of the restructuring cost accruals, which consist of facilities and severance
costs, at September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1,
2012
|
|
|
Expense
Additions
|
|
|
Payments
|
|
|
September 30,
2012
|
|
|
|
|
(in thousands)
|
|
|
Lease loss accrual (fiscal 2004)
|
|
$
|
137
|
|
|
$
|
1
|
|
|
$
|
(10
|
)
|
|
$
|
128
|
|
|
All other restructuring changes (fiscal 2004)
|
|
|
68
|
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
46
|
|
|
Lease loss accrual (fiscal 2009)
|
|
|
902
|
|
|
|
33
|
|
|
|
(104
|
)
|
|
|
831
|
|
|
All other restructuring changes (fiscal 2010)
|
|
|
75
|
|
|
|
(185
|
)
|
|
|
185
|
|
|
|
75
|
|
|
Lease loss accrual (fiscal 2011)
|
|
|
170
|
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
158
|
|
|
Lease loss accrual (fiscal 2012)
|
|
|
698
|
|
|
|
5
|
|
|
|
(77
|
)
|
|
|
626
|
|
|
All other restructuring changes (fiscal 2012)
|
|
|
159
|
|
|
|
155
|
|
|
|
(215
|
)
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,209
|
|
|
$
|
10
|
|
|
$
|
(256
|
)
|
|
$
|
1,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The lease loss accruals are subject to periodic revisions based on current market estimates. The lease
loss accruals as of September 30, 2012 will be paid over the next five years.
Note 9. Net Income (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options, employee stock
purchase plan and restricted stock using the treasury stock method, except when antidilutive.
14
The following table reconciles the number of shares utilized in the net income (loss) per
share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30, 2012
|
|
|
October 2, 2011
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(203
|
)
|
|
$
|
2,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator):
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
40,826
|
|
|
|
42,897
|
|
|
Weighted average common shares outstanding subject to repurchase
|
|
|
(316
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding—basic
|
|
|
40,510
|
|
|
|
42,687
|
|
|
Weighted average dilutive share equivalents from stock options
|
|
|
—
|
|
|
|
506
|
|
|
Weighted average dilutive common shares subject to repurchase
|
|
|
—
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding— diluted
|
|
|
40,510
|
|
|
|
43,294
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.06
|
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.06
|
|
Unvested restricted stock is subject to repurchase by the Company and therefore is not included in the
calculation of the weighted-average shares outstanding for basic earnings per share.
The following common stock equivalents
were excluded from the earnings (loss) per share calculation as their effect would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
2012
|
|
|
October 2,
2011
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Stock options
|
|
|
7,281
|
|
|
|
3,391
|
|
|
Common shares subject to repurchase
|
|
|
316
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares of common stock excluded from diluted net income (loss) per share calculation
|
|
|
7,597
|
|
|
|
3,391
|
|
|
|
|
|
|
|
|
|
|
|
Note 10. Litigation and Contingencies
Litigation
—The Company is or was a party to the following material litigations:
Former Texas Facility Environmental Cleanup
We formerly leased a tract of land in Texas for our operations. Those operations involved the use of solvents and, at the end of the lease, we remediated an area where the solvents had been deposited
on the ground and obtained regulatory approval for that remedial activity. In 1996, an environmental investigation of the property detected those same contaminants in groundwater in excess of then current regulatory standards. The
groundwater contamination has migrated to some adjacent properties. We have entered into the Texas Natural Resource Conservation 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,
15
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 September 30, 2012, we had an accrual of $46,000 for remediation costs and other ongoing monitoring costs which has been
included within “other accrued liabilities” on our condensed consolidated balance sheet.
Michael E.
McNeil, et al. vs. Jason Book, et al.
On or around May 25, 2010, Symmetricom was served with the first amended
complaint in the case of Michael E. McNeil, et al. vs. Jason Book, et al. (Case No. CV165643) filed in Santa Cruz County Superior Court, California. The first amended complaint added Symmetricom and several other parties to the lawsuit, which had
been originally filed in 2009 by plaintiffs against their former attorney for legal malpractice in connection with certain settlement agreements in 1999 between plaintiffs and Datum (a company acquired by Symmetricom) in which they assigned to
Datum certain intellectual property rights. The complaint has since been amended for the second time and Symmetricom was served with the second amended complaint on or around January 7, 2011. The second amended complaint alleges several
causes of action, including claims against Symmetricom for contract rescission, breach of contract, conversion and unjust enrichment, and seeks unspecified monetary damages along with equitable relief. Management believes that this lawsuit has
no merit or basis and intends to defend this lawsuit vigorously and as a result, no accrual has been made in relation to this litigation. Management believes the final outcome of this matter will not have a material adverse effect on our
financial position and results of operations.
General
Under the indemnification provisions of our standard sales contracts, we agree to defend the customer against third party claims asserting
infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the reseller/customer. The exposure to us under these indemnification
provisions is generally limited to the total amount paid by the customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the
agreement. To date, there have been no claims under such indemnification provisions. We believe the estimated fair value of these indemnification agreements is not material.
We are also a party to certain other claims in the normal course of our operations. While the results of these claims cannot be predicted with any certainty, we believe that the final outcome of these
matters will not have a material adverse effect on our consolidated financial position and results of operations.
Note 11. Business Segment Information
Symmetricom is organized into two operating segments:
Communications
and
Government and Enterprise
. These
two operating segments are our reporting segments. The Chief Operating Decision Maker (CODM), as defined by authoritative accounting guidance on Segment Reporting, is our President and Chief Executive Officer (CEO). Our CEO allocates resources to
and assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest and taxes.
