NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1Summary of Significant Accounting Policies
Business
Symmetricom
®
is a leading source of highly precise timekeeping technologies, instruments and solutions worldwide. We generate, distribute and apply precise time for the
communications, aerospace/defense, IT infrastructure and metrology industries. Symmetricoms customers, from communications service providers and network equipment manufacturers to governments and their suppliers worldwide, are able to build
more reliable networks and systems by using our advanced timing technologies, atomic clocks, services and solutions. Our products support todays precise timing standards, including GPS-based timing, IEEE 1588 (PTP), Network Time Protocol
(NTP), Synchronous Ethernet (SyncE), Building Integrated Timing Supply (BITS) and Data Over Cable Service Interface Specifications (DOCSIS) timing.
Principles of Consolidation
The consolidated financial statements include
the accounts of Symmetricom, Inc., and its wholly owned subsidiaries (Symmetricom, we, our or the Company). All significant intercompany accounts and transactions are eliminated.
Fiscal Year
Our fiscal year is the 52 or 53 weeks ending on the Sunday closest to June 30. Fiscal years 2013 and 2012 were 52-week fiscal years and 2011 was a 53-week fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. These estimates include:
|
|
|
Accounting for income taxes
|
|
|
|
Accruals for contingent liabilities (including restructuring charges)
|
|
|
|
Stock based compensation
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
Valuation of short-term investments
|
|
|
|
Valuation of long-lived assets including intangible assets
|
These estimates are based on available information as of the date of these consolidated financial statements and actual results could differ from these estimates.
Cash and Cash Equivalents
We consider all highly liquid debt investments with a remaining maturity of three months or less when purchased to be cash and cash equivalents.
48
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Short-Term Investments
Short-term investments consist of government sponsored enterprise debt securities, mutual funds, certificates of deposits and corporate
debt securities. Maturities for the government sponsored enterprise debt securities, certificates of deposits and corporate debt securities are between three and thirty six months. All of our short-term investments, except the mutual funds which are
classified as trading securities, are classified as available-for-sale. Available-for-sale securities are carried at fair value with temporary unrealized gains and losses, net of taxes, reported as a component of stockholders equity.
Unrealized gains and losses related to trading securities are included in interest income in our consolidated statements of operations.
Available-for-sale investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. We consult with our investment manager and consider available quantitative
and qualitative evidence in evaluating potential impairment of our investments on a quarterly basis. Other-than-temporary impairment charges exist when the entity has the intent to sell the security or it will more likely than not be required to
sell the security before anticipated recovery. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to operations and a new cost basis in the investment is established.
Fair Values of Financial Instruments
The estimated fair value of our financial instruments, which include cash and cash equivalents, short-term investments, accounts receivable, and accounts payable, approximate their carrying amount.
Allowance for Doubtful Accounts
We record allowance for doubtful accounts based upon an assessment of various factors. We consider historical experience, the age of the accounts receivable balances, the credit quality of the customers,
current economic conditions and other factors that may affect customers ability to pay to determine the level of allowance required.
Inventories
Inventories are valued at the lower-of-cost (first-in,
first-out) or market. We assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a periodic basis. Obsolete inventory or inventory in excess of managements estimated usage is written
down to its estimated market value less costs to sell, if less than its cost. Inherent in the estimates of market value are managements estimates related to current economic trends, future demand and technological obsolescence.
Property, Plant and Equipment, Net
Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the assets except for land as follows:
|
|
|
Buildings and improvements
|
|
15 - 39 years
|
Leasehold improvements
|
|
5 - 15 years, or life of lease, if shorter
|
Machinery, equipment and computer software
|
|
3 - 7 years
|
49
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Accounting for Income Taxes
We provide for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in the financial statements in the period that includes the
enactment date.
The carrying value of our net deferred tax assets, which are made up of tax deductions, net operating loss
carryforwards and tax credits, assumes that we will be able to generate sufficient future income to fully realize these assets. We evaluate the weight of all available evidence in determining whether it is more likely than not that some portion of
the deferred tax assets will not be realized. If we do not generate sufficient future income, the realization of these deferred tax assets may be impaired, resulting in an additional income tax expense.
Authoritative accounting guidance from income taxes prescribes a recognition threshold and measurement framework for the financial
statement reporting and disclosure of an income tax position taken or expected to be taken on a tax return. Under this guidance, a tax position is recognized in the financial statements when it is more likely than-not, based on the technical merits,
that the position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a
greater than 50% likelihood of being realized upon settlement.
Valuation of Long-lived Assets Including Other Intangible
Assets Subject to Amortization
The carrying value of long-lived assets is evaluated whenever events or changes in
circumstances indicate that the carrying value of the asset may be impaired. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, is less than the
carrying value of the asset. An impairment loss is measured as the amount by which the carrying amount exceeds the fair value.
Comprehensive Income (loss)
Financial Accounting Standards Board (FASB) issued authoritative guidance on reporting comprehensive income, establishes standards for reporting and display of comprehensive income and its components. It
also requires companies to report comprehensive income that includes unrealized holding gains and losses and other items that have previously been excluded from net income and reflected instead in stockholders equity.
Accumulated other comprehensive loss, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
|
(in thousands)
|
|
Foreign currency translation adjustments, net of taxes
|
|
$
|
(187
|
)
|
|
$
|
(239
|
)
|
|
$
|
(40
|
)
|
Unrealized gain (loss) on short-term investments, net of taxes
|
|
|
(89
|
)
|
|
|
7
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
(276
|
)
|
|
$
|
(232
|
)
|
|
$
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Warranty
Our standard warranty agreement is one year from shipment. However, our warranty agreements are contract and component specific and can range to twenty years for selected components. We offer extended
warranty contracts to our customers. The extended warranty is offered on products that are less than eight years old. The extended warranty contract is applicable for a maximum of nine years after the expiration of the standard one-year warranty.
The revenue from extended warranty contracts is recognized ratably over the period of contract.
We accrue for anticipated
warranty costs upon shipment. We estimate future warranty costs based on, historical warranty claim trends, managements judgment regarding anticipated rates of warranty claims, and associated repair costs. This analysis is updated on a
quarterly basis.
