<PAGE>
_____________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission file number 33-10965
SSE TELECOM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1466297
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 710, 8230 LEESBURG PIKE 22182
VIENNA, VIRGINIA (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code:
(703) 442-4503
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Par Value $0.01
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ X]
The aggregate market value of voting Common Stock held by non-affiliates of the
registrant was approximately $30,621,848 as of December 11, 1995. The
computation of the aggregate market value is based upon the average bid and ask
price of the common stock as of December 11, 1995.
Voting shares outstanding
at December 11, 1995
--------------------
5,533,679
DOCUMENTS INCORPORATED BY REFERENCE
- -----------------------------------
Portions of the proxy statement for the Annual Meeting of Stockholders to be
held by March 12, 1996 (the "Proxy Statement") are incorporated by reference in
Part III.
<PAGE>
PART I
------
ITEM 1. BUSINESS
- ------------------
SSE Telecom, Inc.'s ("SSE Telecom") principal business is the manufacture and
sale of satellite telecommunication equipment through its wholly owned
subsidiary, SSE Technologies Inc. ("SSE Technologies").
SSE Technologies designs, manufactures and markets satellite communications
products and systems for the transmission of voice, data, fax and video. The
Company's strategic business focus is to develop grow the business of SSE
Technologies by meeting the needs of customers in the satellite communications
marketplace. SSE Technologies is a customer and market oriented firm with an
installed base of over 11,000 transceivers or modems in satellite earth stations
located in over 80 different countries. The Company sells its products directly
to international telecommunication system integrators as well as to certain
sophisticated end users.
The Company is involved in the direct broadcast satellite ("DBS") field through
it's 2.5% equity ownership interest in Echostar Communication Corporation
("EchoStar"). The market for DBS services is now well under development, and DBS
services will provide a significant competitive alternative to the present cable
television market. Echostar is in the process of developing a DBS satellite
system for the United States common market.
The executive offices of the Company are in the Washington D.C. metropolitan
area at Suite 710, 8230 Leesburg Pike, Vienna, Virginia 22182. The operations
of SSE Technologies and the administrative offices of the Company are
headquartered in its Fremont, California facilities.
SATELLITE COMMUNICATION INDUSTRY OVERVIEW
Growing international demand for telecommunications capacity, technical
innovation and deregulation trends continue to contribute to the substantial
growth in the world-wide satellite communications market. The growth is fueled
by users' requirements for information, particularly in developing countries.
Satellite communication systems are often a preferred medium for communications
over a large geographic area and have specific advantages over traditional
terrestrial networks in many applications.
Substantial users of the Company's products include international
telecommunication systems integrators and service providers, private
communication networks and foreign and domestic government agencies. Major
application trends in business networks, government usage, training and distance
learning continue to fuel demand for earth station equipment. Broadcast
television also contributes to demand particularly in regions of the world where
television is presently limited. Continued requirements for telephone circuits
internationally drive the demand particularly in the market segments addressed
by the Company. Satellite systems are very well suited for quick installation
of telephonic service in remote geographic regions and interface well with other
transmission media.
The total satellite communications market is generally segmented into earth
station and components submarkets. The earth station market is further divided
into large, medium, small, very small aperture terminal (VSAT), and mobile
segments. Generally speaking, these segments are based on the type of
application and the size of antenna that is employed in that application. The
company's primary product focus is on the small earth station segment of the
market. A satellite earth station system generally consists of three primary
components (1) transceivers or radios (2) modems and (3) antennas.
PRODUCTS
The Company manufactures and sells two of the three key components in the small
aperture terminal earth station market, i.e., transceivers and modems. In
addition to selling separate components, SSE Technologies designs and markets a
full range of integrated satellite hardware, including the recent introduction
of rack-mounted converters. SSE Technologies also selectively provides systems
integration services to certain sophisticated individual end users of satellite
earth station products.
Transceivers
Transceivers manufactured by the Company contain microwave downconverters,
upconverters, frequency synthesizers and power amplifiers. SSE Technologies
designs and manufactures all of these individual subassemblies of the
transceivers. The transceivers are designed for worldwide use in satellite
earth stations such as those using standards set by Intelsat and Eutelsat. SSE
Technologies manufactures a variety of transceivers at X, C and Ku-Band
frequencies. Most of these products are standard elements of communications
systems and, as such, are competitively priced. Transceiver options support
many different types of specific applications and, therefore, prices may vary
over a wide range. Specific power and frequency requirements may be adjusted to
individual customer requirements. Management believes its products have
features and performance characteristics in frequency and power options that
offer advantages
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above those of competitors.
Rackmount converters
SSE Technologies also offers a line of rack-mounted up/downconverters operating
in the C, X and Ku-band, and recently introduced its Tri-band converters which
operate in all three frequency bands. The Triband converters can be installed in
a variety of transportable containers, mobile shelters or fixed locations, and
can operate with various antenna configurations at various power levels.
Modems
The Company manufactures and sells its own line of digital satellite modem
products. The state-of-the-art modems are a result of the investment by SSE
Technologies in updated engineering and product feature enhancements. The
products are fully compatible with the transceiver subsystems and represent a
family of modem products for open and closed network applications that operate
throughout the world.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company directs its marketing activities and programs toward major
international systems integrators of telecommunications equipment and to direct
relationships with certain substantial international companies or government
agencies who provide their own systems installations. The Company markets and
supports its products through a distribution system comprised of a direct sales
force, supplemented in international markets by independent sales
representatives. Nine of the Company's employees are engaged in sales and
marketing of SSE Technologies' products and services. SSE Technologies' Vice
President of Sales and six Sales Managers devote all of their time to these
functions. The Company's President and the Executive Vice President of Business
Development of SSE Technologies also provide sales and marketing support as
needed. Sales promotion is accomplished by direct mail, participation in
domestic and international trade shows and advertising in industry and trade
publications.
The Company provides a full range of technical support, training and repair
services for its products. In addition, customers receive direct support from
customer service representatives throughout the order entry, manufacturing and
delivery scheduling processes to ensure that customer equipment specifications
and scheduling needs are addressed. Warranty and repair service is administered
by the same representatives which enhances the continuity of customer support.
Creating and maintaining long-term customer relationships has been a cornerstone
of the company's overall strategy. Active and energetic sales and support
contacts ensure that the Company remains aware of the changing needs and
concerns of the customers. This translates into feedback to the product
improvement and development processes providing a direct link between market
demands and Company products. support services are provided to the customers by
a force of Field Engineers, Customer Service Representatives, System Engineers
and Sales Support personnel. Through this base of dedicated support personnel
the customer can extend access to virtually all of the expertise available in
the Company. Most support services are provided through direct contact via
telephone and fax although technical and training support is also provided in
the field at customer sites when appropriate. Customers can also receive
training at the Company facilities. A technical and service support office in
Singapore and a sales office in the United Kingdom provide additional support to
customers in those regions. The availability of offices in these areas ensures
that the majority of the Company's worldwide customers can contact a
representative during business hours.
The rapidly evolving international markets continue to be an important source of
revenue for the Company. The Company has an installed base of products in over
80 countries. Direct export revenues accounted for 48% of the Company's
revenues in 1995, 45% of the Company's revenue in 1994 and 43% of the Company's
revenue in 1993. No individual geographic region represented a significant
portion of revenues. Direct and indirect international business, as measured by
end users, represents approximately 80% of sales historically. In 1995, one
customer, Nortel Dasa, accounted for 13% of total revenues of SSE Technologies.
Approximately 215 customers placed orders with the company during fiscal 1995.
MANUFACTURING
SSE manufactures all of its products in its Fremont facility. All
subassemblies, power amplifiers and top level systems are produced by
approximately 100 direct labor employees. SSE has the capability to perform all
manual assembly, DC and RF testing and environmental screening on all of its
products. During the year, manufacturing has instituted additional burn-in and
electrical testing on its products to further verify complete compliance to the
specifications.
SSE has successfully completed its ISO9001 audits and has received its
certification. This was a company wide effort with all areas participating in
the establishment of the documentation required to achieve this certification.
SSE has strengthened its manufacturing organization during the fiscal year by
completing its implementation of work cell manufacturing concepts for all of its
S-Series radios and modem products. All products built in these work cells are
3
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synchronized so that production of the subassemblies is pulled directly into the
top assembly production cycle. This has improved efficiencies so that while the
labor force was not increased during the year, total production increased ten
percent. Additional automatic testing has been implemented into the standard
process flow which has greatly reduced the hands on time while increasing the
amount and accuracy of data taken.
This same philosophy is being implemented for the STAR radio production. It is
anticipated that a smaller work force than now exists will be able to produce a
higher volume of products than currently does. The pull line will contain
automated testing and utilize the same concepts currently in place within the
factory.
COMPETITION
The overall market for the products and services which SSE Technologies provides
is highly competitive. There are a number of other firms which compete with the
Company, none of which dominate the industry. Certain of the Company's
competitors have greater financial and personnel resources. The Company's
products may not be proprietary or patentable, and consequently may be subject
to duplication and exploitation by its competition. The Company has several
principal competitors, each of whom produce some products which are similar to
the type produced by the Company. The Company believes that no single
competitor offers the diversity or depth of the radio frequency ("RF") products,
notably transceivers, that are manufactured by SSE Technologies.
