<PAGE> 1
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 28, 1996
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, based upon the closing sale price of Common Stock on December 13,
1996 as reported on the Nasdaq National Market, was approximately $28,870,205.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that
such persons may be deemed affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
Voting shares outstanding
at December 13, 1996
5,911,671
<PAGE> 2
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
subsidiaries, SSE Technologies Inc. ("SSE Technologies"), and SSE Datacom Inc.
("SSE Data"). On January 29, 1996 the Company, through SSE Data, completed the
acquisition of Fairchild Data Corporation ("Fairchild Data") via an asset
purchase agreement.
The Company 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 grow the business of SSE Telecom by meeting the
needs of customers in the satellite communications marketplace. The Company
is a customer and market oriented firm with an installed base of over 30,000
transceivers or modems in satellite earth stations located in over 100
different countries. The Company sells its products directly to international
telecommunication system integrators as well as to certain sophisticated end
users.
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 Fremont, California . The SSE Data operations are located in
Scottsdale, Arizona.
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. The industry is driven by a high
launch rate of geostationary communications satellites for international
applications.
The Company is a participant in a very competitive market, often with certain
competitors being customers as well. 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
some regions of the world. 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 and the
VSAT segment of the market. A satellite earth station system generally
consists of three primary components (1) transceivers (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, transceivers and modems. These
products are complex assemblies of devices and components designed to perform
multiple circuit functions in a single package. The Company's products,
particularly transceivers, have a significant engineering content and require
skilled technical labor for assembly and test. In addition to selling separate
components, SSE Technologies designs and markets a full range of integrated
satellite hardware, including rack-mounted converters. SSE Technologies also
selectively provides systems integration services to certain sophisticated 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
transceiver. 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 above those of competitors.
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Rackmount converters
SSE Technologies also offers a line of rack-mounted up/downconverters operating
in the C, X and Ku-bands, as well as its Tri-band converters which operate in
all three frequency bands. The Tri-band 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
With the 1996 acquisition of the business of Fairchild Data, a leading digital
satellite modem manufacturer, the Company has further strengthened its position
in the satellite communication industry. The products manufactured by SSE Data
include a broad range of modems from a low cost low data rate closed network
modem to a fully featured IBS/IDR high speed modem. In addition to satellite
and microwave modems, SSE Data manufactures a satellite network monitor and
control system product.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company has two primary competitive advantages that it seeks to capitalize
upon, its installed customer base and customer relationships, and the breadth
and depth of its product groups. The Company offers over 20 different products
including, STAR satellite radios, modems, rack converters, and T- Series. The
Company is focused on three primary product areas: (1) radio frequency ("RF")
products which includes C and Ku-band transceivers and converters, (2) digital
products, primarily satellite modems, and (3) system product offerings for
Federal government applications. In addition, the Company intends to release
in 1997 a line of integrated products which includes Starlink, a satellite
modem/radio, and Mediastream, a multimedia network product that delivers
compressed digital video, audio, computer software, and textural data via
satellite to personal computers. The Company directs its marketing activities
and programs toward 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. Sales promotion is accomplished by direct
mail, participation in domestic and international trade shows, advertising in
industry and trade publications, and telemarketing.
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; this 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 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; technical and training support is also provided
in the field at customer sites when appropriate. Customers may also receive
training at the Company facilities. Technical and service support is now
offered directly by personnel based in Europe and Thailand which 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 100 countries. Direct export revenues accounted for 56% of the Company's
revenues in 1996, 48% of the Company's revenues in 1995 and 45% of the
Company's revenues in 1994. No individual geographic region represented a
significant portion of revenues. In 1996, one company, Nortel Dasa, accounted
for 13% of total revenues. Approximately 400 customers ordered products from
the Company during fiscal 1996.
MANUFACTURING
The Company manufactures its products in two locations; Fremont, California and
Scottsdale, Arizona.
The Fremont manufacturing facility produces microwave transceivers, C and
Ku-band solid state amplifiers and converters while the Scottsdale facility
manufactures satellite modems. The Fremont facility was re-certified as an ISO
9001 compliant company in 1996; the Scottsdale facility is undergoing its ISO
9001 certification process in December, 1996.
The primary manufacturing focus during 1996 was on the introduction of the STAR
transceivers. STAR is the latest design in a series of advanced satellite
transceiver products, utilizing Monolithic Microwave Integrated Circuit (MMIC)
technology. STAR shipments commenced in Q3 and approximately 400 units were
shipped using a new process, demand flow technology. Under this new process,
the production line was reorganized in self directed product line teams that
include the direct labor force, and its management and supporting groups
(Quality, Production Control, Manufacturing, Engineering). Several quality
improvement teams have been established in order to improve the whole
infrastructure and to position the Company for growth with particular emphasis
on product quality, including increased supplier qualification, automatic
testing and increased burn-in at all levels of production.