The change in accrued warranty expense is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
|
(In thousands)
|
|
Beginning balance
|
|
$
|
1,722
|
|
|
$
|
1,601
|
|
|
$
|
2,900
|
|
Provision for warranty for the year
|
|
|
2,733
|
|
|
|
2,549
|
|
|
|
1,617
|
|
Accruals related to changes in estimate
|
|
|
(352
|
)
|
|
|
286
|
|
|
|
(520
|
)
|
Less: Actual warranty costs
|
|
|
(2,553
|
)
|
|
|
(2,714
|
)
|
|
|
(2,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,550
|
|
|
$
|
1,722
|
|
|
$
|
1,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software Development Costs
Costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological
feasibility has been established, at which time any additional development costs would be capitalized in accordance with FASB issued authoritative guidance on Accounting for the Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed. We
believe the current process for developing software is essentially completed concurrently with the establishment of technological feasibility; accordingly, no costs have been capitalized to date.
Foreign Currency Translation
The functional currency of each of our international subsidiaries in the United Kingdom and China is the U.S. dollar, while in Germany it is the Euro and in India it is the Indian rupee.
For our subsidiaries in which the U.S. Dollar is the functional currency, foreign currency denominated assets and liabilities are
translated at the period-end exchange rates, except for inventories, prepaid expenses, and property and equipment, which are translated at historical exchange rates. Statements of operations are translated at the average exchange rates during the
year except for those expenses related to the balance sheet amounts, which are translated using historical exchange rates. Net gains (losses) from these foreign exchange remeasurements are charged to operations and have not been material to our
consolidated operating results for any of the periods presented.
For our subsidiaries in Germany and India, foreign currency
denominated assets and liabilities are translated at the period-end exchange rates, while revenue and expenses are translated at average rates prevailing during the year. Translation adjustments are reported in other comprehensive income (loss).
51
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Revenue Recognition
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.
Periodically, we enter into revenue transactions with
multiple deliverables. Our multiple element product offerings generally include hardware, software and post-contract support (PCS) services, which are considered separate units of accounting. In evaluating the revenue recognition for
multiple element arrangements under the accounting guidance, the total arrangement fees are allocated to all the deliverables based on their relative selling prices. The relative selling price is determined using vendor specific objective evidence
(VSOE) when available. When VSOE cannot be established, we attempt to establish the selling price of deliverables based on relevant third party evidence (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 our best estimate of the 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; and
|
|
|
|
analysis of pricing history of new arrangements, including multiple element and stand-alone transactions.
|
Revenue from contracts that require development and manufacture in accordance with customer specifications and have a lengthy development
period may be categorized into two types: firm fixed price and cost reimbursable. Revenue is recognized under the fixed price contracts using the percentage of completion method (cost-to-cost basis), principally based upon the costs incurred
relative to the total estimated costs at
52
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
completion on the individual contracts. Any anticipated losses on contracts are charged to operations as soon as they are determinable. Revenue recognized under cost reimbursable contracts
is recognized on the basis of direct and indirect costs incurred plus a negotiated profit calculated as a percentage of costs or as a performance based award fee. Revenue from long-term contracts is reviewed periodically, with adjustments recorded
in the period in which the revisions are made.
Unbilled receivables totaled $5.7 million as of June 30, 2013 compared to
$5.6 million as of July 1, 2012 and are included within the Prepaid and Other Current Assets line item on our consolidated balance sheets. All unbilled receivables as of June 30, 2013 are expected to be collected in fiscal
2014.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB issued authoritative guidance on share-based compensation. Under this guidance, share-based compensation cost is measured at the grant date
based on the fair value of the award using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires that we determine subjective variables including estimated term of the award and the estimated volatility
in addition to other less subjective variables. The identified fair value resulting from this model is recognized as expense, net of estimated forfeitures, over the applicable vesting period of the stock award.
Research and Development Costs
Research and development expenditures, which include software development costs, are expensed as incurred.
Earnings Per Share
Basic earnings per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings 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.
53
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
A reconciliation of the denominator used in the calculation of basic and diluted net
earnings (loss) per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
|
(In thousands, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(2,705
|
)
|
|
$
|
11,355
|
|
|
$
|
1,169
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,705
|
)
|
|
$
|
11,355
|
|
|
$
|
1,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (Denominator):
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
40,802
|
|
|
|
42,224
|
|
|
|
43,368
|
|
Weighted average common shares outstanding subject to repurchase
|
|
|
(293
|
)
|
|
|
(243
|
)
|
|
|
(180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic
|
|
|
40,509
|
|
|
|
41,981
|
|
|
|
43,188
|
|
Weighted average dilutive share equivalents from stock options
|
|
|
|
|
|
|
583
|
|
|
|
530
|
|
Weighted average dilutive common shares subject to repurchase
|
|
|
|
|
|
|
133
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingdiluted
|
|
|
40,509
|
|
|
|
42,697
|
|
|
|
43,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per sharebasic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.07
|
)
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per sharediluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.07
|
)
|
|
$
|
0.27
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 diluted earnings per share calculation, as their effect would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
|
(In thousands)
|
|
Stock options
|
|
|
8,086
|
|
|
|
4,155
|
|
|
|
2,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares of common stock excluded from diluted net earnings per share calculation
|
|
|
8,086
|
|
|
|
4,155
|
|
|
|
2,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting Pronouncements
In fiscal 2012, the Company adopted revised guidance related to the presentation of comprehensive income. This guidance eliminates the current option to report other comprehensive income (OCI) and its
components in
54
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
the statement of changes in stockholders equity. The Company adopted, and retrospectively applied this guidance during the fourth quarter of 2012 and elected to present the statement of
other comprehensive income (loss) as a separate statement for the reporting periods.
In February 2013, the FASB issued
guidance on disclosure requirements for items reclassified out of accumulated other comprehensive income (AOCI). This new guidance requires entities to present (either on the face of the income statement or in the notes) the effects on
the line items of the income statement for amounts reclassified out of AOCI. The new guidance will be effective for us beginning July 1, 2013. Other than requiring additional disclosures, we do not anticipate material impacts on our financial
statements upon adoption.