With the exception of intangible assets, we do not identify or allocate assets by operating segment, nor does our CEO evaluate operating segments using discrete asset information. We do not allocate
restructuring charges, interest and other income, interest expense, or income taxes to operating segments.
The following
describes our two reporting segments:
Communications
Our Communications business supplies timing technologies and services for worldwide communications infrastructure. Products include
primary reference sources, synchronization distribution systems, 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 and Enterprise
Our Government and Enterprise 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.
16
Segment revenue, gross profit and operating income (loss) were as follows during the periods
presented (in thousands):
Three months ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
Government and
Enterprise
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
31,439
|
|
|
$
|
24,952
|
|
|
$
|
—
|
|
|
$
|
56,391
|
|
|
Cost of sales
|
|
|
15,210
|
|
|
|
16,924
|
|
|
|
(45
|
)
|
|
|
32,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,229
|
|
|
|
8,028
|
|
|
|
45
|
|
|
|
24,302
|
|
|
Operating expenses
|
|
|
9,691
|
|
|
|
7,188
|
|
|
|
7,802
|
|
|
|
24,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
6,538
|
|
|
$
|
840
|
|
|
$
|
(7,757
|
)
|
|
$
|
(379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended October 2, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
Government and
Enterprise
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
33,570
|
|
|
$
|
22,808
|
|
|
$
|
—
|
|
|
$
|
56,378
|
|
|
Cost of sales
|
|
|
16,279
|
|
|
|
13,737
|
|
|
|
417
|
|
|
|
30,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
17,291
|
|
|
|
9,071
|
|
|
|
(417
|
)
|
|
|
25,945
|
|
|
Operating expenses
|
|
|
9,730
|
|
|
|
6,269
|
|
|
|
5,857
|
|
|
|
21,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
7,561
|
|
|
$
|
2,802
|
|
|
$
|
(6,274
|
)
|
|
$
|
4,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
2012
|
|
|
October 2,
2011
|
|
|
|
|
|
|
Selling, general and administrative costs
|
|
$
|
7,747
|
|
|
$
|
5,761
|
|
|
Restructuring charges
|
|
|
10
|
|
|
|
513
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-related total
|
|
$
|
7,757
|
|
|
$
|
6,274
|
|
|
|
|
|
|
|
|
|
|
|
12. Business Combination
During third quarter of fiscal 2012, the Company acquired a product line (existing technology, customer relationships,
fixed assets and employees) to enhance the Company’s product offerings in embedded timing and synchronization solutions for residential small cell solutions. This transaction was recorded as an acquisition of a business. The transaction price
was approximately $2.4 million of which $1.4 million was paid in cash and approximately $1.0 million is contingent consideration payable as a royalty upon future sales of such products.
The fair value of the contingent consideration arrangement at the acquisition date was $0.5 million. We estimated the fair value of the
contingent consideration using a probability-weighted discounted cash flow model (See Note 2). The purchase price was determined as follows (amounts in thousands):
|
|
|
|
|
|
|
Initial cash payment
|
|
$
|
1,400
|
|
|
Fair value of contingent consideration
|
|
|
540
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,940
|
|
|
|
|
|
|
|
This purchase price was allocated to fixed assets and intangible assets based on their estimated fair
values as follows (amounts in thousands):
|
|
|
|
|
|
|
Fixed assets
|
|
$
|
50
|
|
|
Intangible assets
|
|
|
1,890
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,940
|
|
|
|
|
|
|
|
The estimated fair value of intangible assets acquired under the transaction consists of the following
(in thousands):
|
|
|
|
|
|
|
Existing technology (estimated useful life 4 years)
|
|
$
|
1,612
|
|
|
Customer relationships (estimated useful life 2 years)
|
|
|
278
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,890
|
|
|
|
|
|
|
|
The fair value of the acquired non-monetary assets, summarized above, were derived from significant
unobservable inputs (“Level 3 inputs”) determined by the Company based on market analysis, income analysis (discounted cash flow model), or cost approach. The fair value of fixed assets acquired was determined using market data for
similar assets. The fair value of existing technology was determined using a discounted cash flow model from cash flow projections prepared by management, including estimated undiscounted cash flows of approximately $3 million during the five to six
year period after the acquisition, and a weighted average cost of capital. The fair value of customer relationships was determined using a cost approach which includes an estimate of time and expenses required to recreate the intangible asset.
Pro forma results of operations have not been presented because the effect of the business combination described in this Note
was not material to our condensed consolidated results of operations. Revenue and earnings per share for the acquired business, since the date of acquisition through September 30, 2012, were not material.
18
13. Subsequent Event
On October 22, 2012, the Company committed to closing its research and development operation in Beijing, China.
After evaluating the Beijing R&D operation against current and future needs, the Company decided to consolidate its engineering resources into its existing U.S. facilities, placing test engineering and development engineering positions in closer
geographic proximity. The Company is therefore closing its Beijing R&D operation, eliminating approximately 35 positions in China, primarily system test engineering positions. The closure and transition is expected to be completed in the second
half of fiscal 2013. After relocating a certain number of these positions to the U.S., the Company expects to incur restructuring and other transition related costs of approximately $3.0 million over the next few quarters, and once completed,
anticipates the transition to be cost neutral. Total restructuring and other transition charges are expected to include severance and employee termination benefits of approximately $0.6 million, facility lease termination costs of approximately $0.4
million, legal fees and other intellectual property related costs of approximately $1.2 million, equipment write-off and re-location costs of approximately $0.3 million and travel and other position re-location costs of approximately $0.5 million.
Total cash expenditures associated with the closure are expected to be approximately $2.8 million.