3
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COMPETITION
The overall market for the products and services which the Company provides is
highly competitive. There are a dozen or more other firms which compete with
the Company with one or more competitive product offering, although none of
these competitors dominate the industry. Certain of the Company's competitors
have greater financial and personnel resources. This competition has caused
the Company to lower its average selling price on some of its base business.
Of the Company's aggregate transceiver product sales, units shipped increased
by 33% from fiscal year 1995 to fiscal year 1996, while revenues from these
radios increased only 25%. To the extent that the Company's products are not
proprietary or patentable, they 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 RF products, notably transceivers, that are manufactured by SSE
Technologies.
Management believes competition in the industry is principally based upon
price, performance, and support. However, in most cases with significant
customers, technical expertise, the 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 and modem product lines.
Companies competing in the satellite communications market today are generally
affected by three primary influences:
1. Increasing emphasis on smaller earth station applications, due to
compression technology.
2. Increased price competition, from many small new entrants.
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.
RESEARCH AND DEVELOPMENT AND SUSTAINING ENGINEERING
The Research and Development group supports all aspects of the product life
cycle; new product development, adding or enhancing features on existing
products, and sustaining engineering on mature products. The Company has added
several new RF products as a result of its fiscal year 1996 developments which
includes the completion of most of its STAR related product line. In addition,
SSE Telecom has undertaken an aggressive modem development schedule in order to
release new modem products in 1997. The Company now has a wide variety of
products in its product family as a result of the investment made in research
and development. The organization of the research and development group
mirrors the manufacturing responsibilities of modems in Scottsdale and
transceivers, solid state amplifiers and converters in Fremont. The product
development process has been revamped to enhance discipline and concurrent
engineering and a more structured planning process within all functions.
Research and development expenses were approximately $4.2 million or 9% of
sales during fiscal 1996, $3.0 million in fiscal 1995, and $2.5 million in
fiscal 1994. The increase in research and development expenditures principally
relates to (1) the Company's continued development of advanced digital modem
products (2) increased integrated system products and content and (3)
completion of STAR development. The Company plans to continue its commitment
to research and development in fiscal 1997. Research and development expenses
may increase in absolute dollars in future periods, and may vary as percentage
of sales. Concurrent with the purchase by Alcatel Telspace, S.A. ("Alcatel
Telspace") of a stock interest in the Company, Alcatel Telspace and the Company
entered into an agreement by which the Company and Alcatel Telspace may jointly
development certain products which have been identified, and which will
continue to be identified, as complementary to the available products of the
Company.
PERSONNEL
As of September 28, 1996, the Company employed a total of 226 persons. 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. The human resource responsibilities
are administered at both the Fremont and Scottsdale facilities.
BACKLOG
SSE Telecom, Inc. had a backlog of firm orders of $8,872,000 at September 28,
1996, and management expects all of the orders to be delivered within fiscal
1997. The current backlog compares to a backlog of $7,600,000 at September 30,
1995, and $6,100,000 at October 1, 1994. The backlog is generally
representative of the historical product and customer mix. Backlog as of
December 13, 1996 was approximately $10,537,000.
The Company does not believe that backlog is necessarily indicative of future
revenue, due to various uncertainties. 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
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 37,000 square feet under leases
expiring in June 2001. SSE Data is located at 350 N. Hayden Road, Scottsdale,
Arizona 85257, with 46,000 square feet under sublease, expiring in January
1998. The Company maintains its executive offices and regional sales support
functions at its 4,000 square foot office in the Washington, D. C. metropolitan
area under a lease expiring in October 1999.
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.
PART II
COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company has one series of common stock, $.01 par value common stock, the
holders of which have full voting rights. At December 13, 1996, 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 13, 1996, the closing bid
and ask for the Company's common stock as quoted on NASDAQ were 8 1/8 and 8
1/8, respectively.
<TABLE>
<CAPTION>
1996 High Low
<S> <C> <C>
First Quarter $ 10 1/4 $ 6 7/8
Second Quarter 11 1/8 8 1/2
Third Quarter 14 7/8 9 1/8
Fourth Quarter 11 1/8 8 3/8
</TABLE>
<TABLE>
<CAPTION>
1995 High Low
<S> <C> <C>
First Quarter $ 6 5/8 $ 6 1/4
Second Quarter 7 3/8 7 1/8
Third Quarter 8 7/8 8 1/4
Fourth Quarter 8 3/8 7 3/4
</TABLE>
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.