Note 2Balance Sheet Components
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
|
(In thousands)
|
|
Raw materials
|
|
$
|
19,007
|
|
|
$
|
21,003
|
|
Work-in-process
|
|
|
11,025
|
|
|
|
10,440
|
|
Finished goods
|
|
|
14,484
|
|
|
|
16,175
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
44,516
|
|
|
$
|
47,618
|
|
|
|
|
|
|
|
|
|
|
Certain inventories, not expected to be consumed within the next 12 months, are included in the
consolidated balance sheet as non-current other assets (within Deferred Taxes and Other Assets). These inventories consist of raw materials and finished goods and totaled $1.3 million and $2.6 million, as of June 30, 2013 and
July 1, 2012, respectively.
Property, plant and equipment, net
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
|
(In thousands)
|
|
Property, plant and equipment, net:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
200
|
|
|
$
|
200
|
|
Buildings and improvements
|
|
|
19,164
|
|
|
|
16,119
|
|
Machinery and equipment
|
|
|
29,203
|
|
|
|
27,610
|
|
Computer software
|
|
|
12,673
|
|
|
|
12,384
|
|
Leasehold improvements
|
|
|
19,409
|
|
|
|
18,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,649
|
|
|
|
75,236
|
|
Accumulated depreciation and amortization
|
|
|
(56,780
|
)
|
|
|
(52,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,869
|
|
|
$
|
22,702
|
|
|
|
|
|
|
|
|
|
|
During fiscal years 2013, 2012, and 2011, depreciation expense was $5.3 million, $5.0 million, and
$5.3 million, respectively.
55
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Other accrued liabilities
consist of the following
:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
|
(In thousands)
|
|
Other accrued liabilities:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
6,093
|
|
|
$
|
6,996
|
|
Accrued expenses
|
|
|
4,497
|
|
|
|
2,717
|
|
Manufacturer sales representative commissions payable
|
|
|
843
|
|
|
|
1,303
|
|
Lease loss accrual, net
|
|
|
1,050
|
|
|
|
668
|
|
Income taxes payable
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,483
|
|
|
$
|
11,841
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
|
(In thousands)
|
|
Long-term obligations:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
1,979
|
|
|
$
|
2,254
|
|
Lease loss accrual, net
|
|
|
1,579
|
|
|
|
1,240
|
|
Rent accrual
|
|
|
713
|
|
|
|
1,102
|
|
Post-retirement benefits
|
|
|
186
|
|
|
|
173
|
|
Income tax
|
|
|
216
|
|
|
|
216
|
|
Contingent consideration for acquired business
|
|
|
591
|
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,264
|
|
|
$
|
5,472
|
|
|
|
|
|
|
|
|
|
|
Note 3Financial Instruments
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the
market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
|
|
|
Level 1inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
|
|
|
|
Level 2inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
|
|
|
|
Level 3inputs are generally unobservable and typically reflect managements estimates of assumptions that market participants would use in
pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
|
56
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Financial assets and liabilities measured at fair value on a recurring basis consisted
of the following types of instruments as of June 30, 2013 and July 1, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
June 30, 2013
|
|
|
Quoted Prices in
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
|
|
$
|
8,798
|
|
|
$
|
8,798
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities and certificates of deposits
|
|
|
35,034
|
|
|
|
|
|
|
|
35,034
|
|
|
|
|
|
Government sponsored enterprise debt securities
|
|
|
8,246
|
|
|
|
|
|
|
|
8,246
|
|
|
|
|
|
Mutual funds
|
|
|
2,851
|
|
|
|
2,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
46,131
|
|
|
|
2,851
|
|
|
|
43,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
54,929
|
|
|
$
|
11,649
|
|
|
$
|
43,280
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
650
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
650
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
July 1, 2012
|
|
|
Quoted Prices in
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, certificates of deposits and government sponsored enterprise debt securities were derived from non-binding market consensus prices that are corroborated by
observable market data.
The investments in mutual funds are held in a Rabbi trust to support the terms of our deferred
compensation plan discussed further in Note 10.
57
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table summarizes available-for-sale and trading securities recorded as
cash and cash equivalents or short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost Basis
|
|
|
Gross Unrealized
Gains (Losses)
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
8,798
|
|
|
$
|
|
|
|
$
|
8,798
|
|
Corporate debt securities and certificates of deposits
|
|
|
35,171
|
|
|
|
(137
|
)
|
|
|
35,034
|
|
Government sponsored enterprise debt securities
|
|
|
8,263
|
|
|
|
(17
|
)
|
|
|
8,246
|
|
Mutual funds
|
|
|
2,851
|
|
|
|
|
|
|
|
2,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
55,083
|
|
|
$
|
(154
|
)
|
|
$
|
54,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
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, certificates of deposits and Government sponsored enterprise debt securities) recorded as short-term investments:
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
(In thousands)
|
|
Less than 1 year
|
|
$
|
8,325
|
|
|
$
|
8,325
|
|
Due in 1 to 3 years
|
|
|
35,109
|
|
|
|
34,955
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43,434
|
|
|
$
|
43,280
|
|
|
|
|
|
|
|
|
|
|
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 fiscal 2013 (in thousands):
|
|
|
|
|
|
|
Contingent
consideration
|
|
Balance as of July 1, 2012
|
|
$
|
540
|
|
Add: Adjustment to present value of contingent consideration
|
|
|
110
|
|
|
|
|
|
|
Balance as of June 30, 2013
|
|
$
|
650
|
|
|
|
|
|
|
58
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 earn-out model using an appropriate discount rate.
|
|
Estimate of future revenue associated with acquired technology. Revenue of $4.9 million over a range of 3.5 years to 4 years.
|
An increase in the revenue growth percentage could result in a significantly higher estimated fair value
of the contingent consideration liability. Alternatively, a decrease in the revenue growth percentage could result in a significantly lower estimated fair value of contingent consideration liability.
The fair value of contingent consideration was derived from a probability weighted earn-out model of future contingent payments. The cash
payments, if any, are expected to be made quarterly, and based upon revenue generated from the acquired product line, starting in the first quarter of fiscal 2014. No payments were made in fiscal 2013. The change in the time period of estimated
revenue to be generated from the acquired product line resulted in accretion of contingent liability in fiscal 2013. The valuation of this liability is estimated based upon a collaborative effort of the Companys marketing and finance
departments. These future contingent payments are calculated based on estimates of future revenue attributable to the acquired technology (Note 12). To obtain a current valuation of these projected cash flows, an expected present value technique is
applied using an appropriate discount rate. The cash flow projections and discount rates will be reviewed quarterly and updated as and when necessary. Potential valuation adjustments will be made as future revenue projections are updated which
affect the calculation of the related contingent consideration payments. These adjustments will be recorded in the consolidated statement of operations.
