3
_______________________________________________________________________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________________
_______
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 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.)
8230 Leesburg Pike, Suite 710
Vienna, Virginia 22182
(Address of principal
executive office)
Registrants telephone number, including area code:
(703) 442-4503
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 ____
As of February 5, 1996, the following number of shares of each of the
issuers classes of common stock were outstanding:
Common Stock 5,734,304
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Page
Consolidated Balance Sheets as of December 30, 1995 and September
30, 1995 3
Consolidated Income Statements for the three months ended
December 30, 1995 4
and December 31, 1994
Consolidated Statements of Cash Flows for the three months ended
December 30, 5
1995 and December 31, 1994
Notes to Consolidated Financial Statements 6-7
Item 2.
Managements Discussion and Analysis of Financial Condition and Results
of 8-12
Operations
PART II - OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K 13-14
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SSE TELECOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Assets December 30, September
1995 30, 1995
Current Assets (Unaudited)
Cash and cash equivalents $2,495,093 $3,547,574
Short term investments 4,072,145 4,350,132
Accounts receivable net of allowance 7,298,857 6,968,103
for doubtful accounts
of $191,598 at December 30, 1995, and
$223,439 at September 30, 1995
Inventory 7,388,605 6,093,315
Other current assets 1,089,637 915,249
Total current assets 22,344,337 21,874,373
Net property, equipment and leasehold 2,048,571 2,088,084
improvements
Long-term investments 22,512,399 13,575,197
Other assets 271,178 285,064
Total assets $47,176,485 $37,822,718
Liabilities and Stockholders Equity
Current Liabilities
Accounts payable $3,331,640 $2,772,277
Accrued salaries and employee benefits 640,347 770,873
Other accrued liabilities 803,189 678,950
Total current liabilities 4,775,176 4,222,100
Deferred tax liabilities 8,087,311 4,617,524
Notes payable 9,573,452 9,426,252
Commitments and contingencies -- --
Stockholders Equity
Common stock $.01 par value per share, 55,337 55,313
10,000,000 shares authorized;
5,533,679 and 5,531,346 shares issued
and outstanding at December 30, 1995 and
September 30, 1995, respectively.
Additional paid in capital 6,748,712 6,745,236
Retained earnings 7,087,585 6,594,253
Net unrealized gain on available for sale 12,472,915 7,051,021
investments
Treasury stock, at cost, 237,975 shares
and 143,275 shares at December 30, 1995, (1,624,003) (888,981)
and September 30, 1995 respectively
Total stockholders equity 24,740,546 19,556,842
Total liabilities & stockholders $47,176,485 $37,822,718
equity
See accompanying notes
SSE TELECOM, INC.
CONSOLIDATED INCOME STATEMENTS (Unaudited)
For The Three Months Ended December 30, 1995 and December 31, 1994
December 30, December 31,
1995 1994
Revenue $9,019,342 $7,523,118
Cost of revenue 6,129,631 5,123,860
Gross margin 2,889,711 2,399,258
Expense
Research and development 686,805 599,729
Marketing, general and 1,380,520 1,231,661
administrative
Operating income 822,386 567,868
Net interest expense 42,929 71,671
Other expense 21,125 14,870
Income before income taxes 758,332 481,327
Provision for income taxes 265,000 144,000
Net income $493,332 $337,327
Primary earnings per share $.09 $.06
Shares used in computing primary 5,441,339 5,518,369
earnings per share
See accompanying notes
SSE TELECOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For The Three Months Ended December 30, 1995 and December 31, 1994
Operating Activities: December 30, December 31,
1995 1994
Net income $493,332 $337,327
Adjustments to reconcile net income to net
cash provided (used)
by operating activities:
Depreciation and amortization 187,593 155,023
Interest expense 147,200 --
Changes in operating assets and liabilities:
Accounts receivable (330,754) 574,018
Inventory (1,295,290) (222,399)
Other current assets (174,388) (27,599)
Accounts payable 559,363 (253,397)
Accrued salaries and employee benefits (130,526) (46,077)
Other accrued liabilities 124,239 772,623
Net cash (used) provided by operating (419,231) 1,289,519
activities
Investing Activities:
Cash purchases of equipment (139,705) (122,717)
Purchases of short-term investments (1,180,775) (1,260,239)
Sales of short-term investments 1,451,452 --
Other assets (32,700) (56,910)
Net cash provided (used) by operating 98,272 (1,439,866)
activities
Financing Activities:
Proceeds from issuance of common stock 3,500 18,000
Borrowings under equipment note -- (533,033)
Payments on notes payable -- (721,948)
Treasury stock repurchase (735,022) (153,839)
Net cash (used) by financing activities (731,522) (1,390,820)
Net (decrease) in cash and cash equivalents (1,052,481) (1,541,167)
Cash and cash equivalents beginning of 3,547,574 6,118,201
period
Cash and cash equivalents end of period 2,495,093 4,577,034
See accompanying notes
SSE TELECOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The financial information contained herein has been prepared by the
Company, without audit, except for information as of September 30, 1995
which has been audited. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and changes in
cash flows for the interim periods have been made.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the
Companys September 30, 1995 annual report on Form 10-K. The results
of operations for the period ended December 30, 1995 are not
necessarily indicative of the operating results for the full year.