Management believes competition in the industry is principally based upon price
and performance. However, in most cases with significant customers, technical
expertise, ability to deliver product on a timely basis and the quality of the
product and services provided over a sustained period of time are key
competitive factors.
Management believes that it has a significant current share of the point to
point segment (for example, two way rural telephony) of the satellite earth
station marketplace, via its complete transceiver product line.
Companies competing in the satellite communications market today are generally
affected by three significant influences:
1. Increasing emphasis on smaller earth station applications.
2. Increased price competition.
3. Pressure to provide full services and solutions to customers.
The shift of emphasis to smaller earth stations is accelerating as technology
brings the capabilities of larger systems to smaller earth stations. This
results in high potential for competition because there are lower barriers to
entry in the smaller equipment manufacturing market. Price competition has also
increased substantially as the combination of new competitors, lower cost of
manufacture of the equipment and the growing modularity of earth station
components and subsystems forces companies to compete aggressively on price.
Some companies react to this competitive situation by offering full system
integration and installation to its customers.
RESEARCH AND DEVELOPMENT
The Company's engineering abilities and commitment to ongoing research and
development are a key element of the Company's success in the rapidly advancing
marketplace. During 1993, 1994 and 1995 the Company spent $2,201,000,
$2,543,000 and $2,958,000 respectively on internal research and development and
engineering, representing approximately 8% in 1993 and 1994, and 9% of sales in
1995. This level of commitment is representative of management's emphasis on
seeking opportunities for expanding radio and modem products. Product
extensions and new product developments are directly driven by customer
applications and requirements as well as market demand.
PERSONNEL
As of September 30, 1995, the Company employed a total of 170 persons; 104 in
manufacturing, 23 in engineering, 21 in sales and marketing, 22 in finance and
administration. The Company's employees are not represented by a labor
organization nor is the Company party to any collective bargaining agreement.
The Company has never experienced an employee strike or work stoppage. The
Company considers its relations with its employees to be good.
BACKLOG
SSE Technologies had a backlog of firm orders of $7,600,000 at September 30,
1995, and management expects all of the orders to be delivered within fiscal
1996. The current backlog compares to a backlog of $6,100,000 at October 1,
1994, and $3,900,000 at September 26, 1993. The remaining backlog is
representative of the historical product and customer mix. Backlog as of
December 11, 1995 was approximately $8,900,000.
The Company does not believe that backlog is necessarily indicative of future
revenue. Timing differences from year to year as to the receipt of large orders
and changes in factory production make meaningful year to year comparisons of
backlog difficult.
4
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FOREIGN CURRENCY
Substantially all contracts with foreign customers are negotiated in United
States dollars.
ITEM 2. PROPERTIES
- --------------------
SSE Technologies is located at 47823 Westinghouse Drive, Fremont, California
94539. The Fremont facility consists of approximately 33,000 square feet under
leases expiring in June 1996. The Company is currently reviewing several
facility options and expects to sign a lease on the new facility well in advance
of the June 1996 expiration date. The Company maintains some administrative
functions at its office in the Washington, D.C. metropolitan area.
ITEM 3. LEGAL PROCEEDINGS
- ---------------------------
The Company is not a party to any litigation and is not aware of any threatened
litigation which would have a material adverse effect on the Company or its
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
5
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PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
Company has one series of common stock, $.01 par value common stock, the holders
of which have full voting rights. At December 11, 1995, there were approximately
165 holders of record of the Company's common stock. This number is based upon
the number of stockholders of record as reported by the American Stock Transfer
& Trust Company, 40 Wall Street, New York, New York 10005.
The Company's common stock is listed on the National Association of Securities
Dealers, Inc. Automated Quotation System (NASDAQ) under the trading symbol
"SSET" and is listed in the Wall Street Journal and in other newspapers. The
following table sets forth representative high and low closing prices in the
NASDAQ system for the specified periods. At December 11, 1995, the closing bid
and ask for the Company's common stock as quoted on NASDAQ were 8 3/8 and 8
3/8, respectively.
The Company follows the policy of reinvesting all earnings to finance expansion
of its business. No change in this policy is contemplated in the foreseeable
future. The board of directors has not declared dividends in the last five
years and does not have present plans to declare dividends in the foreseeable
future.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
MARKET FISCAL YEAR
PRICE 1994 1995
----- ---- ----
High Low High Low
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
1ST QUARTER 13 1/2 8 1/2 6 5/8 6 1/4
2ND QUARTER 12 8 1/4 7 3/8 7 1/8
3RD QUARTER 8 3/4 5 3/4 8 7/8 8 1/4
4TH QUARTER 6 1/4 5 1/2 8 3/8 7 3/4
-----------------------------------------------------------------
</TABLE>
6
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- ---------------------------------------------
<TABLE>
<CAPTION>
(in thousands except for per share data)
Years ended September
SUMMARY OF OPERATIONS 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Continuing Operations:
Revenue $33,569 $30,173 $29,321 $23,355 $18,010
Cost of revenues 22,952 19,997 19,041 16,371 11,819
- -------------------------------------------------------------------------------------------
Gross margin $10,617 $10,176 $10,280 $ 6,984 $ 6,191
Research and development 2,958 2,543 2,201 1,938 1,565
Marketing, general and administrative 5,829 4,733 4,513 3,291 2,290
Operating income 1,830 2,900 3,566 1,755 2,336
Other corporate expense (income) 317 733 579 570 329
Gain on sale of DBSC, net of
transaction expense -- (1,277) -- -- --
Provision for taxes 414 1,224 1,078 427 582
- -------------------------------------------------------------------------------------------
Income before discontinued operations 1,099 2,170 1,909 758 1,425
Earnings per share before discontinued $ 0.20 $ 0.40 $ 0.37 $ 0.15 $ 0.33
operations
Discontinued Operations:
Loss -- -- -- -- $ (68)
Loss per share -- -- -- -- $ (0.02)
- -------------------------------------------------------------------------------------------
Net income $ 1,099 $ 2,170 $ 1,909 $ 758 $ 1,357
- -------------------------------------------------------------------------------------------
Earnings per share:
Primary $ 0.20 $ 0.40 $ 0.37 $ 0.15 $ 0.31
Fully diluted $ 0.20 $ 0.40 $ 0.36 $ 0.15 $ 0.29
Cash dividends paid $ -- $ -- $ -- $ -- $ --
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 5,370 5,145 4,599 4,409 3,961
Primary number of shares outstanding 5,587 5,467 5,113 4,927 4,375
Fully diluted number of shares
outstanding 5,590 5,467 5,306 4,927 4,634
- -------------------------------------------------------------------------------------------
Balance Sheet:
Total current assets $21,874 $21,652 $10,680 $ 9,103 $ 8,088
Total assets 37,823 25,034 13,310 11,626 10,424
Total current liabilities 4,222 3,890 4,871 5,904 5,886
Total long-term liabilities 14,044 9,781 854 973 788
Stockholders' equity 19,557 11,363 7,585 4,749 3,750
</TABLE>
The table above sets forth selected consolidated financial data of SSE
Telecom, Inc. and should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
OVERVIEW
SSE Telecom -
The Company continued to improve its operational and financial performance with
record level sales in 1995. Growth in international sales and orders in a
competitive marketplace continued to strengthen the Company's position as a
significant manufacturer and supplier of satellite earth station equipment in
the worldwide marketplace. A key element of the Company's strategy is to
leverage its position within the transceiver segment of the market to other
earth station components such as modems. Continued investment in product
development and enhancement is also reflective of the Company's strategy to
focus itself as a significant satellite earth station solution provider.
Directsat Corporation -
On December 30, 1994, the Company completed the exchange of its 91.2% interest
in Directsat for 1,216,957 shares of EchoStar, Class A common stock, or
approximately 2.5% of EchoStar. Prior to EchoStar offering its shares for
public trading, a reverse split by EchoStar reduced the Company's holding to
912,717 shares. During the third quarter EchoStar's common stock began trading
on the NASDAQ stock market under the symbol "DISH," as a result of the
completion of EchoStar's initial public offering.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income and
expense items expressed as a percentage of the Company's total revenues:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
1995 1994 1993
<S> <C> <C> <C>
Revenues 100% 100% 100%
Cost of revenue 68% 66% 65%
Gross profit 32% 34% 35%
Research and development expense 9% 8% 8%
Selling, general, marketing and
administrative expenses 17% 16% 15%
Operating income 5% 10% 12%
Other corporate expense 0% 2% 1%
Gain on sale of DBSC, net of transaction expense 0% -4% 0%
Net interest expense 1% 0% 1%
Income before income taxes 4% 11% 10%
Income taxes 1% 4% 3%
Net income 3% 7% 7%
</TABLE>
FISCAL YEAR ENDED SEPTEMBER 30, 1995, COMPARED WITH FISCAL YEAR ENDED OCTOBER 1,
1994
SSE Telecom, Inc. completed its fiscal year with revenue of $33.6 million.
Sales for fiscal 1995 increased by $3.4 million or 11% from fiscal 1994.
Revenue increased primarily due to shipments of the Company's new Triband rack-
mounted converter product, which represents 13% of fiscal 1995 revenue and a
130% increase in revenue from fiscal 1994 in the European market.