Note 4Intangible Assets
Intangible assets are recorded at cost, less
accumulated amortization. Other intangible assets as of June 30, 2013 and July 1, 2012 consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Intangible
Assets
|
|
|
|
(in thousands)
|
|
Purchased technology
|
|
$
|
26,606
|
|
|
$
|
(24,633
|
)
|
|
$
|
1,973
|
|
Customer lists and trademarks
|
|
|
7,303
|
|
|
|
(6,318
|
)
|
|
|
985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of June 30, 2013
|
|
$
|
33,909
|
|
|
$
|
(30,951
|
)
|
|
$
|
2,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The estimated future amortization expense is as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
Fiscal year:
|
|
|
|
|
2014
|
|
$
|
1,087
|
|
2015
|
|
|
714
|
|
2016
|
|
|
540
|
|
2017
|
|
|
233
|
|
2018
|
|
|
212
|
|
Thereafter
|
|
|
172
|
|
|
|
|
|
|
Total amortization
|
|
$
|
2,958
|
|
|
|
|
|
|
Intangible asset amortization expense for fiscal 2013, 2012, and 2011 was approximately $1.4 million,
$0.9 million, and $1.3 million, respectively. The remaining estimated weighted average useful life of purchased technology assets, and customer lists and trademarks was 2.5 years and 4 years, respectively. During fiscal 2013, the Company impaired
approximately $0.3 million of intangible assets to write-down the value of the asset to its fair value of $0.1 million arising from a decline in expected future cash flows associated with this intangible asset. The impairment charge was included
within amortization of purchased technology on the consolidated statements of operations.
Note 5Income Taxes
Income (loss) from continuing operations before taxes and income tax provision (benefit) on income (loss) from
continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30,
2013
|
|
|
July 1,
2012
|
|
|
July 3,
2011
|
|
|
|
(In thousands)
|
|
Income (loss) from continuing operations before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(6,122
|
)
|
|
$
|
15,366
|
|
|
$
|
7,443
|
|
Foreign
|
|
|
1,221
|
|
|
|
1,760
|
|
|
|
587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(4,901
|
)
|
|
$
|
17,126
|
|
|
$
|
8,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
355
|
|
|
$
|
(107
|
)
|
State
|
|
|
72
|
|
|
|
247
|
|
|
|
56
|
|
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
216
|
|
Foreign
|
|
|
428
|
|
|
|
572
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
500
|
|
|
|
1,174
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,620
|
)
|
|
|
4,102
|
|
|
|
1,670
|
|
State
|
|
|
(76
|
)
|
|
|
495
|
|
|
|
4,861
|
|
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(2,696
|
)
|
|
|
4,597
|
|
|
|
6,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit) on income (loss) from continuing operations
|
|
$
|
(2,196
|
)
|
|
$
|
5,771
|
|
|
$
|
6,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
In the year ended July 3, 2011, the income tax provision (benefit) attributable to
continuing operations and discontinued operations, included in the consolidated statements of operations was $6,861 and $143, respectively. For all other periods, there was no impact related to discontinued operations.
The effective income tax rate on our continuing operations differs from the federal statutory income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30,
2013
|
|
|
July 1,
2012
|
|
|
July 3,
2011
|
|
Federal statutory income tax expense (benefit) rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Puerto Rico taxes
|
|
|
|
|
|
|
|
|
|
|
6.5
|
|
State income taxes, net of federal benefit
|
|
|
0.1
|
|
|
|
1.3
|
|
|
|
4.9
|
|
Valuation allowance- state credits, net of federal benefit
|
|
|
(7.4
|
)
|
|
|
3.0
|
|
|
|
55.7
|
|
Foreign taxes
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(3.7
|
)
|
Federal research and development credit
|
|
|
25.2
|
|
|
|
(1.1
|
)
|
|
|
(6.9
|
)
|
Non deductible expenses
|
|
|
(4.1
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(3.7
|
)
|
|
|
(4.2
|
)
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate on continuing operations
|
|
|
44.8
|
%
|
|
|
33.7
|
%
|
|
|
85.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal components of deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
July 1,
2012
|
|
|
|
(In thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
391
|
|
|
$
|
2,804
|
|
Tax credit carryforwards
|
|
|
16,805
|
|
|
|
15,135
|
|
Reserves and accruals
|
|
|
21,527
|
|
|
|
18,264
|
|
Depreciation and amortization
|
|
|
2,796
|
|
|
|
2,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,519
|
|
|
|
38,611
|
|
Valuation allowance
|
|
|
(7,193
|
)
|
|
|
(7,307
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
34,326
|
|
|
|
31,304
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unremitted foreign earnings
|
|
|
334
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
33,992
|
|
|
$
|
30,970
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2013
|
|
|
July 1,
2012
|
|
|
|
(In thousands)
|
|
Current assets
|
|
$
|
9,348
|
|
|
$
|
6,961
|
|
Non-current assets
|
|
|
24,978
|
|
|
|
24,343
|
|
Non-current liabilities
|
|
|
(334
|
)
|
|
|
(334
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
33,992
|
|
|
$
|
30,970
|
|
|
|
|
|
|
|
|
|
|
61
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of June 30, 2013, for federal income tax purposes, we had net operating loss
carryforwards of approximately $10.0 million which will expire in years 2024 through 2033. We had California net operating loss carryforwards of approximately $7.0 million which will expire in years 2014 through 2033.
Also, we had federal research and development tax credit carryforwards of approximately $11.9 million that will expire in the fiscal
years 2018 through 2033, alternative minimum tax credit carryforwards of approximately $4.5 million that have no expiration date, and approximately $1.9 million of foreign tax credits that will expire in 2016 through 2019. A total of $0.1 million of
the alternative minimum tax credit carryforwards are related to excess tax benefits as a result of stock option exercises, and therefore, will be recorded to additional paid-in-capital in the period in which they are realized. Additionally, for
state income tax purposes, we had research and development tax credit carryforwards of approximately $14.2 million that have no expiration date.