5
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(dollars and shares in thousands except for per share data)
Years ended September
SUMMARY OF OPERATIONS 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE $ 46,220 $ 33,569 $ 30,173 $ 29,321 $ 23,355
Cost of revenues 33,697 22,952 19,997 19,041 16,371
- ----------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 12,523 10,617 10,176 10,280 6,984
Research and development 4,179 2,958 2,543 2,201 1,938
Marketing, general and administrative 7,721 5,829 4,733 4,513 3,291
Write-off of acquired in-process R&D 1,404 -- -- -- --
Acquisition - related asset writedown 1,105 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
OPERATING (LOSS) INCOME (1,886) 1,830 2,900 3,566 1,755
Net (Gain) on sale of investments (2,584) -- (1,227) -- --
Net interest expense 479 223 147 -- --
Other expense -- 94 586 579 570
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES 219 1,513 3,394 2,987 1,185
Provision for income taxes 88 414 1,224 1,078 427
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 131 $ 1,099 $ 2,170 $ 1,909 $ 758
Earnings per share:
Primary $ 0.02 $ 0.20 $ 0.40 $ 0.37 $ 0.15
Cash dividends paid $ -- $ -- $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------
Primary number of shares outstanding 5,595 5,587 5,467 5,113 4,927
- ----------------------------------------------------------------------------------------------------------------------
Balance Sheet:
Total current assets $27,620 $ 21,874 $ 21,652 $ 10,680 $ 9,103
Total assets 55,263 37,823 25,034 13,310 11,626
Total current liabilities 10,894 4,222 3,890 4,871 5,904
Total long-term liabilities 13,081 14,044 9,781 854 973
Stockholders' equity 31,288 19,557 11,363 7,585 4,749
</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.
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW.
Fiscal year 1996 marked a year of significant change and accomplishment for
SSE Telecom. The Company's financial results were impacted by some of these
significant changes and the profitability from operations was disappointing as
a result.
On January 28, 1996, the Company acquired the business and assets of
Fairchild Data, a leading manufacturer of satellite modems and related earth
station products. This acquisition is consistent with the Company's strategy to
leverage its satellite transceiver capabilities to other earth station
equipment and to position itself as a significant satellite earth station
equipment provider. The business of Fairchild Data was continued as a new
wholly owned subsidiary of the Company, SSE Data, and the results of the
operations of SSE Data are included for eight months of fiscal 1996.
The acquisition consideration consisted of $4.4 million of cash, 100,000 shares
of the Company's common stock, and warrants to purchase 50,000 shares of the
Company's common stock. An additional 100,000 shares may be issued based upon
SSE Data operating results for the 1996 calendar year.
The Fairchild Data acquisition was accounted for as an asset purchase, and
accordingly, the results of operations of SSE Data are included in the fiscal
1996 financial statements from the date of acquisition. In connection with the
acquisition, in the March 1996 quarter, the Company recorded one-time charges
consisting of $1.4 million related to the purchased in-process research and
development of Fairchild Data, and $1.1 million for the write off of
duplicative assets at SSE Technologies, including network software and several
models of modem products. These non-recurring charges substantially impacted
the Company's financial results for the fiscal year.
On September 6, 1996, Alcatel Telspace, S.A.("Alcatel Telspace"), a unit of
Alcatel Telecom, acquired a 10% equity interest in the Company. The Company
received proceeds of $6.7 million in exchange for 525,000 shares of common
stock issued to Alcatel Telspace. In a related transaction, the two companies
also entered into agreements to jointly develop certain satellite
communications equipment which will further expand the product portfolio of the
Company. Alcatel Telspace, a customer of the Company, is a major international
satellite systems provider of satellite earth stations.
During the fiscal year the Company repurchased approximately 364,000 shares of
its own stock at various times and prices in the market. The average price of
treasury stock acquired in fiscal year 1996 was $9.27 per share. In connection
with the Company's sale of stock to Alcatel Telspace in September, the Company
sold 450,000 treasury shares which had been repurchased by the Company under
its stock repurchase program.
The Company's operating profitability was significantly impacted in the last
two quarters of 1996, primarily as a result of the introduction of a new
generation of satellite transceiver products to the marketplace. The product
introduction took longer and was more costly than had been planned.
Competitive pricing pressure, higher costs and manufacturing inefficiencies
associated with this product transition from the prior generation of
transceiver products to the Company's new STAR transceivers continued to
negatively impact gross margins. The transition to full commercial production
is expected to be completed in 1997.
Total backlog was $8.9 million, $7.6 million and $6.1 million at the end of
fiscal years 1996, 1995 and 1994, respectively, representing an increase of
17.1% for 1996 and an increase of 24.6% for 1995. Of the $8.9 million
backlog at September 28, 1996, $1.3 million is attributable to the backlog of
SSE Data.
RESULTS OF OPERATION
REVENUE Sales were $46.2 million for fiscal 1996 as compared to $33.6 million
in fiscal 1995 and $30.2 million in fiscal 1994, representing year-to-year
increases of 37.7% in 1996 and 11.3% in 1995. The growth in fiscal 1996 was
attributable to the inclusion of digital modem product lines acquired from
Fairchild Data as well as increased sales of the Company's transceiver
products. SSE Data sales were $8 million in fiscal 1996. This growth reflects
the continuing worldwide requirements for satellite products in the expanding
satellite telecommunications markets. The increase in fiscal 1995 was mainly
attributable to the new Tri-band rack-mounted converter product and sales
increase in the European market.