Gross margin increased $441,000 or 4% from fiscal 1994 as a result of increased
revenue. However, as a percentage of net revenue, gross margin decreased from
34% to 32%. Less than anticipated revenue, due to material shortages, adversely
affected the fourth quarter gross margin because factory overhead cost was set
at a higher production rate. Additionally, during the year, the Company
continued to experience competitive price pressure on several particular product
offerings. As a result, the Company maintained some amount of its business
opportunities by reducing product prices. Also during the year, particularly in
the fourth quarter, the Company had a shift in some of its product mix shipments
to lower-power level transceivers. The lower-power level business is very price
competitive. Another factor contributing to the reduction in gross product
margin in 1995 was associated with higher material costs relative to the
Company's modular product line. As more customers shift to the Company's newer
product lines, material purchases for some of the components on the older
product line, grew more expensive with lower volume purchases. The Company
expects gross margin will remain at comparable levels during first and second
quarter of 1996 and improve during the remainder of fiscal 1996 with full
production of the STAR series advanced satellite transceiver product. There can
be no assurance that competitive pressure will not reduce gross margins in the
future.
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SSE Technologies research and development expense, in fiscal 1995, increased
$415,000 or 16% from fiscal 1994. The major research and development project
focused on final design of the Star series advanced satellite transceiver
product and preparation of the new product for manufacturing transfer. Other
research and development projects included development of the Triband rack-
mounted converter and system design, on-line engineering change order software
and processes, and development of monitor and control software. In addition,
the Company had some non-recurring engineering costs associated with achieving
ISO-9001 certification. During September 1995, the Company was audited and
recommended for ISO-9001 certification. As a percentage of revenue, research
and development expense increased to 9% in 1995 from 8% in 1994. The Company
expects to fund research and development at the approximate same percentage of
revenue in fiscal 1996.
Marketing, general and administrative expenses increased $1.1 million or 23%
from fiscal 1994. The Company invested heavily in support infrastructure areas
during 1995; salaries, personnel expenditures and outside consultant fees
increased $590,000. The Company offered greater support to its customers by
increasing staff in the areas of sales, marketing, customer service, and field
and applications engineering. Additional staff in accounting and finance was
added to monitor customer credit, and improve cost accounting reporting. Sales,
field and applications engineering staff traveled more frequently to customer
locations thus increasing travel expense $200,000 over fiscal 1994. The Company
feels that marketing and administration functions are fully staffed and prepared
to meet the needs of our growing customer base in 1996. As a percentage of
revenue, marketing, general and administrative expense increased to 17% in 1995
from 16% in 1994.
As a result of lower gross margin percentage, increased research and development
expenses, and increased marketing, general and administrative expenses,
operating income decreased $1.1 million or 37% from fiscal 1994. As a
percentage of revenue, operating income decreased to 5% from 10% in 1994.
During the second quarter of fiscal 1994, the Company realized a gain on the
sale of an asset, a minority ownership interest and creditor claims associated
with a developmental stage company in the direct broadcast business, net of
expenses, of $1.2 million. This non-recurring income was not present during
1995. As a percentage of revenue, the gain was 4%.
Net interest expense increased $76,000 or 52% during fiscal 1995. During fiscal
1994, the cash flow generated from the nonrecurring sale of the asset described
above and the sale of a $2,750,000, seven year, 6.5% convertible debenture to
EchoStar, enabled the Company to pay off its operating lines of credit and
significantly lower its interest expense in 1994. On September 30, 1994, the
Company sold an additional $6,000,000, seven year, 6.5% convertible debentures
to EchoStar. The Company therefore has higher interest expense as a result of
interest due on the additional debentures. The Company's annual interest expense
for the debentures is approximately $578,000. This expense is offset by interest
income on invested funds. As a percentage of revenue, net interest expense
increased to 1% in 1995 from less than 1% in 1994.
Other corporate expense decreased $492,000 or 84% from fiscal 1994. During
fiscal 1994, the Company made the decision to reduce the carrying value of its
product license, an open network modem. It was determined that the technology
and market demand associated with the open network modem had substantially
changed since the purchase of the original product line in 1991. This resulted
in amortization of $510,000 during fiscal 1994. During fiscal 1995, the Company
continued to amortize the carrying value of its product license with a full year
amortization of approximately $33,000. As a percentage of revenue, other
corporate expense decreased from 2% in 1994 to less than 1% in 1995.
As a result of the foregoing, income before income tax decreased $1.9 million or
55% from 1994. As a percentage of revenue, income before income tax decreased
to 4% in 1995 from 11% in 1994.
Provision for taxes on income decreased $810,000 or 66% in fiscal 1995 from
fiscal 1994. This decrease resulted from a decrease in the Company's pre-tax
income and a lower tax rate of 27% in fiscal 1995 versus 36% in fiscal 1994.
The lower tax rate reflects larger percentage tax savings from the Company's
foreign sales corporation and state tax credits.
The combination of lower gross profit as a percentage of revenue, increased
research and development expense and increased marketing, general and
administrative expense resulted in a decrease of net income of $1,071,000 or
49%. As a percentage of revenue, net income was 3% in 1995 and 7% in 1994.
FISCAL YEAR ENDED OCTOBER 1, 1994, COMPARED WITH FISCAL YEAR ENDED SEPTEMBER 25,
1993
The Company completed fiscal 1994 with revenue of $30.1 million. Sales for the
year increased $852,000 or 3% from 1993. During 1994, one customer, Tomen
Telecom International, Inc., accounted for 10% of the total revenue of SSE
Technologies. Reflecting the increased competitive forces in the marketplace,
actual units of all products shipped, in the aggregate increased by 18% from
fiscal 1993.
9
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Gross margin decreased $104,000 or 1% from fiscal 1993 primarily as a result of
increased price competition. As a percentage of revenue, gross margin decreased
from 35% to 34%.
Research and development expense in fiscal 1994 increased $342,000 or 16% from
fiscal 1993. Increased expenses in fiscal 1994 were primarily for additional
engineering employees and outside consultants, with the goal to develop new
products with cost reduction and product enhancement features. As a percentage
of revenue, research and development was 8% in 1994 and 1993.
Marketing general and administrative expenses increased $220,000 or 5% during
1994. The increase was primarily the result of additional support in marketing
and sales, customer service and accounting and finance. During the fourth
quarter of fiscal 1994, the Company added additional sales support for the
European market and shifted some sales staff responsibilities to enhance
marketing efforts. Marketing, general and administrative expense as a
percentage of revenue increased to 16% from 15% in 1993.
As a result of lower gross margin, increased research and development expenses,
and increased marketing, general and administrative expenses, operating income
decreased $666,000 or 19% from fiscal 1993. As a percentage of revenue,
operating income decreased to 10% from 12% in 1993.
During the second quarter of fiscal 1994, the Company realized a gain on the
sale of a minority ownership interest and its creditor claims against DBSC net
of expenses, of $1.2 million. This non-recurring income was not present during
1993. As a percentage of revenue, the gain was 4%.
Net interest expense increased $105,000 or 42% during fiscal 1994. The cash
flow generated during the second quarter from the non-recurring sale of the
asset described above and the sale of a $2,750,000, seven year, 6.5% convertible
debenture to EchoStar, enabled the Company to pay off its operating lines of
credit during 1994. During the third and fourth quarters of 1994, the Company
had interest income from investment of the remaining debenture funds. This
interest income was offset by accrued debenture interest and interest on
equipment term loans. On September 30, 1994, the Company sold an additional
$6,000,000, seven year, 6.5% convertible debentures to EchoStar. As a percentage
of revenue, net interest expense decreased from 1% in 1993 to less than 1% in
1994.
Other corporate expense, principally amortization of SSE Technologies' product
license for the open network modem increased $259,000 or 79% from fiscal
1993. During the second quarter of 1994, the Company reduced the carrying value
of the product license. It was determined that the technology and market demand
associated with the open network modem had substantially changed since the
purchase of the original product line in 1991. As a percentage of revenue,
other corporate expense increased to 2% from 1% in 1993.
As a result of the foregoing, income before income tax increased $407,000 or 14%
from 1993. As a percentage of revenue, income before income tax increased from
10% in 1993 to 11% in 1994.
Provision for taxes on income increased $146,000 or 14% in fiscal 1994 from
fiscal 1993. Such increase resulted from an increase in the Company's pre-tax
income. The tax rate for the year ended October 1, 1994, was 36% which was
consistent with 1993. The 1994 tax rate includes the benefit of exempt foreign
sales corporation income and utilization of research and development tax
credits.
Due to the gain on the sale of an asset, a minority ownership interest and
creditor claims associated with a developmental stage company in the direct
broadcast business, fiscal 1994 net income increased $261,000 or 14% from 1993
results. As a percentage of revenue, net income was 7% in 1993 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1995, the Company had working capital of $17.7 million
including $7.9 million of cash, cash equivalents, and short term investments
compared with working capital of $17.8 million, including $6.1 million of cash
and cash equivalents on October 1, 1994. Net cash provided by operating
activities was $4.6 million for the year ended September 30, 1995, compared to
net cash used by operating activities of $1.3 million for the year ended October
1, 1994.
Accounts receivable decreased $2.2 million from year end 1994. There are
several factors contributing to this decrease. First, due to shortages of key
components, shipments for the fourth quarter of 1995 fell below expectation.
Second, the Company agreed to extend the terms on a current receivable, totaling
$242,000, reclassifying $121,000 of this receivable as a long term receivable.