As of June 30, 2013, the Companys foreign subsidiaries have accumulated undistributed earnings of approximately $6.0 million that are intended to be indefinitely reinvested outside
the U.S. and, accordingly, no provision for U.S. federal and state tax has been made for the distribution of these earnings.
We have provided a valuation allowance for certain deferred tax assets because we have determined that it is more likely than not that we will not have sufficient taxable income to realize these tax
assets. At June 30, 2013, $0.9 million of the valuation allowance was attributable to foreign tax credit generated from fiscal 2007 through fiscal 2009 that may not be utilized before it expires in fiscal 2017 through fiscal 2019. The $0.5
million of the valuation allowance was attributable to a fiscal 2009 short-term investment loss incurred which has a limited carryforward period. For state income tax purposes, we have a $5.5 million valuation allowance related to state income tax
credits primarily attributable to research and development credits that are not expected to be utilized.
As of June 30,
2013, we had $16.2 million of unrecognized tax benefits, of which $13.7 million, if recognized, would impact our effective tax rate. We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next
twelve months. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2013, 2012, and 2011, we had no interest or penalties related to unrecognized tax benefits recorded to income
tax expense.
The aggregate changes in the balance of unrecognized tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30,
2013
|
|
|
July 1,
2012
|
|
|
July 3,
2011
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
16,166
|
|
|
$
|
16,249
|
|
|
$
|
15,424
|
|
Increase for tax positions of current year
|
|
|
431
|
|
|
|
571
|
|
|
|
756
|
|
Increase for tax positions of prior years
|
|
|
|
|
|
|
|
|
|
|
617
|
|
Decrease for tax positions of prior years
|
|
|
(117
|
)
|
|
|
(200
|
)
|
|
|
|
|
Lapse of Statute of Limitations
|
|
|
(280
|
)
|
|
|
(454
|
)
|
|
|
(548
|
)
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
16,200
|
|
|
$
|
16,166
|
|
|
$
|
16,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are subject to income tax in the United States and a number of state and foreign jurisdictions. The
tax years ended June 28, 2009 and onwards remain open to examination by major taxing jurisdictions in which we operate which include the United States, The State of California and Germany. We ceased operating in Puerto Rico in fiscal 2012.
However, fiscal 2009 through 2011 remain open for examination and we are currently under examination in Puerto Rico for fiscal 2010 and 2011.
62
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 6Stockholders Equity
Stock Options and Awards
Symmetricom has equity benefit plans under which employees, directors and consultants may be granted non-qualified and incentive options to purchase shares of our common stock and restricted stock. Stock
options granted under these plans have contractual terms ranging from 5-10 years. One of these plans was amended in fiscal 2003 to effectively provide that restricted stock could be granted and repurchased for no cash purchase price. Stock
appreciation rights may also be granted under this plan; however, none have been granted to date. All options have been granted at the fair market value of our common stock on the date of grant and generally vest over three or four years.
Our right to repurchase restricted shares generally lapses over the same three or four-year term as the vesting period
applicable to the stock options. The estimated future annual forfeiture rate used to record stock-based compensation expense was 5%, 7%, and 8% for fiscal 2013, 2012, and 2011, respectively. At June 30, 2013, the total future compensation cost
related to unvested stock-based awards granted to employees, directors and consultants under the Companys stock option plans was approximately $5.9 million, net of estimated forfeitures of $0.8 million. This cost will be amortized on an
accelerated basis over a period of approximately 1.4 years and will be adjusted for subsequent changes in estimated forfeitures.
The following table shows total stock-based compensation expense included in the consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30,
2013
|
|
|
July 1,
2012
|
|
|
July 3,
2011
|
|
|
|
(In thousands)
|
|
Cost of sales
|
|
$
|
1,037
|
|
|
$
|
867
|
|
|
$
|
802
|
|
Research and development
|
|
|
1,200
|
|
|
|
1,183
|
|
|
|
870
|
|
Selling, general and administrative
|
|
|
4,878
|
|
|
|
4,092
|
|
|
|
3,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax stock-based compensation expense
|
|
|
7,115
|
|
|
|
6,142
|
|
|
|
4,798
|
|
Less: Income tax effect
|
|
|
(2,633
|
)
|
|
|
(2,273
|
)
|
|
|
(1,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net stock-based compensation expense
|
|
$
|
4,482
|
|
|
$
|
3,869
|
|
|
$
|
3,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table summarizes stock option and award activity for fiscal years 2013,
2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Grantedoptions
|
|
|
(2,193
|
)
|
|
|
2,193
|
|
|
|
6.20
|
|
|
|
|
|
|
|
|
|
Grantedrestricted shares
|
|
|
(422
|
)
|
|
|
|
|
|
|
|
|
|
|
211
|
|
|
|
6.55
|
|
Exercised
|
|
|
|
|
|
|
(462
|
)
|
|
|
4.69
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(175
|
)
|
|
|
5.19
|
|
Cancelled and expired
|
|
|
1,457
|
|
|
|
(1,240
|
)
|
|
|
7.22
|
|
|
|
(27
|
)
|
|
|
5.78
|
|
Expired from plans prior to 1999
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 3, 2011
|
|
|
4,463
|
|
|
|
6,534
|
|
|
$
|
5.78
|
|
|
|
228
|
|
|
$
|
6.39
|
|
Grantedoptions
|
|
|
(2,109
|
)
|
|
|
2,109
|
|
|
|
5.16
|
|
|
|
|
|
|
|
|
|
Grantedrestricted shares
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
5.32
|
|
Exercised
|
|
|
|
|
|
|
(475
|
)
|
|
|
4.53
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123
|
)
|
|
|
6.53
|
|
Cancelled and expired
|
|
|
852
|
|
|
|
(852
|
)
|
|
|
7.07
|
|
|
|
|
|
|
|
|
|
Shares expired from plans prior to 1999
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 1, 2012
|
|
|
2,889
|
|
|
|
7,316
|
|
|
$
|
5.54
|
|
|
|
261
|
|
|
$
|
5.68
|
|
Increase in authorized shares
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantedoptions
|
|
|
(2,428
|
)
|
|
|
2,428
|
|
|
|
5.69
|
|
|
|
|
|
|
|
|
|
Grantedrestricted shares
|
|
|
(878
|
)
|
|
|
|
|
|
|
|
|
|
|
461
|
|
|
|
5.47
|
|
Exercised
|
|
|
|
|
|
|
(680
|
)
|
|
|
4.46
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162
|
)
|
|
|
5.84
|
|
Cancelled and expired
|
|
|
1,310
|
|
|
|
(978
|
)
|
|
|
5.76
|
|
|
|
(164
|
)
|
|
|
5.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2013
|
|
|
2,893
|
|
|
|
8,086
|
|
|
$
|
5.64
|
|
|
|
396
|
|
|
$
|
5.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 26, 2012 at our annual meeting of shareholders, the shareholders approved an additional
2.0 million shares for future issuance under the 2006 Incentive Award Plan.