2. 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 December 30, 1995 and September 30, 1995, inventory
consisted of:
($000s) December 30, September 30,
1995 1995
Manufacturing raw $4,967 $3,727
materials
Work-in-process 2,124 1,784
Finished Goods 298 582
Total $7,389 $6,093
3. COMMITMENTS, NOTES PAYABLE AND LONG TERM DEBT
The Company leases office and manufacturing space under leases that
expire in June 2001. The terms of the leases provide for periodic
escalation in rent payments that have been expensed on a straight line
basis over the term of the lease. The Company also leases office space
in Vienna, Virginia, and Singapore. The Virginia lease expires in
October 1996, while the Singapore lease expires in June 1997. The
Company leases equipment under leases expiring in various amounts
through 1997. The Company also has short term lease agreements related
to office and manufacturing equipment.
The Company maintains a secured operating line of credit with a
national bank. The maximum available under the line of credit was the
lesser of $5.0 million or 80% of qualified receivables. On December
30, 1995 the maximum available under the line of credit was
approximately $3.3 million of which none was borrowed. The line of
credit expires on February 29, 1996, and the Company is in the process
of negotiating an extension. The Company is subject to and in
compliance with certain financial covenants and requirements.
4. BUSINESS COMBINATIONS
On January 28, 1996, SSE Telecom completed the acquisition of the
business of Fairchild Data Corporation (Fairchild Data), a subsidiary
of The Fairchild Corporation, (NYSE:FA) via an asset purchase
agreement. The Company acquired substantially all the assets of
Fairchild Data, subject to certain liabilities in exchange for
approximately $6.2 million, consisting of approximately $4.2 million in
cash, 200,000 shares of SSE Telecom common stock, and a warrant to
acquire 50,000 shares of SSE Telecom common stock. The cash portion
has been financed with a combination of short-term bank financing and
cash.
The short-term bank financing is a separate loan agreement which does
not affect the line of credit mentioned in Note 3. The financing
facility provides the Company up to $3.2 million, of which the Company
borrowed $2.0 million on January 29, 1996. The interest rate of the
loan is 7.56% and the note is due in 30 days at which time the Company
may finance the balance at the then current rate. The collateral for
the loan is the Companys short term investments.
The Company filed a form 8-K, dated February 7, 1996, relative to the
Fairchild Data asset purchase agreement.
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the quarters ended on the dates
indicated, certain income and expense items expressed as an approximate
percentage of the Companys total revenues:
December December
30, 1995 31,
1995 1994
Revenue 100% 100%
Gross margin 32% 32%
Research and development 8% 8%
expense
Marketing, general and 15% 16%
administrative expenses
Operating income 9% 8%
Net interest expense -- 1%
Other expense -- --
Income before income 9% 7%
taxes
Provision for income 3% 2%
taxes
Net income 6% 5%
Three Months Ended December 30, 1995, Compared With Three Months Ended
December 31, 1994.