Third, through a more aggressive credit and collection policy, the Company
lowered days sales outstanding from 92 in 1994 to 87 days in 1995.
Inventory turnover (defined as annual cost of revenues divided by year-end
inventory balances) was 3.8 and 3.5 for the
10
<PAGE>
years ended September 30, 1995, and October 1, 1994, respectively. Inventory
levels increased $371,000 from year-end 1994. Shortages of key components
delayed scheduled shipments for the fourth quarter of fiscal 1995. As a result
of these shortages, finished goods and work in process inventory increased
approximately $521,000. The Company has begun to purchase raw material for the
production of the Star series advanced satellite transceiver product. Initial
shipments are scheduled for the first quarter of fiscal 1996. Total raw material
decreased from year end 1994 by approximately $151,000. The Company expects
inventory levels to increase during the first six months of fiscal 1996 during
the transition from S-series to Star series products. A decrease in inventory is
expected over the last six months of fiscal 1996 with final inventory levels
decreasing from fiscal 1995.
The Company purchased $1.1 million of fixed assets during fiscal 1995. These
assets include approximately $877,000 of test equipment for research and
development and production, $245,000 for computer equipment and teleconferencing
equipment to link the Company's own facilities, and $14,000 for leasehold
improvements. The Company expects to invest in similar levels of fixed assets
during fiscal 1996. Currently, the Company is self funding the purchase of
assets.
Accounts payable increased $602,000. During the last two weeks of September
1995, the Company brought in inventory associated with the Star series of
advanced satellite transceiver products. This increased the trade accounts
payable balance at year end. Additionally, several components which caused
delays in production were received in substantial quantities at year end. The
Company consistently pays its vendors within agreed upon terms. The change in
the trade accounts payable balance except for Star series material and receipt
of certain components is primarily attributed to timing of the processing of
check runs.
Long-term investments increased $13.6 million this year. On December 30, 1994,
the Company completed the exchange of its 91.2% interest in Directsat for
1,216,957 shares of EchoStar, Class A common stock, or approximately 2.5% of
EchoStar. Prior to EchoStar offering its shares for public trading, a reverse
split by EchoStar reduced the Company's holding to 912,717 shares. During the
third quarter of fiscal 1995, EchoStar's common stock began trading on the
NASDAQ stock market under the symbol "DISH". As of September 29, 1995, the last
trading day of fiscal 1995, the stock was trading at $14.50 per share. The
Company adjusted the value of the stock to $13.2 million, an increase of
approximately $11.5 million over the Company's initial investment in Directsat.
This adjustment, net of deferred tax, is reflected in a separate component of
stockholders' equity.
A second increase in other asset investments, is the Company's investment in
Media4. The Company announced on June 16, 1995, that SSE Telecom, Inc. and Paris
based Alcatel Telspace ("Alcatel") agreed to invest up to $1.1 million in
Media4, located in Atlanta, Georgia. Media4 is a developer of products for
distribution of multimedia information over wireless networks. At year end, the
Company has an equity investment interest of $191,000 in Media4 and had
purchased $150,000 of Media4's 7% convertible debentures. Based upon the
progress of Media4 (see Note 2) relative to product and market development, the
Company is committed to purchase an additional $200,000 in convertible
debentures payable in installments of $100,000 at the completion of a certain
milestone or no later than May 1, 1998 and $100,000 at the completion of another
milestone or no later than May 1, 1998. Media4 anticipates achieving both
milestones in the Company's fiscal 1996 year and accordingly the Company
anticipates funding these amounts.
The Company continues to monitor the progress of Media4 relative to product and
market development. As of September 30, 1995, the Company believes Media4 has
made excellent progress on the development of its business plan While not
anticipated, should Media4's development not continue to meet expectations, the
Company may be required to recognize a permanent adjustment to the carrying
value of its aggregate investment.
Other long term assets include long term receivables totaling $129,000, the
remaining unamortized $17,000 of SSE's open network modem product license, and
product development costs of $139,000 for monitor and control software.
Short term notes payable decreased $398,000. The Company paid off the current
portion of its equipment line of credit during November 1994.
Other long term liabilities increased $4.3 million compared to October 1, 1994.
Deferred taxes increased $4.5 million, as a result of the unrealized gain in
the value of the EchoStar investment. Long term notes payable decreased
$242,000. Of this total, $324,000 was paid on the long term portion of the
Company's equipment line of credit. The other long term liability primarily
related to Directsat debt, $496,000 was paid during the second quarter of
fiscal 1995. During fiscal 1995, long term debenture interest payable increased
$578,000.
The Company's capital resource commitments on September 30, 1995, primarily
consisted of obligations under operating leases for the manufacturing
facilities, and the purchase of an additional $200,000 of Media4's 7%
convertible debentures. The lease on the manufacturing facility in Fremont,
California, will expire in June 1996. The Company is currently reviewing several
facility options for its future needs and expects to sign a lease on the new
facility well in advance of the June 1996 expiration date. Based upon the
progress of Media4, relative to product and market development, the Company is
committed to purchase an additional $200,000 of debentures, payable in
installments of $100,000 at the completion of a certain milestone or no later
than May 1, 1998, and $100,000 at the completion of another milestone or no
later
11
<PAGE>
than May 1, 1998.
During fiscal 1996, the Company intends to pursue strategic acquisitions and
investments in the satellite communications and related markets that will
complement and expand its current market position. The company believes it has
the necessary capital resources available for such a program.
The Company's capital requirements could change in the event of factors such as
lower than anticipated demand for the Company's products or unanticipated
limitations on debt financing. If any of these or other events should occur,
the Company could experience a need to raise additional capital.
At September 30, 1995, the Company had a line of credit agreement with a
national bank that is secured by specific assets of SSE Technologies, and bears
interest at prime plus 0.375% (8.75% at September 30, 1995). The line of credit
expires on February 28, 1996. The terms of the line of credit allow for maximum
borrowings of the lessor of $5.0 million or 80% of qualified accounts, less
amounts outstanding under stand-by letters of credit. In addition, the line of
credit agreement requires the Company to maintain certain financial ratios and
meet certain other requirements. The maximum available under the line of credit
at September 30, 1995 was approximately $3.7 million, with no amount outstanding
at September 30, 1995. The maximum available under the stand-by letter of credit
is $250,000. At September 30, 1995, the Company had $141,300 outstanding
stand-by letters of credit. The Company is in the process of negotiating an
extension under the line of credit. The Company believes its current line of
credit, and internally generated funds will be sufficient in fiscal 1996 to meet
its current operating and other capital requirement needs.
In addition, the Company has a maximum of $500,000 available under an equipment
line of credit with the same bank. Amounts drawn under this line are
periodically converted into three-year notes. The Company did not borrow
against its equipment line during 1995. Amounts drawn under this line as well
as under the notes are payable at an interest rate of prime plus .75%.
On December 19, 1995 the Company announced that it has entered in a letter of
intent to acquire Phoenix-based Fairchild Data Corporation, a leading
manufacturer of satellite modems and related earth station products, from
Fairchild Corporation. The transaction will be funded by a combination of cash
and SSE Telecom common stock valued at a total of approximately $6 million. The
transaction, which is intended to be accounted for as an asset purchase, is
expected to close within 45 days.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
SSE Telecom, Inc.
We have audited the accompanying consolidated balance sheets of SSE Telecom,
Inc. as of September 30, 1995 and October 1, 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended September 30, 1995. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SSE
Telecom, Inc. at September 30, 1995 and October 1, 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1995, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set for
therein.
/s/ ERNST & YOUNG LLP
San Jose, California
November 10, 1995
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
September 30,1995 and October 1, 1994 1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 3,547,574 $ 6,118,201
Short-term investments 4,350,132 --
Accounts receivable, net of
allowance for doubtful accounts of
$223,439 at September 30, 1995 and
$93,647 at October 1, 1994 6,968,103 9,153,903
Inventory 6,093,315 5,722,572
Deferred income taxes, and other current assets 915,249 657,561
----------------------------
Total current assets 21,874,373 21,652,237
- ----------------------------------------------------------------------------------------------
Property, equipment, and leasehold
improvements, at cost
Machinery and equipment 3,395,895 2,518,948
Furniture and fixtures 1,056,173 811,055
Leasehold improvements 112,379 101,156
----------------------------
4,564,447 3,431,159
Less accumulated depreciation and amortization 2,476,363 1,876,901
----------------------------
Net property, equipment, and leasehold improvements 2,088,084 1,554,258
Long term investments 13,575,197 --
Other assets 285,064 1,827,022
- ----------------------------------------------------------------------------------------------
Total assets $37,822,718 $ 25,033,517
- ----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ -- $ 397,567
Accounts payable 2,772,277 2,170,532
Accrued salaries and employee 770,873 765,236
benefits
Other accrued liabilities 678,950 556,915
Total current liabilities 4,222,100 3,890,250
- ----------------------------------------------------------------------------------------------
Minority interest -- 37,186
Deferred tax liability 4,617,524 75,000
Long-term notes payable 9,426,252 9,668,262
Commitments and contingencies -- --
Stockholders' equity
Common stock - $.01 par value per
share, 10,000,000 shares
authorized; 5,531,346 and
5,459,996 shares issued and
outstanding at
September 30, 1995 and October 1, 55,313 54,600
1994, respectively.