Options outstanding, vested and expected to
vest, and exercisable as of June 30, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Number of
Shares
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(In thousands)
|
|
|
(In years)
|
|
|
|
|
|
(In thousands)
|
|
Outstanding
|
|
|
8,086
|
|
|
|
3.83
|
|
|
$
|
5.64
|
|
|
$
|
65
|
|
Vested and expected to vest
|
|
|
7,868
|
|
|
|
3.77
|
|
|
$
|
5.65
|
|
|
$
|
64
|
|
Exercisable
|
|
|
4,539
|
|
|
|
2.49
|
|
|
$
|
5.72
|
|
|
$
|
51
|
|
The aggregate intrinsic value in the preceding table represents the total pre-tax value of stock options
outstanding as of June 30, 2013, based on our common stock closing price of $4.49 on June 30, 2013, which would have been received by the option holders had all option holders exercised and sold their options as of that date.
64
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of June 30, 2013, July 1, 2012, and July 3, 2011, the number of
shares and weighted average exercise prices of exercisable options were 4.5 million at $5.72; 3.6 million at $5.68; and 2.8 million at $6.02, respectively.
The total intrinsic value of options exercised during fiscal 2013, 2012, and 2011, was $1.0 million, $0.6 million, and $0.6 million, respectively.
The weighted average grant-date fair value of options granted was $2.79 in 2013, $2.45 in 2012 and $3.06 in 2011. Our calculations were
made using the Black-Scholes option-pricing model. The fair value of our stock-based awards to employees was estimated assuming no expected dividend and the following weighted-average assumptions for fiscal 2013, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30,
2013
|
|
|
July 1,
2012
|
|
|
July 3,
2011
|
|
Expected life (in years)
|
|
|
5.3
|
|
|
|
4.9
|
|
|
|
5.1
|
|
Risk-free interest rate
|
|
|
0.9
|
%
|
|
|
0.6
|
%
|
|
|
1.2
|
%
|
Volatility
|
|
|
56.8
|
%
|
|
|
56.6
|
%
|
|
|
56.6
|
%
|
Restricted Stock Awards
Our restricted stock awards are grants that entitle the holder to acquire shares of restricted common stock with certain designated prices or at no cost on a time or performance basis. The shares of
restricted stock cannot be sold, pledged, or otherwise disposed of until the award vests and any unvested shares may be reacquired by us following the awardees termination of service. The restricted stock awards typically vest on the first,
second or third anniversary of the grant date or on a graded vesting schedule over the designated service period with certain conditions and restrictions.
Employee Stock Purchase Plan
On August 13, 2010, the Board of
Directors approved an employee stock purchase plan (the ESPP) and reserved 1.4 million shares for issuance under the ESPP. The ESPP allows eligible employees to purchase shares of the Companys stock at a discount through
payroll deductions. The ESPP consists of six-month offering periods commencing on the first trading day of March and September each year. Employees purchase shares in the purchase period at 85% of the market value of the Companys common stock
at either the beginning of the offering period or the end of the offering period, whichever price is lower. The first six month offering period commenced on March 1, 2011.
Stock Repurchase Program
On November 17, 2011, the Companys Board of Directors authorized management to repurchase an additional 4.1 million shares of Symmetricom common stock in addition to the remaining shares
available for repurchase under previously approved programs. As of June 30, 2013, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 1.9 million.
In fiscal 2013, we repurchased 870,000 shares for an aggregate price of approximately $5.4 million. The repurchased shares were recorded
as a reduction of our common stock and resulted in a reduction of stockholders equity. Further, we repurchased 277,000 shares in fiscal 2013 for an aggregate price of approximately $1.6 million to cover the cost of employee income taxes on
vested restricted stock and option exercises.
65
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Preferred Stock
We have 500,000 shares of $0.0001 par value preferred stock authorized, of which none have been issued as of June 30, 2013.
Note 7Commitments
Operating Leases
We lease certain facilities and equipment under operating
lease agreements. Net rental expense charged to operations was $3.6 million in 2013, $3.6 million in 2012 and $3.7 million in 2011. Future minimum lease payments as of June 30, 2013 are as follows:
|
|
|
|
|
|
|
Operating Lease
|
|
|
|
(In thousands)
|
|
For the fiscal year:
|
|
|
|
|
2014
|
|
$
|
4,821
|
|
2015
|
|
|
6,281
|
|
2016
|
|
|
3,468
|
|
2017
|
|
|
255
|
|
2018
|
|
|
14
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
14,839
|
|
|
|
|
|
|
Lease loss liabilities were recorded as a result of facility consolidations related to our restructuring
activities and discontinued operations. As of June 30, 2013, the accrued lease loss liability was approximately $2.6 million. The total minimum rentals to be received (between June 30, 2013 and January 31, 2016) in the future under
non-cancelable subleases as of June 30, 2013 were $1.6 million.
Purchase Orders
We had $12.4 million in non-cancelable purchase commitments with our suppliers as of June 30, 2013.