SSE Telecoms revenues increased by 20% from $7,523,000 for the first
quarter 1995 to $9,019,000 for first quarter 1996. Growth in revenue
is due to increased total shipments. Actual units shipped increased by
38% from the same quarter in 1995. Revenue associated with the
increase in units was offset by a shift to lower power level
transceivers which are in a very price competitive market.
International shipments accounted for 92% of revenue for the first
quarter of 1996, compared to 78% in the same period of fiscal 1995.
Gross margin increased $490,000 or 20%, as a result of higher revenue;
gross margin as a percentage of revenue was 32% in 1995 and 1996. The
Company continues to experience competitive price pressure on several
particular product offerings. Product mix of shipments has shifted to
lower-power level transceivers. The lower-power level business is very
price competitive. The Company expects gross margin will remain at
comparable levels during the first half of fiscal 1996 and improve
during the remainder of fiscal 1996 with increased shipments of the STAR
series advanced satellite transceiver product. There can be no
assurance that competitive pressure will not reduce gross margins in
the future.
Research and development expense for the quarter was $687,000, an
$87,000 or 15% increase from the same quarter of 1995. During the
quarter, expenses were incurred primarily for the release of new
products to manufacturing, cost reductions on new product offerings and
product enhancements for current transceiver products. As a percentage
of revenue, research and development expense was 8% in 1995 and 1996.
The Company expects to continue to fund its research and development
programs at the same percentage of revenue during the remainder of
fiscal 1996.
Marketing, general and administrative expenses increased $149,000 or
12% from the first quarter of 1995. A major portion of the increase
was related to the establishment of a separate corporate business
development and marketing function in late 1995. As a percentage of
revenue, marketing, general and administrative expenses decreased from
16% in 1995 to 15% in 1996.
Net interest expense decreased $29,000, or 40% from the comparable
quarter in 1995, attributable to an increase in investment interest
income. As a percentage of revenue, interest expense decreased from 1%
in 1995 to less than 1% in 1996.
Other expense increased $6,000 or 42% from first quarter of 1995. As a
percentage of revenue, other expense was less than 1% in 1995 and 1996.
Income before income taxes increased $277,000 or 58%. As a percentage
of revenue, income before income taxes was 7% in 1995 and 9% in 1996.
Provision for taxes on income increased $121,000 or 84% in the first
quarter 1996 from the same quarter in 1995. The increase is the
result of the Companys higher income and a higher estimated
provisional tax rate of 35% in fiscal 1996 versus 30% in fiscal 1995.
The rate increase is attributable to the expiration of federal research
credits, a decreased benefit from the Companys foreign sales
corporation, and an increase in state income taxes.
First quarter net income increased $156,000 or 46% from the first
quarter 1995. As a percentage of revenue, net income increased to 6%
in fiscal 1996 from 5% in fiscal 1995.
The Company had a backlog of firm orders of $7.8 million on December
30, 1995. Management expects substantially all orders to be delivered
within fiscal 1996. The quarter ending backlog is representative of
the historical product and customer mix. Comparable backlog as of
February 5, 1996 was $10.0 million. The Company does not believe that
backlog is necessarily indicative of future revenues. Timing
differences from quarter to quarter as to the receipt of large orders
and changes in factory production make meaningful quarter to quarter
comparisons of backlog difficult.
Liquidity and Capital Resources
On December 30, 1995, the Company had working capital of $17.6 million
including $6.6 million of cash, cash equivalents and short term
investments compared with working capital of $17.7 million including
$7.9 million of cash, cash equivalents and short term investments on
September 30, 1995. Net cash used by operating activities was $419,000
for the quarter ended December 30, 1995, compared to net cash provided
by operating activities of $1.3 million for the quarter ended December
31, 1994.
Accounts receivable increased $331,000 from September 30, 1995. The
fiscal year-end accounts receivable balance was down due to lower than
anticipated shipment levels in the final quarter of fiscal year 1995.
Increased shipments during the first quarter of fiscal 1996 increased
the accounts receivable balances. The Company has lowered days sales
outstanding from 101 in the first quarter of 1995 to 77 in the first
quarter of 1996.