GROSS MARGIN Gross margin was $12.5 million or 27.1% of sales in fiscal 1996,
compared to $10.6 million or 31.6% and $10.2 million or 33.7% of sales in
fiscal 1995 and fiscal 1994, respectively. The gross margin dollar increase was
due to higher worldwide unit volume each year. The gross margin percentage
decline in fiscal 1996 was caused by several factors: competitive price
reductions, product mix shifts toward lower power transceiver models that carry
lower margins and the significantly higher manufacturing startup costs
associated with the new STAR line of transceivers. The decline in fiscal 1995
was primarily from competitive pricing pressure, lower than anticipated sales
due to material shortages and higher material costs associated with the modular
product line. The Company expects the gross margin percentage to remain at
fiscal 1996 levels during the first half of fiscal 1997 and to improve during
the second half when the STAR series of transceivers are in full production.
However, there can be no assurance that competitive pressure on average selling
prices will not reduce gross margin in the future, that the product mix will
continue at its current levels, or that full manufacturing efficiencies will be
achieved upon reaching full production levels.
OPERATING EXPENSES Research and development spending grew by 41.3% to $4.2
million in fiscal 1996, from $3.0 million in fiscal 1995, and from $2.5 million
in fiscal 1994. Research and development expenses as a percentage of sales
were 9.0%, 8.8% and 8.4% in fiscal 1996, 1995 and 1994, respectively. The
increase in research and development expense relates to the Company's continued
development of advanced digital modem products, increased system content in
various products and the development of the STAR product line. The Company
plans to continue its commitment to research and development in fiscal 1997 and
to jointly develop innovative products with Alcatel Telspace. Research and
development expenses may increase in absolute dollars in future periods, and
may vary as a percentage of sales.
Marketing, general and administrative expenses were $7.7 million or 16.7% of
sales in fiscal 1996, compared to $5.8 million or 17.4% of sales in fiscal
1995, and $4.7 million or 15.7% of sales in fiscal 1994. The increase in
expense in both fiscal 1996 and fiscal 1995, as compared with the prior fiscal
year, was primarily related to the increased costs associated with large sales
and sales support staffs, commission expenses resulting from higher sales
levels, and sales and marketing programs to launch new products and to enter
into new markets worldwide. The Company's investment in its marketing, general
and administrative functions may vary as a percentage of sales in the future.
7
<PAGE> 8
GAIN ON SALES OF INVESTMENTS During the fourth quarter of fiscal 1996, the
Company sold 110,000 shares of its total 912,717 shares of Echostar
Communication Corporation ("Echostar") common stock . The Echostar stock was
acquired in December 1994 in exchange for the Company's 91.2% interest in
Directsat Corporation, a direct broadcast satellite licensee. The Company
realized a gain of approximately $2.8 million, net of commission and
transaction expenses, on the sale of the 110,000 shares of Echostar. In the
fourth quarter of 1996 the Company incurred a charge of $208,000 related to the
issuance to Echostar of warrants to purchase 60,000 shares of the Company's
common stock at $12.00 per share. The warrants were issued pursuant to an
agreement between Echostar and the Company under which Echostar waived its
right of conversion in respect to any principal payments made by the Company
through December 31, 1996 on account of the Company's outstanding 6 1/2%
convertible subordinated debentures. The Company repaid $4.0 million of the
debenture principal prior to fiscal year end, with proceeds from the Alcatel
Telspace investment and sale of Echostar shares. The gain on the sale of
investments is shown net of the value of the warrants in the financial
statements.
NET INTEREST EXPENSE Net interest expense was $479,000, $223,000 and $147,000
in fiscal 1996, 1995 and 1994, respectively. The increase during fiscal 1996
reflects a full year of interest expense on the Company's 6.5% convertible
debenture and interest under the Company's bank line of credit. During fiscal
1996, 1995, and 1994 the Company had earned interest income on excess cash
which lowered net interest expense.
PROVISION FOR INCOME TAXES The Company's effective income tax rate was 40.0%,
27.4% and 36.1% in fiscal 1996, fiscal 1995 and fiscal 1994, respectively. The
increase in tax rate in fiscal 1996 was mainly attributable to the
non-deductible nature of the cost associated with warrants issued to Echostar
and lower tax benefits from foreign sales and research and development credit.
LIQUIDITY AND CAPITAL RESOURCES At September 28, 1996, the Company had working
capital of $16.7 million, including cash and cash equivalents of $1.2 million
compared to working capital at September 30, 1995 of $17.7 million, including
cash and cash equivalents of $7.9 million.
Net cash used in operating activities was $5.7 million in 1996 compared to net
cash provided from operating activities of $4.6 million in 1995 and net cash
used in operating activities of $1.3 million in 1994. Cash flow from
operations was negative in 1996 principally due to the decrease in net income
and the increases in accounts receivable and inventory. The increase in
accounts receivable in fiscal 1996 was due to the acquisition of SSE Data.
Days sales outstanding ("DSO") in receivables were 71 days at September 28,
1996 compared to 88 days in 1995 and 92 days in 1994. This decrease was the
result of improved collection efforts and the impact of lower DSO at SSE Data.