Note 8Litigation and Contingencies
LitigationThe Company is or was a party to the following material litigation:
Former Texas Facility Environmental Cleanup
We formerly leased a tract of
land in Texas for our operations. Those operations involved the use of solvents and, at the end of the lease, we remediated an area where the solvents had been deposited on the ground and obtained regulatory approval for that remedial
activity. In 1996, an environmental investigation of the property detected those same contaminants in groundwater in excess of then current regulatory standards. The groundwater contamination has migrated to some adjacent
properties. We have entered into the Texas Natural Resource Conservation Commissions Voluntary Cleanup Program (the Voluntary Cleanup Program) to obtain regulatory approval for closure of this site and a release from
liability to the State of Texas for subsequent landowners and lenders. We have notified adjacent property owners affected by the contamination of participation in the Voluntary Cleanup Program. On May 20, 2004, we received a demand from
the owner of several adjacent lots for damages in the amount of $1.3 million, as well as seeking an indemnity for the
66
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 adjacent properties, and have also taken steps to begin work on the Miller property. As of June 30, 2013, we had accrual of
$80,000 for remediation costs and other ongoing monitoring costs which has been included within other accrued liabilities on our 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 9Restructuring Charges
During fiscal 2013, we incurred
approximately $5.7 million in lease loss charges, severance, consulting, and other charges in connection with restructuring activities primarily associated with our restructuring plan to realign and consolidate activities to drive efficiencies
across our operations. The lease loss accruals are subject to periodic revisions based on current market estimates. The lease loss accruals as of June 30, 2013 will be paid over the next five years.
During fiscal 2012, we incurred approximately $1.2 million in lease loss charges, severance, consulting, and other charges in connection
with restructuring activities primarily associated with the shutdown of certain activities at our Santa Rosa facility. The lease loss accruals are subject to periodic revisions based on current market estimates.
67
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
During fiscal 2011, we incurred approximately $8.1 million (net) in charges for:
severance, manufacturing transfer consulting services, lease loss charges, and additional depreciation on leasehold improvements. These expenses included $8.7 million of severance, consulting, additional depreciation and other charges for our Puerto
Rico facility closure and $1.7 million of severance, consulting and other charges related to the plan to move the Government business units engineering and manufacturing teams from our Santa Rosa facility to San Jose and other facilities. The
lease loss accrual was reduced by $2.3 million due to re-occupation of a section of our San Jose facility that was previously not used and the sub-lease of a section of our Santa Rosa facility. The lease loss accruals are subject to periodic
revisions based on current market estimates.
The following tables show the details of the restructuring cost accruals, which
consist of facilities and severance costs, for the years ended June 30, 2013 and July 1, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
July 1,
2012
|
|
|
Expense
Additions
|
|
|
Payments
|
|
|
Balance at
June 30,
2013
|
|
|
|
(in thousands)
|
|
Lease loss accrual (fiscal 2004)
|
|
$
|
137
|
|
|
|
17
|
|
|
|
(42
|
)
|
|
|
112
|
|
All other restructuring changes (fiscal 2004)
|
|
|
68
|
|
|
|
77
|
|
|
|
(66
|
)
|
|
|
79
|
|
Lease loss accrual (fiscal 2009)
|
|
|
902
|
|
|
|
115
|
|
|
|
(294
|
)
|
|
|
723
|
|
All other restructuring changes (fiscal 2010)
|
|
|
75
|
|
|
|
(234
|
)
|
|
|
164
|
|
|
|
5
|
|
Lease loss accrual (fiscal 2011)
|
|
|
170
|
|
|
|
13
|
|
|
|
(52
|
)
|
|
|
131
|
|
Lease loss accrual (fiscal 2012)
|
|
|
698
|
|
|
|
379
|
|
|
|
(310
|
)
|
|
|
767
|
|
All other restructuring changes (fiscal 2012)
|
|
|
159
|
|
|
|
203
|
|
|
|
(362
|
)
|
|
|
|
|
Lease loss accrual (fiscal 2013)
|
|
|
|
|
|
|
930
|
|
|
|
(32
|
)
|
|
|
898
|
|
Severance (fiscal 2013)
|
|
|
|
|
|
|
2,956
|
|
|
|
(1,265
|
)
|
|
|
1,691
|
|
All other restructuring changes (fiscal 2013)
|
|
|
|
|
|
|
1,285
|
|
|
|
(1,275
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,209
|
|
|
$
|
5,741
|
|
|
$
|
(3,534
|
)
|
|
$
|
4,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
July 3,
2011
|
|
|
Expense
Additions
|
|
|
Payments
|
|
|
Balance at
July 1,
2012
|
|
|
|
(in thousands)
|
|
Lease loss accrual (fiscal 2004)
|
|
$
|
161
|
|
|
$
|
15
|
|
|
$
|
(39
|
)
|
|
$
|
137
|
|
All other restructuring changes (fiscal 2004)
|
|
|
50
|
|
|
|
72
|
|
|
|
(54
|
)
|
|
|
68
|
|
Lease loss accrual (fiscal 2009)
|
|
|
1,797
|
|
|
|
(482
|
)
|
|
|
(413
|
)
|
|
|
902
|
|
All other restructuring changes (fiscal 2010)
|
|
|
409
|
|
|
|
(47
|
)
|
|
|
(287
|
)
|
|
|
75
|
|
Lease loss accrual (fiscal 2011)
|
|
|
403
|
|
|
|
(125
|
)
|
|
|
(108
|
)
|
|
|
170
|
|
All other restructuring changes (fiscal 2011)
|
|
|
979
|
|
|
|
372
|
|
|
|
(1,351
|
)
|
|
|
|
|
Lease loss accrual (fiscal 2012)
|
|
|
|
|
|
|
853
|
|
|
|
(155
|
)
|
|
|
698
|
|
All other restructuring changes (fiscal 2012)
|
|
|
|
|
|
|
565
|
|
|
|
(406
|
)
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,799
|
|
|
$
|
1,223
|
|
|
$
|
(2,813
|
)
|
|
$
|
2,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued severance will be paid within next twelve months. Over the next twelve months, we expect to incur
an additional $4.7 million in restructuring charges related to the above restructuring plans.
68
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Note 10Benefit Plans
401(k) Plan
The Company has a 401(k) plan (the Plan) that allows eligible U.S. employees to contribute up to 50 percent of their annual compensation to the Plan, subject to certain limitations.