Additional paid-in capital 6,745,236 6,409,562
Retained earnings 6,594,253 5,495,113
Net unrealized gain on 7,051,021 --
available-for-sale investments
Stockholders' notes receivable -- (135,000)
----------------------------
Treasury stock, at cost; 143,275 and 79,148 shares at
September 30, 1995 and October 1, 1994, respectively (888,981) (461,456)
----------------------------
Total stockholders' equity 19,556,842 11,362,819
- ----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 37,822,718 $ 25,033,517
- ----------------------------------------------------------------------------------------------
</TABLE>
The Notes are an integral part of these statements.
14
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For years ended September 30, 1995, October 1, 1994, and September 25, 1993 1995 1994 1993
<S> <C> <C> <C>
Revenues $ 33,568,804 $ 30,172,520 $ 29,321,007
Cost of revenues 22,951,695 19,996,787 19,040,852
-----------------------------------------------------------
Gross margin 10,617,109 10,175,733 10,280,155
Expenses
Research and development 2,957,534 2,542,924 2,201,418
Marketing, general and administrative 5,828,896 4,733,132 4,512,856
-----------------------------------------------------------
Operating income 1,830,679 2,899,677 3,565,881
- ---------------------------------------------------------------------------------------------------------------------------------
Other corporate expense 94,408 585,966 326,858
Gain on sale of DBSC, net of transaction expense -- (1,227,179) --
Net interest expense 223,031 146,964 252,188
-----------------------------------------------------------
Income before income taxes 1,513,240 3,393,926 2,986,835
Provision for income taxes 414,100 1,224,000 1,078,000
-----------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,099,140 $ 2,169,926 $ 1,908,835
- ---------------------------------------------------------------------------------------------------------------------------------
Primary earnings per share $ 0.20 $ 0.40 $ 0.37
-----------------------------------------------------------
Shares used in computing primary earnings per year 5,586,787 5,467,378 5,113,425
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes are an integral part of these statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For years ended September 30, 1995, October 1, 1994 and September 25, 1993 1995 1994 1993
-------------------------------------------------------
Operating Activities
<S> <C> <C> <C>
Net income $ 1,099,140 $ 2,169,926 $ 1,908,835
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization 632,963 1,041,458 704,918
Interest expense 578,220 98,034 --
Changes in operating assets and liabilities:
Accounts receivable 2,185,800 (3,586,320) (334,678)
Inventory (370,743) (1,416,843) (733,610)
Deferred income tax and other current assets (217,688) (90,155) (214,085)
Accounts payable 601,745 72,159 (223,350)
Accrued salaries and employee benefits 5,637 78,883 171,216
Other accrued liabilities 122,035 297,947 (632,845)
-------------------------------------------------------
Net cash provided (used) by operating activities 4,637,109 (1,334,911) 646,401
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Cash purchases of equipment (1,133,289) (685,214) (665,905)
Purchase of short-term investments (13,512,080) -- --
Sale of short-term investments 9,170,560 -- --
Investment in Directsat Corporation -- (900,000) --
Investment in Media4 (340,800) -- --
Other assets, including external development of software (268,314) (225,588) (125,671)
Cash payments on product license (12,000) (144,000)
-------------------------------------------------------
Net cash (used) by investing activities (6,083,923) (1,822,802) (935,576)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of common stock, including tax benefit 336,387 2,069,814 926,946
Net borrowings under lines of credit -- (1,468,240) (208,340)
Borrowings under equipment note -- 328,400 235,924
Payments on notes payable (1,167,675) (340,611) (327,265)
Borrowing under short term debt -- -- (43,750)
Treasury stock purchase (427,525) (461,456) --
Cash advances from minority stockholders -- 83,950 --
Repayment of stockholder note receivable 135,000 -- --
Sales of convertible debentures -- 8,750,000 --
-------------------------------------------------------
Net cash (used) provided by financing activities (1,123,813) 8,961,857 583,515
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,570,627) 5,804,144 294,340
Cash and cash equivalents, beginning of year 6,118,201 314,057 19,717
Cash and cash equivalents, end of year $ 3,547,574 $ 6,118,201 $ 314,057
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS
Directsat/Echostar Exchange $ 1,689,464 $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Notes are an integral part of these statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR YEARS ENDED SEPTEMBER 30, 1995, OCTOBER 1, 1994, AND SEPTEMBER 25, 1993.
<TABLE>
<CAPTION>
Common Stock
------------------------
Additional Stockholders' Net unrealized Total
Number Paid-in Retained Notes Treasury gain on Stockholders'
of Shares Amount Capital Earnings Receivable Stock available-for-sale Equity
investments
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 26, 1992 4,490,880 $44,908 $3,287,494 $1,416,352 $ -- $ -- $ -- $ 4,748,754
Issuance of common stock 284,965 2,850 505,096 -- -- -- -- 507,946
upon exercise of options
and warrants
Other 32,100 321 (321) -- -- -- -- --
Tax benefit of stock
option exercises -- -- 419,000 -- -- -- -- 419,000
Net income -- -- -- 1,908,835 -- -- -- 1,908,835
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 25, 1993 4,807,945 48,079 4,211,269 3,325,187 -- -- -- $ 7,584,535
Issuance of common stock 652,051 6,521 1,036,293 -- -- -- -- 1,042,814
upon exercise of options
and warrants
Tax benefit of stock
option exercises -- -- 1,162,000 -- -- -- -- 1,162,000
Repurchase of treasury stock -- -- -- -- -- (461,456) -- (461,456)
Stockholder's notes receivable -- -- -- -- (135,000) -- -- (135,000)
Net income -- -- -- 2,169,926 -- -- -- 2,169,926
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 1, 1994 5,459,996 54,600 6,409,562 5,495,113 (135,000) (461,456) -- 11,362,819
Issuance of common stock 71,350 713 236,674 -- -- -- -- 237,387
upon exercise of options
and warrants
Tax benefit of stock
option exercises -- -- 99,000 -- -- -- -- 99,000
Repurchase of treasury stock -- -- -- -- (427,525) -- (427,525)
Stockholder's notes receivable -- -- -- -- 135,000 -- -- 135,000
Net unrealized gain, on -- -- -- -- -- -- 7,051,021 7,051,021
available-for-sales investment
Net income -- -- -- 1,099,140 -- -- -- 1,099,140
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995 5,531,346 $55,313 $6,745,236 $6,594,253 $ -- $(888,981) $7,051,021 $19,556,842
</TABLE>
The Notes are an integral part of these statements.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and method of consolidation: The Company's principal business is
the manufacture and sale of satellite telecommunications equipment throughout
the world. The Company conducts these operations through SSE Technologies, a
wholly owned subsidiary formed in June 1988 from a product line acquisition.
The Company consolidates its majority owned subsidiaries and significant inter-
company amounts have been eliminated in the consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with minimum yield risks and maturities of less than 90 days at the date of
purchase to be cash equivalents. Cash and cash equivalents are stated at cost
which is approximate to market value.
Revenue recognition: Revenue from product sales is generally recognized when
goods are shipped and billable to the customers. A warranty reserve for future
costs related to product warranties is established and maintained based on
estimated costs to be incurred for delivered products.
Inventory: Inventory consists of manufacturing raw materials, work-in-process
and finished goods. Inventories are valued at the lower of cost or realizable
current value. Cost is based on the average cost method, which approximates
actual cost on the first-in, first-out (FIFO) basis.
At September 30, 1995 and October 1, 1994, inventory consisted of:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Raw materials $3,727 $3,878
Work-in-process 1,784 1,640
Finished goods 582 205
------ ------
Total $6,093 $5,723
</TABLE>
Depreciation and amortization: Depreciation and amortization is provided on a
straight-line basis over estimated useful life ranging from three to five
years, or over the lease term, if shorter. Leasehold improvements are amortized
over the term of the lease or their estimated useful life, whichever is shorter.
Net income per share: Net income per share is computed based on the weighted
average number of common shares and dilutive common equivalent shares
outstanding during each period presented.
Concentration of credit risk: The Company designs, develops, manufactures,
markets, and supports satellite telecommunication equipment and systems for
customers in diversified geographic locations. The Company performs ongoing
credit evaluations of its customers' financial condition and in most cases
requires a letter of credit or cash in advance for foreign customers. The
Company has a policy that requires a letter of credit or credit insurance for
credit worthy customers that request sales under extended terms.
Reclassifications: Certain items have been reclassified to conform to the
current year's presentation.
2. INVESTMENTS
Investments with maturities of less than one year at the balance sheet date are
classified as short term investments. Investments with maturities greater than
one year at the balance sheet date are classified as long term investments.
Effective October 2, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with SFAS No. 115, prior period financial
statements have not been restated to reflect the change in accounting principle.
There was no cumulative effect of adopting SFAS No. 115, as of October 1, 1994.
The Company has classified all investments as available-for-sale. Available-
for-sale securities are stated at fair value with the unrealized gains and
losses, net of taxes, reported as a separate component of stockholders' equity.
Realized gains and losses, and declines in value judged to be other than
temporary on available-for-sale securities, are included in other
corporate expense. The cost of securities sold is based on the average cost
method. Dividends on securities classified as available-for-sale are included in
other
18
<PAGE>
corporate expense. No significant gains or losses were incurred on available-
for-sale securities for the year ended September 30, 1995.