The increase in inventory from $6.1 million in 1995 to $12.0 million in 1996
was primarily attributable to increasing inventory levels to meet desired
manufacturing lead times and anticipated demand for the new STAR series
products, and $2.8 million of inventory relating to the Fairchild Data
acquisition. Inventory turnover was 2.8 times in fiscal 1996 compared to 3.8
times and 3.5 times for fiscal 1995 and fiscal 1994, respectively.
The Company's investing activities provided $0.1 million in fiscal 1996 as
compared to using $6.1 million and $1.8 million in fiscal 1995 and fiscal 1994,
respectively. The cash provided in fiscal 1996 resulted from the sale of
investments from short-term commercial paper and Echostar stock net of the cash
paid for the net assets of SSE Data and increases in capital equipment needed
for increased levels of business.
The Company's financing activities in fiscal 1996 included the expenditure of
$3.4 million to purchase an additional 364,000 shares of the Company's common
stock under an on-going stock repurchase program. The Company sold 525,000
shares of common stock, including 450,000 shares of treasury stock, to Alcatel
Telspace, for $6.7 million net of transaction costs. The net proceeds were
utilized in part for the repayment of $4.7 million in interest and principal on
the Company's 6 1/2% convertible subordinated debentures payable to Echostar.
During fiscal 1996, the Company continued its investment in Media4 Inc.
("Media4") along with Alcatel Telspace as an equal co-investor. Media4 is a
privately held developer of products for distribution of multimedia information
over wireless networks to personal computers. This emerging market is
complementary to the Company's business and the Company intends to offer Media4
products through its own international distribution channels. During 1996, the
Company purchased an additional $500,000 of common stock and $200,000 of
convertible debentures in Media 4.
8
<PAGE> 9
At September 28, 1996, the Company's principal sources of liquidity consisted
of $1.2 million in cash and cash equivalents, and bank lines of credit of $5.0
million for operations and $2.0 million for equipment financing. At September
28, 1996, $3.0 million was outstanding under the operating line of credit and
$0.4 million under the equipment lines. The lines of credit require the
Company to be in compliance with certain financial covenants. As of September
28, 1996, the Company was in compliance with all but the profitability covenant
for which the Company has received a waiver. The Company will seek to obtain
waivers for future quarters, when necessary. The operating and equipment lease
lines of credit expire on May 30, 1997 and March 31, 1997 respectively. The
Company intends to seek renewal of these lines of credit.
The Company believes that its current cash position, funds generated from
operations, funds available from its equity holdings in Echostar common stock
and its lines of credit will be adequate to meet its requirements for working
capital, capital expenditures, debt services and external investment for the
foreseeable future. Due to certain constraints on the ability to sell Echostar
shares and potential volatility of the value of the stock, there could be a
significant reduction in funding available from the liquidation of Echostar
stock.
FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS Information contained in this
Annual Report contains "forward-looking" statements: within the meaning of the
Private Securities Litigation Reform Act of 1995, many of which can be
identified by the use of forward-looking terminology such as "may", "will",
"believe", "expect", "anticipate", "estimate", "plan", "intend", or
"continue" or the negative thereof or other variations thereon or comparable
terminology. There are a number of important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to differ materially from those contemplated in such
forward-looking statements. Numerous factors, such as economic and competitive
conditions, incoming order levels, timing of product shipments, product
margins, new product development, and reliance on key consumers in
international sales could cause actual results to differ from those described
in these statements and prospective investors and stockholders should carefully
consider these factors in evaluating these forward- looking statements.
Particular factors that may affect future financial results are:
1. Sales of the Company's products are concentrated in a small number of
customers. For fiscal 1996, the top five customers accounted for 28%
of sales. The loss of any existing customer, a significant
reduction in the level of sales to any existing customer, or the
failure of the Company to gain additional customers could have a
material adverse effect on the Company's business, financial condition
and results of operations. In addition, a substantial portion of
shipments may occur near the end of each quarter. Accordingly, the
Company's results are difficult to predict and delays in product
delivery or closing of a sale can cause revenues and net income to
fluctuate significantly from anticipated levels and from quarter to
quarter.
2. The market for the Company's products are very competitive and the
Company expects that competition will increase. The Company believes
that its ability to compete successfully will depend on a number of
factors both within and outside its control, including price, quality,
delivery, product performance and features; timing of new product
introductions by the Company and its competitors; and customer service
and support. Price pressure is expected to continue in the satellite
transceiver and modem market in the foreseeable future. As a result,
the Company expects to continue to experience declining average sales
prices for its products. The Company's future gross margin is
dependent upon its ability to reduce costs in line with or faster than
declines in sales prices.
3. The Company's manufacturing operations are highly dependent upon the
delivery of materials by outside suppliers in a timely manner. From
time to time the Company has experienced delivery delays from key
suppliers which impacted sales. There can be no assurance that the
Company will not experience material supply problems or component or
subsystem delays in the future.