Each employee directs the investment of the funds across a series of mutual funds. Effective in fiscal 2004, Symmetricom matched up to $0.50 per $1.00 deferred up to 3% of eligible compensation. Employee contributions vest immediately. Employer
matching contributions vest 25%, 25% and 50% at end of first, second and third year, respectively. Symmetricom made matching contribution payments of $0.7 million in each fiscal year for 2013, 2012, and 2011 respectively.
Deferred Compensation Plan
The Company has a deferred compensation plan that allows outside directors and certain U.S. employees to contribute up to 100% of their compensation, provided that their contributions do not reduce their
salary to an amount that is less than the amount necessary to pay applicable employment taxes and other withholding obligations. The Board of Directors is authorized to make discretionary contributions to the accounts of participants. No
discretionary contributions were made in fiscal 2013, 2012 and 2011.
Note 11Business 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
certain of our selling, general, and administrative expenses, integration and 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 communications networks and equipment.
Government and Enterprise
Our Government and Enterprise business provides timing technology products for aerospace/defense, IT infrastructure, power 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.
69
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Segment revenue, gross profit and operating income (loss) were as follows during the
periods presented:
Year ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
Government
and
Enterprise
|
|
|
Corporate
|
|
|
Total
|
|
Net revenue
|
|
$
|
116,047
|
|
|
$
|
94,943
|
|
|
$
|
|
|
|
$
|
210,990
|
|
Cost of sales
|
|
|
56,166
|
|
|
|
60,981
|
|
|
|
943
|
|
|
|
118,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
59,881
|
|
|
|
33,962
|
|
|
|
(943
|
)
|
|
|
92,900
|
|
Operating expenses
|
|
|
36,612
|
|
|
|
27,922
|
|
|
|
33,711
|
|
|
$
|
98,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
23,269
|
|
|
$
|
6,040
|
|
|
$
|
(34,654
|
)
|
|
$
|
(5,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
Government
and
Enterprise
|
|
|
Corporate
|
|
|
Total
|
|
Net revenue
|
|
$
|
132,345
|
|
|
$
|
105,371
|
|
|
$
|
|
|
|
$
|
237,716
|
|
Cost of sales
|
|
|
65,781
|
|
|
|
66,745
|
|
|
|
1,178
|
|
|
|
133,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
66,564
|
|
|
|
38,626
|
|
|
|
(1,178
|
)
|
|
|
104,012
|
|
Operating expenses
|
|
|
37,867
|
|
|
|
27,001
|
|
|
|
22,300
|
|
|
|
87,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
28,697
|
|
|
$
|
11,625
|
|
|
$
|
(23,478
|
)
|
|
$
|
16,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 3, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
Government
and
Enterprise
|
|
|
Corporate
|
|
|
Total
|
|
Net revenue
|
|
$
|
119,104
|
|
|
$
|
89,042
|
|
|
$
|
|
|
|
$
|
208,146
|
|
Cost of sales
|
|
|
60,112
|
|
|
|
48,951
|
|
|
|
9,351
|
|
|
|
118,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
58,992
|
|
|
|
40,091
|
|
|
|
(9,351
|
)
|
|
|
89,732
|
|
Operating expenses
|
|
|
36,302
|
|
|
|
24,251
|
|
|
|
22,048
|
|
|
|
82,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
22,690
|
|
|
$
|
15,840
|
|
|
$
|
(31,399
|
)
|
|
$
|
7,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
|
(In thousands)
|
|
Selling, general and administrative costs
|
|
$
|
24,855
|
|
|
$
|
20,589
|
|
|
$
|
13,991
|
|
Research and development cost
|
|
|
3,115
|
|
|
|
488
|
|
|
|
|
|
Restructuring charges
|
|
|
5,741
|
|
|
|
1,223
|
|
|
|
8,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate-related total
|
|
$
|
33,711
|
|
|
$
|
22,300
|
|
|
$
|
22,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Our export sales, based on the location of the customer, accounted for 37%, 38%, and
35%, of our net revenue in fiscal 2013, 2012, and 2011 respectively. The geographical components of revenue are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
June 30, 2013
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
United States
|
|
|
63
|
%
|
|
|
62
|
%
|
|
|
65
|
%
|
International:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
15
|
%
|
|
|
14
|
%
|
|
|
11
|
%
|
Europe
|
|
|
17
|
%
|
|
|
17
|
%
|
|
|
17
|
%
|
Canada
|
|
|
3
|
%
|
|
|
4
|
%
|
|
|
3
|
%
|
Latin America
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
4
|
%
|
With the exception of property, plant and equipment, we do not identify or allocate our long-lived assets
by geographic area. No material amount of property, plant and equipment exists outside the United States.
In fiscal 2013,
2012 and 2011, no customer accounted for 10% or more of our net revenue. As of June 30, 2013 and July 1, 2012, no customer accounted for 10% or more of the outstanding accounts receivable balance.
Note 12Business Combination
In fiscal 2012, the Company acquired a product line (existing technology, customer relationships, fixed assets and employees) to enhance the Companys product offerings in embedded timing and
synchronization solutions for residential small cell solutions. This transaction was recorded as an acquisition of a business. The transaction price was approximately $2.4 million of which $1.4 million was paid in cash and approximately $1.0 million
is contingent consideration payable as a royalty upon future sales of such products.
The fair value of the contingent
consideration arrangement at the acquisition date was $0.5 million. We estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model (See Note 3). 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
|
|
|
|
|
|
|
71
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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 an estimated undiscounted cash flows of approximately $3 million during the
five to six year period after the acquisition, and a weighted average cost of capital. The fair value of customer relationships was determined using a cost approach which includes an estimate of time and expenses required to recreate the intangible
asset.
During the second quarter of fiscal 2013, the Company acquired a product line (existing technology, inventories, and
support from the former owner) to enhance the Companys product offerings of test and measurement solutions. This transaction has been recorded as an acquisition of a business. The transaction price was approximately $0.5 million payable in
cash in periodic installments to the former owner. The purchase price was entirely allocated to existing technology (the acquired intangible asset) which has an estimated useful life of 5 years.
Pro forma results of operations have not been presented because the effect of the business combinations described in this Note was not
material to our condensed consolidated results of operations. Revenue and earnings per share for the acquired businesses from the date of acquisition through the respective fiscal year ends were not material.
72