On December 30, 1994, the Company completed the exchange of its 91.2% interest
in Directsat, which resulted in the receipt of 912,717 shares of EchoStar
Communications Corporation ("EchoStar"), Class A common stock As of September
29, 1995, (the last trading day of the fiscal year) the stock was trading for
$14.50 per share.
The Company announced on June 16, 1995, that SSE Telecom, Inc. and Paris based
Alcatel Telspace ("Alcatel") agreed to invest equally up to an aggregate of
$1,100,000 in Media4, Inc., ("Media4") located in Atlanta, Georgia. As of the
end of the year, the Company has invested $341,000 in Media4 common stock and
debentures. Based upon the progress of Media4 relative to product and market
development, the Company is committed to purchase an additional $200,000 of
debentures payable in installments dependent on certain specified milestones.
The Company continues to monitor the progress of Media4 relative to its product
and market development. As of September 30, 1995, the Company believes Media4
has made excellent progress on the development of its business plan. While not
anticipated, should Media4's development not continue to meet expectations, the
Company may be required to recognize a permanent adjustment to the carrying
value of its aggregate investment (see note 7).
The following is a summary of available-for-sale securities, at September 30,
1995:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bills & other
Gov't agency obligations $ 523 $ 5 $ $ 528
Corporate Obligations 3,599 14 (9) 3,604
Foreign Obligations 103 (2) 101
Commercial Paper 495 495
Floating Rate Notes 117 117
Corporate debenture - Media4 150 150
----------------------------------------------------------------------------------
Total debt securities $ 4,987 $ 19 $ (11) $ 4,995
----------------------------------------------------------------------------------
Common Stock - Echostar 1,689 11,545 13,234
Common Stock - Media4 191 191
----------------------------------------------------------------------------------
Total equity securities 1,880 11,545 -- 13,425
- -------------------------------------------------------------------------------------------------------------------
Total available-for-sale
securities $ 6,867 $ 11,564 $ (11) $ 18,420
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a summary of costs and estimated fair values of investments in
debt securities at September 30, 1995, by contractual maturity:
<TABLE>
<CAPTION>
Estimated
(in thousands) Cost Fair Value
--------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 4,837 $ 4,845
Due after five years 150 150
--------------------------------------------------------
$ 4,987 $ 4,995
--------------------------------------------------------
</TABLE>
19
<PAGE>
The following is a reconciliation of the investment categories in the balance
sheet classification at September 30, 1995:
<TABLE>
<CAPTION>
Cash and Short-term Long-term
(in thousands) Cash Equivalents Investments Investments Total
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Cash and money market
funds $ 3,053 $ -- $ -- $ 3,053
Available-for-sale 495 4,350 13,575 $ 18,420
-------------------------------------------------------------------
$ 3,548 $ 4,350 $ 13,575 $ 21,473
- -------------------------------------------------------------------------------------------
</TABLE>
3. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company had exports of approximately 48% of revenues in 1995, 45% of
revenues in 1994, and 43% of revenues in 1993. Export revenues are primarily to
South America, Western Europe, Canada, and Mexico. No individual geographic
region represented a significant portion of revenue. In 1995, Nortel Dasa
accounted for approximately 13% of the Company's revenues. In 1994, TomeTelecom
International, Inc. accounted for approximately 10% of the Company's revenues
and in 1993, Hughes Network Systems and ANT Bosch Telecom accounted for
approximately 13% and 11% of the Company's revenues.
4. CREDIT FACILITIES AND NOTES PAYABLE
At September 30, 1995, the Company had a line of credit agreement with a
national bank that is secured by specific assets of SSE Technologies, and bears
interest at prime plus 0.375% (8.75% at September 30, 1995). The line of credit
expires on February 28, 1996. The terms of the line of credit allow for maximum
borrowings of the lessor of $5.0 million or 80% of qualified accounts, less
amounts outstanding under stand-by letters of credit. In addition, the line of
credit agreement requires the Company to maintain certain financial ratios and
meet certain other requirements. The maximum available under the line of credit
at September 30, 1995 was approximately $3.7 million, with no amount outstanding
at September 30, 1995. The maximum available under the stand-by letter of
credit is $250,000. At September 30, 1995, the Company had $141,300 outstanding
stand-by letters of credit. The Company is in the process of negotiating an
extension under the line of credit.
In addition, the Company has a maximum of $500,000 available under an equipment
line of credit with the same bank. Amounts drawn under this line are
periodically converted into three-year notes. The Company did not borrow
against its equipment line during 1995. Amounts drawn under this line as well
as under the notes are payable at an interest rate of prime plus .75%.
The Company's 6 1/2% convertible subordinated debentures due March 1, 2001, are
payable to EchoStar and are convertible into 729,167 shares of common stocks at
$12.00 per share at any time prior to maturity. Neither these debentures or the
common shares issuable on exercise of the conversion right have or will be
registered under the federal securities laws or the securities laws of any
state, and neither these debentures or any common shares acquired on exercise of
the conversion right may be transferred, hypothecated, sold or assigned, except
in compliance with the provisions of the Securities Act of 1933, and any
applicable state securities laws. Neither these debentures or any such common
shares may be sold, assigned, pledged, hypothecated or otherwise transferred,
except after notice to the Company and with the company's consent, and the
Company need not consent to any such proposed transfer unless, in the opinion of
legal counsel satisfactory to the Company, such transfer does not violate any
applicable federal or state securities laws.
At September 30, 1995 and October 1, 1994, debt obligations consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Equipment notes $ - $ 722
Notes payable - Directsat - 496
6 1/2 % Convertible debenture, 9,426 8,848
including interest
-------------------------------
9,426 10,066
Less: Current portion -- 398
-------------------------------
Total long-term, notes payable $ 9,426 $ 9,668
</TABLE>
20
<PAGE>
At September 30, 1995, future minimum payments on long-term debt obligations
were as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1996 $ --
1997 $1,259
1998 $ 583
1999 $ 583
2000 $ 583
After 2000 $6,418
------
$9,426
</TABLE>
Interest paid in fiscal 1995, 1994, and 1993 was approximately $14,000,
$211,000, and $252,000 respectively. Interest accrued under the Echostar
debenture was $578,000 and $98,000 in fiscal 1995 and 1994, respectively.
Interest capitalized under the loan to Directsat was $0, $29,000 and $20,000 in
fiscal 1995, 1994 and 1993, respectively.
5. INCOME TAXES
The provision for income taxes on income consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Federal
Current $ 509 $1,081 $1,086
Deferred (140) (87) (227)
----- ----- -----
369 994 859
State
Current 45 230 219
----- ----- -----
Total $ 414 $1,224 $1,078
===== ====== ======
</TABLE>
Current taxes stated above for the year ended September 30, 1995 and October 1,
1994 will be reduced by $99,000 and $1,162,000, respectively, due to tax
deductions arising from exercise of employee stock options. Such tax savings
have been reflected as an addition to Additional Paid in Capital.
The following table accounts for the differences between the actual tax
provision and the amounts obtained by applying the U.S. Federal income tax rate
of 34% to the income before income taxes:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Tax at the statutory US rate $ 515 $1,154 $1,016
Tax-exempt FSC income (101) (34) (98)
State taxes (net of federal
benefit) 30 152 144
Research and development
credits (65) (133) (87)
Other 35 85 103
------- ------ ------
$ 414 $1,224 $1,078
======= ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Accounting for inventories $ 239 $ 178
Accruals and reserves not currently
currently deductible for tax purposes
deductible for tax purposes 343 223
----- -----
Total deferred tax assets 582 401
Deferred tax liabilities: (4,502) --
Available-for-sale securities (119) (78)
Tax over book depreciation ------- -----
$(4,039) $ 323
Net deferred taxes ======= =====
</TABLE>
21
<PAGE>
Actual taxes (refunded) paid were $(415,000), $(288,000), and $1,333,000, in
1995, 1994, and 1993, respectively.
6. RETIREMENT PLAN
The Company maintains a 401(k) tax deferred plan that is available to all
eligible employees. The plan does not require any corporate contributions and
historically none have been made. The Company does not offer any post
employment benefits.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its manufacturing facilities under an operating lease which
expires in June 1996. The Company is currently reviewing several facility
options and expects to sign a lease on a facility well in advance of the June
1996 expiration date. The Company also leases equipment under operating lease
agreements expiring in various amounts through 1998.
The total rent expense under all operating leases was approximately $498,000,
$495,000 and $425,000 for fiscal years 1995, 1994 and 1993, respectively. The
aggregate future minimum payments under all operating leases as of September 30,
1995, were approximately as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1996 $204
1997 23
1998 4
1999 4
----
$235
</TABLE>
Based upon the progress of Media4, relative to product and market development,
the Company is committed to purchase an additional $200,000 of debentures,
payable in installments of $100,000 at the completion of a certain milestone or
no later than May 1, 1998, and $100,000 at the completion of another milestone
or no later than May 1, 1998.
In the ordinary course of business, various lawsiuts and claims are filed
against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's financial statements.
8. STOCKHOLDERS' EQUITY
Stock Option Incentive Plan: Under its 1992 Incentive Stock Option Plan, the
Company may grant incentive stock options and non-statutory stock options to
employees, directors and consultants. At the shareholders meeting held March
28, 1995, shareholders approved an additional 250,000 shares bringing the total
shares authorized for the 1992 Incentive Stock Option Plan to 525,000. Options
may be granted to purchase common stock at an exercise price that will range
from 85% to 100% of the market value of the stock at the grant date as
determined by the board of directors and will expire after three to ten years.