9
<PAGE> 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
SSE Telecom, Inc.
We have audited the accompanying consolidated balance sheets of SSE Telecom,
Inc. as of September 28, 1996 and September 30, 1995, and the related
consolidated statements of income, cash flows, and stockholders' equity for
each of the three years in the period ended September 28, 1996. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audits.
We have conducted our audits in accordance with generally accepted accounting
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 28, 1996, and September 30, 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 28, 1996, 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, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
November 8, 1996
10
<PAGE> 11
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
September 28, 1996 and September 30, 1995 1996 1995
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,241 $ 3,548
Short-term investments -- 4,350
Accounts receivable 11,041 6 ,968
(net of allowance for doubtful accounts of $420
and $223, 1996 and 1995, respectively)
Inventories 12,024 6,093
Deferred tax assets 1,963 579
Other current assets 1,351 336
------ ------
Total current assets 27,620 21,874
Property, equipment, and leasehold improvements, at cost
Equipment 7,389 3,396
Furniture, fixtures and leasehold improvements 2,947 1,168
------ ------
10,336 4,564
Less accumulated depreciation and amortization 6,835 2,476
------ -----
Net property, equipment, and leasehold improvements 3,501 2,088
Long-term investments 23,421 13,576
Intangible assets 611 --
Other assets 110 285
---------- ------------
Total assets $ 55,263 $ 37,823
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 4,275 $ 2,772
Short-term debt 3,342 --
Accrued salaries and employee benefits 1,447 771
Income taxes payable 672 303
Warranty and other accrued liabilities 1,158 376
------ -----
Total current liabilities 10,894 4,222
Deferred tax liabilities 8,310 4,618
Convertible notes payable 4,771 9,426
Commitments and contingencies
Stockholders' equity
Common stock $.01 par value per share 59 55
(10,000,000 shares authorized; 5,911,671 and 5,531,346 shares
issued and outstanding 1996 and 1995, respectively)
Additional paid in capital 12,276 6,746
Treasury stock (502) (889)
(at cost, 57,043 shares and 143,275 shares 1996 and 1995,
Retained earnings 6,725 6,594
Net unrealized gain on available for sale investments 12,730 7,051
---------- ------------
Total stockholders' equity 31,288 19,557
---------- ------------
Total liabilities & stockholders' equity $ 55,263 $ 37,823
========== ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
11
<PAGE> 12
CONSOLIDATED STATEMENTS OF INCOME
FOR YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995, AND OCTOBER 1, 1994
(dollars and shares in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C>
Revenue $46,220 $33,569 $30,173
Cost of revenue 33,697 22,952 19,997
------- ------- -------
Gross margin 12,523 10,617 10,176
Expense
Research and development 4,179 2,958 2,543
Marketing, general and administrative 7,721 5,829 4,733
Write-off of acquired in-process R&D 1,404 -- --
Acquisition-related asset writedown 1,105 -- --
------- ------- -------
Operating income (loss) (1,886) 1,830 2,900
------- ------- -------
Gain on sale of investments, net of transaction (2,584) -- (1,227)
expense
Net interest expense 479 223 147
Other expense -- 94 586
------- ------- -------
Income before income taxes 219 1,513 3,394
Provision for income taxes 88 414 1,224
------- ------- -------
Net income $131 $1,099 $2,170
------- ------- -------
Primary net income per share $0.02 $0.20 $0.40
------- ------- -------
Shares used in computing primary net income
per share 5,595 5,587 5,467
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
12
<PAGE> 13
CONSOLIDATED STATEMENTS OF INCOME
FOR YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995, AND OCTOBER 1, 1994
(dollars in thousands)
<TABLE>
<CAPTION>
Operating Activities: 1996 1995 1994
<S> <C> <C> <C>
Net income $131 $1,099 $2,170
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Depreciation and amortization 1,149 633 1,041
Acquisition related charges 2,509 -- --
Gain on sale of long-term investments (2,584) -- --
Deferred income taxes (1,329) -- --
Interest expense 21 578 98
Changes in operating assets and liabilities:
Accounts receivable (2,238) 2,186 (3,586)
Inventories (3,250) (371) (1,417)
Other current assets (985) (217) (90)
Accounts payable 28 602 72
Accrued salaries and employee benefits 358 6 79
Income taxes payable 361 36 318
Other accrued liabilities 106 86 (20)
------- ------- -------
Net cash provided (used) by operating activities (5,723) 4,638 (1,335)
------- ------- -------
Investing Activities:
Purchases of equipment (1,986) (1,133) (685)
Purchases of short-term investments (8,794) (13,512) --
Proceeds from sales of short-term investments 13,145 9,171 --
Proceeds from sales of Echostar shares 2,974 -- --
Acquisition of net assets of Fairchild Data (4,400) -- --
Investment in Media4 (700) (341) --
Investment in Directsat -- -- (900)
Other assets (90) (268) (238)
------- ------- -------
Net cash provided (used) by investing activities 149 (6,083) (1,823)
------- ------- -------
Financing Activities:
Borrowings under bank line of credit 2,970 -- (1,468)
Borrowings under equipment line payable 372 -- 328
Payments on notes payable -- (1,168) (341)
Payments on convertible notes payable (4,000) -- --
Payments on deferred interest (678) -- --
Proceeds from sale of common stock to Alcatel Telspace 6,729 -- --
Proceeds from other issuances of common stock,net of tax benefit 1,253 336 2,070
Repurchase of common stock (3,379) (428) (461)
Payment of stockholders' notes receivable -- 135 --
Cash advances from minority stockholders -- -- 84
Proceeds from sale of convertible debentures -- -- 8,750
------- ------- -------
Net cash provided (used) by financing activities 3,267 (1,125) 8,962
------- ------- -------
Net increase (decrease) in cash and cash equivalents (2,307) (2,570) 5,804
Cash and cash equivalents beginning of period 3,548 6,118 314
Cash and cash equivalents end of period $ 1,241 $ 3,548 $ 6,118
------- ------- -------
Non-cash transactions
Acquisition of net assets of Fairchild Data by issuance
of common stock and warrants $ 1,109 -- --
Directsat/Echostar Exchange -- $ 1,689 --
------- ------- -------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
13
<PAGE> 14
Consolidated Statements of Stockholders' Equity
For years ended September 28, 1996, September 30, 1995, and October 1, 1994.