Inventory turnover (defined as annualized cost of revenues divided by
average inventory balance for the quarter) was 3.60 for the quarter
ended December 30, 1995, and 3.47 for the quarter ended December 31,
1994. During the first quarter of fiscal 1996, the Company purchased
raw material to prepare for quantity production of the STAR series
advanced satellite transceiver product. The Company also expanded its
level of some long lead time components for quicker response time to
customers needs. Total inventory increased by $1.3 million from year-
end 1995. Approximately $1.2 million of the increase is raw material.
The Company anticipates that inventory will continue to increase during
the first six months of fiscal 1996 as both S-series and STAR series
products are produced.
The Company purchased $140,000 of fixed assets during the first quarter
of 1996. These assets include $109,000 of office equipment and $31,000
of production equipment. During the remainder of fiscal 1996, the
Company plans to purchase assets at the same full year level as fiscal
1995.
Other long-term assets, primarily the market value of the Companys
912,717 shares of EchoStar Communication Corporation (NASD: DISH),
Class A common Stock increased $8.9 million. As of December 29, 1995,
the last trading day of the quarter, the EchoStar stock was trading at
$24.25 per share. This adjustment, net of deferred tax, is reflected
as a separate component of stockholders equity.
Accounts payable increased $559,000 from fiscal year-end 1995, due to
the increase in both S-Series backlog and STAR requirements.
Deferred tax liability increased $3.5 million, as a result of the
increase in the unrealized gain in the value of the EchoStar
investment.
Long-term notes payable increased $147,000. This increase is due to
the quarterly accrued interest payable under its $8.7 million seven-
year 6.5% convertible debenture payable to EchoStar. The Company is
not required to make interest payments until March 1997.
During the first quarter of 1996, the Company purchased 94,700 shares
of stock in the market for $735,000, in connection with its stock
repurchase plan. In total, the Company currently owns 237,975 shares
of treasury stock.
The Companys capital resource commitments on December 30, 1995,
primarily consisted of obligations under operating leases for
manufacturing facilities, and the purchase of additional debentures
from Media4, Inc. The lease on the manufacturing facility in Fremont,
California, will expire in June 2001. Based upon the progress of
Media4 Inc., relative to product and market development, the Company is
committed to purchase an additional $200,000 of debentures, payable
upon the completion of certain milestones. Management anticipates the
purchase of these debentures in fiscal year 1996.
In addition to the acquisition of the business of Fairchild Data, the
Company may pursue additional strategic acquisitions and investments in
the satellite communications and related markets that will complement
and expand its business opportunities. The Company believes it has the
necessary capital resources available for such a program.
The Company expects to incur charges in connection with the acquisition
of Fairchild Data related to the realizability of certain SSE assets
and for the write off of in-process research and development activities
acquired.
The Companys capital requirements could change in the event of factors
such as lower than anticipated demand for the Companys 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.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein (numbered in accordance with Item 601 of
Regulation S-K)
Exhibit Number Description Sequential Page
Number
11 Computation of Per Share Page 13
Earnings
27 Financial Data Schedule Page 14
(b) Reports on Form 8-K
The Company filed a form 8-K, dated February 7, 1996, relative
to the Fairchild Data asset purchase agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: February 13, 1996 SSE TELECOM, INC.
By: /s/ Frederick C.
Toombs
Frederick C.
Toombs,
President
By: /s/ Daniel E.
Moore
Daniel E.
Moore,
Chief
Financial Officer
EXHIBIT 11
Attached and Made Part of Part II
Of 10Q for the Quarters Ended December 30, 1995 and December 31, 1994
Three months ended
12/30/95 12/31/94
Primary
Weighted common average shares
outstanding applying the
treasury stock method 5,309,807 5,390,400
Increase in weighted average shares due
to
applying the treasury stock 131,532 127,969
method for stock options and warrants
Primary weighted average shares 5,441,339 5,518,369
Primary net income $493,332 $337,327
Net income per share $.09 $.06
Fully diluted
Weighted common average shares
outstanding applying the
treasury stock method 5,309,807 5,390,400
Increase in weighted average shares due
to
applying the treasury stock 190,082 129,217
method for stock options and warrants
Fully diluted weighted average shares 5,499,889 5,519,617
Fully diluted net income $493,332 $337,327
Fully diluted net income per share $.09 $.06
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