The options generally become exercisable over four years from date of grant.
Prior to adoption of the 1992 Incentive Stock Option Plan, the Company had a
non-qualified stock option plan for the employees of SSE Technologies.
Following is a summary of activity for the stock option plan:
<TABLE>
<CAPTION>
Outstanding Options
-------------------
Available Number of Exercise Price
for Grant Shares per Share
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 26, 1992 268,333 895,000 $1.50 TO $6.50
Option granted (66,500) 66,500 $3.75 to $5.87
Options exercised -- (241,299) $1.50 to $6.50
Options canceled 6,667 (6,667) $1.50
- ---------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 25, 1993 208,500 713,534 $1.50 TO $6.50
Option granted (180,500) 180,500 $6.00 to $9.35
Options exercised -- (522,051) $1.50 to $6.50
Options canceled 10,000 (10,000) $1.50 to $4.75
- ---------------------------------------------------------------------------------------
BALANCE AT OCTOBER 1, 1994 38,000 361,983 $1.50 TO $9.35
Additional share reservation 250,000 --
Options granted (40,000) 40,000 $7.38 to $8.00
Options exercised -- (71,350) $1.50 to $5.25
Options canceled 47,500 (47,500) $3.75 to $6.00
- ---------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 295,500 283,133 $1.50 TO $9.35
- ---------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
In connection with all stock options, 578,633 shares of common stock were
reserved for issuance as of September 30, 1995. At September 30, 1995, October
1, 1994 and September 25, 1993 options exercisable were 121,383, 105,309 and
530,603 respectively.
Treasury shares: The Company acquired 64,127 and 79,148 shares of its Common
stock on the open market in fiscal 1995 and 1994 respectively. Such treasury
shares are carried at cost, $889,000.
Warrants: During 1995, no warrants were exercised or issued. At September 30,
1995, outstanding warrants for the purchase of the Company's common stock were
as follows:
<TABLE>
<CAPTION>
COMMON STOCK
SUBJECT TO WARRANT
EXERCISE OF EXERCISE PRICE EXERCISE
WARRANTS PER SHARE PERIOD ENDS
- -------- --------- -----------
<S> <C> <C>
100,000 $2.25 June 1996
50,000 $2.88 August 1997
15,000 $6.25 July 1999
</TABLE>
9. RELATED PARTY TRANSACTIONS
In July 1994, the Company made a one year loan to the President of the Company
and an executive vice president of SSE Technologies in the aggregate amount of
$625,000. These loans were repaid in 1995.
A principal of one of the investors rendered monthly services in support of the
Company for which the Company paid or accrued $15,000 and $60,000 during 1994
and 1993, respectively. This investor joined the Company in February 1994 as an
executive officer. Another investor rendered services in support of Directsat
for which he was paid or accrued $36,000 and $36,000 during 1994 and 1993
respectively. A board member rendered services in support of the Company's
strategic planning for which the Company paid $14,800 during fiscal 1995.
23
<PAGE>
QUARTERLY RESULTS
The following table represents the Company's financial results by quarter for
fiscal 1994 and 1995. These quarterly financial results are unaudited however,
in the opinion of management, they have been prepared on the same basis as the
audited financial information and include all adjustments necessary for a fair
presentation of the information set forth therein. The operating results for
any quarter are not necessarily indicative of the results that may be expected
for any future period.
<TABLE>
<CAPTION>
(in thousands, except per share data) Quarter Ended
- --------------------------------------------------------------------------------------------------------------------------
Fiscal 1994 Fiscal 1995
==========================================================================================================================
JAN 1 APR 2 JUL 2 OCT 1 DEC 31 APR 1 JUL 1 SEP 30
----- ----- ----- ------ ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $7,453 $7,312 $7,116 $8,292 $7,523 $8,805 $9,180 $ 8,061
Gross profit 2,758 2,351 2,227 2,840 2,399 3,041 3,096 2,081
Net income 513 838 314 505 337 478 543 (259)
Net income per
SHARE (FULLY DILUTED) $ 0.10 $ 0.15 $ 0.06 $ 0.09 $ 0.06 $ 0.09 $ 0.10 ($0.05)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------------------------------
Set forth below are the names and ages of the executive officers and directors
of the Company, their principal occupations at present and for the past five
years, certain directorships held by each and the year in which each became a
director or executive officer of the Company.
Charles W. Ergen (age 42) has served as a Director of SSE Telecom since March
1995. He is Chairman of the Board of Directors, Chief Executive Officer and
President of EchoStar Communications Corporation, a worldwide manufacturer and
distributor of home satellite television equipment and a significant participant
in the direct broadcast satellite industry. During the past five years, he has
held positions including President, Chief Executive Officer, and Director of
various subsidiaries of EchoStar Communications Corporation. Mr. Ergen was a
co-founder of Echosphere, a predecessor to Echostar, in 1980.
Frederick C. Toombs (age 49) has served as a Director of SSE Telecom since April
1989. Mr. Toombs is president of the Company and serves as principal operating
officer of SSE Technologies. Mr. Toombs joined the Company in 1988 through the
acquisition of the satellite product line of Avantek, Inc. He has over fifteen
(15) years of experience in finance and operations in a high-tech manufacturing
environment. Mr. Toombs earned a Master's in Business Administration from the
University of Santa Clara and a Bachelor of Science Degree in Accounting from
Long Beach State University.
Daniel E. Moore (age 42) has served as a Director of SSE Telecom since April
1989. He served as acting chief financial officer from August 1992 to December
1993 and joined the Company in 1994 as executive vice president and chief
financial officer. Mr. Moore is a founder and principal of Venture America, a
private venture capital firm. Previously, Mr. Moore was a senior manager with
Arthur Andersen & Co. Mr. Moore received his Master's Degree in Business
Administration from the University of Pittsburgh, and his Bachelor's Degree from
Lafayette College.
Joseph T. Pisula (age 54) has served as a Director of SSE Telecom since March
1995. He is a Principal of Focus Enterprises, Inc., a management consulting
firm. From April 1993 until June 1994, Mr. Pisula was Chairman and Chief
Executive Officer of Digital Transmission System Inc., a telecommunications
equipment manufacturer, and he continues to serve on the Board of Digital
Transmission Systems, Inc. From 1988 to 1993 he was President and Chief
Executive Officer of Teleos Communications, a video conferencing network
equipment manufacturer. Mr. Pisula received his Master's Degree with dual
majors in Marketing and Finance from the University of Rochester and his
Bachelor of Science in Electrical Engineering from the University of Pittsburgh.
Erik H. van der Kaay (age 55) has served as a Director of SSE Telecom since May
1993. He is president of the Allen Telecom Group, a major supplier of
components and systems for the mobile communications market. Previously, he was
president and chief executive officer of Millitech Corporation, a manufacturer
of millimeterwave components and systems. From 1984 to 1988, he was senior vice
president and Telecommunications Group Executive of Avantek, Inc.
Olin L. Wethington (age 46) has served as a Director of SSE Telecom since
February 1994. Mr. Wethington is a partner in the law firm of Steptoe &
Johnson, and has been associated with that firm since 1985 to the present, with
the exception of the period, from August 1991 to January 1993, during which he
was the Assistant Secretary of International Affairs at the U.S. Department of
the Treasury. Prior to that, he served as special assistant to the President
and Executive Secretary to the Economic Policy Council at the White House during
1990 and 1991. His law practice is focused on international corporate and
finance transactions, particularly related to emerging markets in Latin America,
the states of the former Soviet Union, and Asia. Mr. Wethington is a graduate
of the University of Pennsylvania and Harvard Law School.
Frank S. Trumbower (age 57) served as a Director of SSE Telecom from April 1989
to February 1994 and since March 1995, Mr. Trumbower served as the President of
SSE Telecom and Directsat Corporation from March 1990 until February 1994. Mr.
Trumbower continues to serve as the President of Directsat Corporation. Mr.
Trumbower is president of Cambridge Technology Partners, Inc., a venture firm
which provided financial and business advice and the bridge financing to SSE
Telecom for the acquisition of the satellite product line of Avantek, Inc. Mr.
Trumbower is an investor in a variety of early stage businesses and serves on
various boards of directors. Previously Mr. Trumbower worked for the office of
the Secretary of Defense. He received his Ph.D. and M.Sc. in Economics from the
London School of Economics where he was a British Marshall Scholar.
25
<PAGE>
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
- ---------------------------------------------------------
The information set forth under the caption "Executive Compensation" of
Directors and Executive Officers in the Company's Proxy Statement, to be mailed
to Stockholders of record on or about January 12, 1996, is incorporated herein
by reference and made a part hereof in response to the information required by
this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information set forth under the caption "Stock Ownership" in the Company's
Proxy Statement, to be mailed to Stockholders of record on or about January 12,
1996, is incorporated herein by reference and made a part hereof in response to
the information required by this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ---------------------------------------------------------
In July 1994, the Company made a one year loan to the President of the Company
and an Executive Vice President of SSE Technologies in the aggregate amount of
$625,000. These loans were repaid in 1995.