(dollars and shares in thousands)
<TABLE>
<CAPTION>
Common Stock Treasury Shares
------------ -------------------------
Net
unrealized
gain on
Additional Stockholders' available Total
Number Paid-in Number of Notes Retained for sale Stockholders'
of Shares Amount Capital shares Amount Receivable Earnings investments Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 25, 1993 4,808 $48 $4,212 -- -- -- $3,325 -- $7,585
Issuance of common stock
on exercise of options and
warrants 652 6 1,036 -- -- -- -- -- 1,042
Tax benefit of stock option
exercises -- -- 1,162 -- -- -- -- -- 1,162
Repurchase of common stock -- -- -- 79 (461) -- -- -- (461)
Stockholders' notes receivable -- -- -- -- -- (135) -- -- (135)
Net income -- -- -- -- -- -- 2,170 -- 2,170
BALANCE, OCTOBER 1, 1994 5,460 54 6,410 79 (461) (135) 5,495 -- 11,363
Issuance of common stock
upon exercise of options
and warrants 71 1 237 -- -- -- -- -- 238
Tax benefit of stock option
exercises -- -- 99 -- -- -- -- -- 99
Repurchase of common stock -- -- -- 64 (428) -- -- -- (428)
Stockholders' notes receivable -- -- -- -- -- 135 -- -- 135
Net unrealized gain
on available for sale
investments -- -- -- -- -- -- -- 7,051 7,051
Net income -- -- -- -- -- -- 1,099 -- 1,099
BALANCE, SEPTEMBER 30, 1995 5,531 55 6,746 143 (889) -- 6,594 7,051 19,557
Issuance of common stock
upon exercise of options
and warrants 206 2 632 -- -- -- -- -- 634
Issuance of common stock
and warrants upon acquisition
of Fairchild Data 100 1 1,108 -- -- -- -- -- 1,109
Issuance of common stock
and warrants to Alcatel
Telspace 75 1 2,961 (450) 3,767 -- -- -- 6,729
Issuance of warrants to
Echostar -- -- 208 -- -- -- -- -- 208
Tax benefit of stock option
exercises -- -- 621 -- -- -- -- -- 621
Repurchase of common stock -- -- -- 364 (3,380) -- -- -- (3,380)
Change in net unrealized gain
on available or sale
investments -- -- -- -- -- -- -- 5,679 5,679
Net income -- -- -- -- -- -- 131 -- 131
BALANCE, SEPTEMBER 28, 1996 5,912 $59 $12,276 57 $(502) $6,725 $12,730 $31,288
</TABLE>
The Notes to Consolidated Financial Statements, are an integral part of these
statements
14
<PAGE> 15
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. The
Company conducts these operations through SSE Technologies, a wholly owned
subsidiary, and SSE Datacom ("SSE Data"), a wholly subsidiary formed in
connection with the asset purchase of Fairchild Data Corporation ("Fairchild
Data") in January 1996.
The Company consolidates its majority owned subsidiaries and all intercompany
amounts have been eliminated in consolidation.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with minimum yield risks and maturities of less than ninety days at the date of
purchase to be cash equivalents. Cash and cash equivalents are stated at cost
which approximates market value.
Revenue recognition: Revenue from product sales is recognized when goods are
shipped to 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.
Inventories: Inventories consist 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 a method which approximates
actual cost on a first-in, first-out (FIFO) basis.
At September 28, 1996 and September 30, 1995 inventories consisted of:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
---- ----
<S> <C> <C>
Raw materials $5,693 $3,727
Work-in-process 6,016 1,784
Finished goods 315 582
--------- --------
Total $12,024 $6,093
</TABLE>
Intangible Assets: Intangible assets are amortized on a straight line basis
over estimated useful lives of between two and eight years.