A principal of one of the investors rendered monthly services in support of the
Company for which the Company paid or accrued $15,000 and $60,000 during 1994
and 1993, respectively. This investor joined the Company in February 1994 as an
executive officer. Another investor rendered services in support of Directsat
for which he was paid or accrued $36,000 and $36,000 during 1994 and 1993
respectively. A board member rendered services in support of the Company's
strategic planning for which the Company paid $14,800 during fiscal 1995.
26
<PAGE>
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
Reference Page
--------------
1. Financial Statements :
----------------------
<S> <C>
Report of Ernst & Young LLP,
Independent Auditors 13
Consolidated Balance Sheets - at
September 30, 1995 and October 1, 1994 14
Consolidated Statements of Income - years ended
September 30, 1995, October 1, 1994, and
September 25, 1993
15
Consolidated Statements of Cash Flows - years ended
September 30, 1995, October 1, 1994, and
September 25, 1993
16
Consolidated Statements of Stockholders'
Equity - years ended
September 30, 1995, October 1, 1994, and
September 25, 1993
17
Notes to Consolidated Financial Statements 18-24
2. Financial Statement Schedules
-----------------------------
II - Valuation and
Qualifying Accounts 30
</TABLE>
All other schedules are omitted because they are not applicable or required
information is shown in the consolidated financial statements or notes thereto.
(b) Reports on Form 8-K:
(c) Exhibits included herein (numbered in accordance with Item 601 of
Regulation S-K)
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.1 Plan and Agreement of Merger among EchoStar
Communications Corporation, Directsat Corporation and SSE
Telecom (Incorporated by reference to Exhibit 2.1 filed
with Form 8-K on March 29, 1994, #33-10965)
3.1 Certificate of Incorporation of Registrant (Incorporated
by reference to Exhibit 3.1 #33-10965 on Form S-18)
3.2 Certificate of Amendment to Certificate of Incorporation
of Registrant (Incorporated by reference to Exhibit 3.2
#33-10965 on Form S-18)
3.3 Bylaws of Registrant (Incorporated by reference to
exhibit 3.3 #33-10965 on Form S-18)
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
3.4 Certificate of Amendment to Certificate of Incorporation
of Registrant (Incorporated by reference to Exhibit 3.4,
10-K September 30, 1989 #33-10965)
4.1 Specimen Stock Certificate (Incorporated by reference to
Exhibit 4.1, 10-K September 26, 1992 #33-10965)
4.2 Article 4 of the Articles of Incorporation of Registrant
(Incorporated by reference to Exhibit 4.2, #33-10965 on
Form S-18)
4.3 Article 6 of the Bylaws of Registrant (Incorporated by
reference to Exhibit 4.3, #33-10965 on Form S-18)
4.4 Specimen Form of Debenture (Incorporated by reference to
Exhibit 4.4 filed with Form 8-K on March 29, 1994, #33-
10965)
4.5 Security Pledge and Limited Recourse Agreement
(Incorporated by reference to Exhibit 4.5 filed with Form
8-K on March 29, 1994, #33-10965)
9.1 Voting Agreement Dated March 1, 1989 (Incorporated by
reference to Exhibit 3, 8-K March 2, 1989 #33-10965)
10.14 Employment Agreement Frederick Toombs (Incorporated by
reference to Exhibit 10.14, 10-K September 26, 1992, #33-
10965)
10.15 Employment Agreement Frank Peternell (Incorporated by
reference to Exhibit 10.15, 10-K September 26, 1992, #33-
10965)
10.16 Employment Agreement Daniel Moore (Incorporated by
reference to Exhibit 10.16, 10-K October 1, 1994, #33-
10965)
10.18 Non-Qualified Stock Option Agreement (Incorporated by
reference, Exhibit 10.18, 10-K for September 30, 1988,
#33-10965)
10.18.1 1992 Stock Option Plan Agreement (Incorporated by
reference, Exhibit 10.18.1, 10-K for September 25, 1993,
#33-10965)
10.19 SSE Telecom 401(k) Profit Sharing Plan and Trust
(Incorporated by reference to Exhibit 10.19, 10-K for
September 25, 1988, #33-10965)
10.20 Lease regarding SSE Technologies' offices dated February
19, 1991 between Registrant and Warm Springs Associates I
Ltd. Partnership (Incorporated by reference to Exhibit
10.20, 10-K September 26, 1992, #33-10965)
10.20.1 Lease regarding SSE Technologies' offices dated February
19, 1991 between Registrant and Warm Springs Associates
II Ltd. Partnership (Incorporated by reference to Exhibit
10.20.1, 10-K September 26, 1992, #33-10965)
10.21 Agreement dated March 14, 1994, between SSE Telecom and
EchoStar Communications Corporation (Incorporated by
reference to Exhibit 10.21 filed with Form 8-K on March
29, 1994, #33-10965)
11 Computation of Earnings per share (Page 31)
22 Subsidiaries of Registrant (Page 32)
23 Consent of Ernst & Young LLP, Independent
Auditors (Page 33)
27 Financial Data Schedule (Page 34)
</TABLE>
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SSE TELECOM
Dated: December 22, 1995 /s/ Frederick C. Toombs
_________________________________
Frederick C. Toombs
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Frederick C. Toombs President December 22, 1995
- -------------------------- -----------------
Frederick C. Toombs Director
/s/ Daniel E. Moore Executive Vice President December 22, 1995
- -------------------------- -----------------
Daniel E. Moore and Chief Financial Officer
Director
/s/ Charles W. Ergen Director December 22, 1995
- -------------------------- -----------------
Charles W. Ergen
/s/ Joseph T. Pisula Director December 22, 1995
- -------------------------- -----------------
Joseph T. Pisula
/s/ Frank S. Trumbower Director December 22, 1995
- -------------------------- -----------------
Frank S. Trumbower
/s/ Erik H. van der Kaay Director December 22, 1995
- -------------------------- -----------------
Erik H. van der Kaay
/s/ Olin L. Wethington Director December 22, 1995
- -------------------------- -----------------
Olin L. Wethington
</TABLE>
29
<PAGE>
SCHEDULE II
SSE TELECOM
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Balance
Beginning Additions at End
of Period Charged Write-offs of Period
---------- ------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended
September 25, 1993 $ 61,962 $ 96,133 $(48,724) $109,371
-------- -------- -------- --------
Year Ended
October 1, 1994 $109,371 $(12,253) $ (3,471) $ 93,647
-------- -------- -------- --------
Year Ended
September 30, 1995 $ 93,647 $143,565 $(13,773) $223,439
-------- -------- -------- --------
</TABLE>
30
<PAGE>
EXHIBIT 11
SSE TELECOM
COMPUTATION OF EARNINGS PER SHARE
FOR YEARS ENDED SEPTEMBER 30, 1995, OCTOBER 1, 1994, SEPTEMBER 25, 1993
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY:
Weighted common average shares
outstanding 5,369,960 5,144,569 4,598,665
Increase in weighted average shares
due to stock options and warrants
216,827 322,809 514,760
------- ------- ----------
Primary weighted average shares 5,586,787 5,467,378 5,113,425
--------- --------- ----------
$1,099,140 $2,169,926 $1,908,835
Total Net income:
Net income per share: $.20 $.40 $.37
---- ---- ----
FULLY DILUTED
Weighted average common shares
outstanding : 5,369,960 5,144,569 4,598,665
Increase in weighted average shares
due to stock options and warrants 219,719 322,809 707,716
------- ------- -------
Fully diluted shares 5,589,679 5,467,378 5,306,381
--------- --------- ---------
Net Income: $1,099,140 $2,169,926 $1,908,835
Total fully diluted net income per share $ .20 $ .40 $ .36
----- ----- -----
</TABLE>
<PAGE>
EXHIBIT 22
SSE TELECOM
SUBSIDIARIES OF REGISTRANT
SSE Technologies
Corporate Telecom Services, Inc.
Satellite Systems Engineering, Inc.
SSE International, Inc.
<PAGE>
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos 33-57700 and 33-65084) pertaining to the SSE Telecom, Inc. 1988
Stock Option Plan and SSE Telecom, Inc. 1992 Stock Option Plan and in the
Registration Statement (Form S-3 No. 33-57046) of SSE Telecom, Inc. and in the
related Prospectuses of our report dated November 10, 1995 in the Registration
Statement, with respect to the consolidated financial statements and schedule of
SSE Telecom, Inc. included in this Annual Report (Form 10-K) for the year ended
September 30, 1995.
/s/ Ernst & Young LLP
San Jose, California
December 19, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-02-1994
<PERIOD-END> SEP-30-1995
<CASH> 3,548
<SECURITIES> 4,350
<RECEIVABLES> 7,191
<ALLOWANCES> 223
<INVENTORY> 6,093
<CURRENT-ASSETS> 915
<PP&E> 4,564
<DEPRECIATION> 2,476
<TOTAL-ASSETS> 37,823
<CURRENT-LIABILITIES> 4,222
<BONDS> 9,426
0
0
<COMMON> 55
<OTHER-SE> 19,501
<TOTAL-LIABILITY-AND-EQUITY> 37,823
<SALES> 0
<TOTAL-REVENUES> 33,569
<CGS> 22,952
<TOTAL-COSTS> 31,739
<OTHER-EXPENSES> 94
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223
<INCOME-PRETAX> 1,513
<INCOME-TAX> 414
<INCOME-CONTINUING> 1,099
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,099
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