Depreciation and amortization: Depreciation and amortization is provided on a
straight-line basis over estimated useful lives ranging from two to five years,
or over the lease term, if shorter. Leasehold improvements are amortized over
the term of the lease or their estimated useful lives, whichever is shorter.
Advertising expenses: The Company accounts for advertising costs as a expense
in the period in which they are incurred. Advertising expenses for fiscal
1996, 1995, and 1994 were approximately $365,000, $300,000, and $249,000,
respectively.
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 some 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.
Market Risk: Sales of the Company's products are concentrated in a small number
of customers. For fiscal 1996, the top five customers accounted for 34% of
sales. The loss of any existing customer, a significant reduction in the level
of sales to any existing customer, or the failure of the Company to gain
additional customers could have a material adverse effect on the Company's
business, financial condition and results of operations.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Such estimates relate to the useful lives
of fixed assets, allowances for doubtful accounts, inventory valuation, accrued
liabilities, and other reserves. Actual results could differ from those
estimates.
Effect of New Accounting Standards: In 1995, the Financial Accounting
Standards Board (FASB) issued Statement No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires that the Company review for impairment of long lived
assets, certain identifiable intangibles, and goodwill related to those assets
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company will
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
adopt SFAS 121 in the first quarter of fiscal 1997 and, based on current
circumstances, does not believe the effect of adoption will be material.
The Company accounts for its stock options plans in accordance with the
provisions of the Accounting Principles Board Option No. 25 (APB25),
"Accounting for Stock Issued to Employees." In 1995, the FASB issued Statement
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." This statement
establishes accounting and disclosure requirements using a fair value based
method of accounting for stock-based employee compensation plans. Under SFAS
123, the Company may either adopt the new fair value based accounting method or
continue the intrinsic value based method and provide pro forma disclosures of
net income and earnings per share as if the accounting provisions of this
statement had been adopted. The Company intends to adopt the pro forma
disclosure alternative of SFAS 123 for the Company's fiscal year 1997.
Therefore the adoption of SFAS 123 will not have a material effect on
consolidated financial position, results of operations, or cash flows.
2. ASSET ACQUISITION OF FAIRCHILD DATA CORPORATION:
On January 29, 1996, the Company completed the acquisition of the business of
Fairchild Data Corporation ("Fairchild Data"), a subsidiary of The Fairchild
Corporation, via an asset purchase agreement. Accordingly, the results of
operations of SSE Data are included in the financial statements from the date
of acquisition. Acquired assets and liabilities were recorded at their
estimated fair values at the date of acquisition, and the aggregate purchase
price plus costs directly attributable to the completion of the acquisition
have been allocated to the assets and liabilities acquired.
The Company acquired substantially all the assets of Fairchild Data, at a cost
of approximately $5.5 million, consisting of approximately $4.4 million in
cash, 100,000 shares of the Company's common stock, and warrants to acquire
50,000 shares of Company common stock. An additional 100,000 contingent shares
of the Company's common stock may be issued if certain earnings levels are
attained by SSE Data prior to January 1, 1997. If such shares are issued the
purchase price will accordingly be adjusted. The purchase price was allocated
to the acquired assets and liabilities based on an independent valuation.
Amounts allocated to developed technology, assembled workforce, trade name and
distributor relationships and are amortized on a straight-line basis over
periods of two to eight years. Amounts allocated to in-process research and
development of approximately $1.4 million were expensed along with $1.1 million
for the write off of duplicative assets at SSE Technologies, including network
software and several models of modem products, in the second quarter of fiscal
1996.
The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if the acquisition of Fairchild Data had occurred
at the beginning of fiscal 1995 and does not purport to be indicative of
results which may occur in the future.
<TABLE>
<CAPTION>
(in thousands) 1996* 1995
---- ----
<S> <C> <C>
Revenues $ 50,502 $46,573
Net income $ 1,314 402
Net income per share $ 0.23 $ 0.07
</TABLE>
* The write off of acquired in-process research and development of
$1.4 million and the acquisition related asset writedown of $1.1
million, were not considered in the above pro forma summary.
3. RELATIONSHIP WITH ALCATEL TELSPACE
In September 1996, Alcatel Telspace S. A. ("Alcatel Telspace"), a unit of
Alcatel Telecom of France, purchased 525,000 shares of the Company's common
stock. In addition Alcatel Telspace reserved a three year warrant to purchase
up to another 300,000 shares of the Company's common stock at a market price at
the time of exercise but not less than $11.00 per share. The Company received
aggregate proceeds of $6,751,500. Alcatel Telspace also purchased an
additional 100,000 shares of common stock from two members of the Company's
senior management for $1,075,000 or $10.75 per share, fair market value of the
Company's common stock at that time. As a result, Alcatel Telspace owns
approximately 10% of the Company's outstanding common stock.
Alcatel Telspace and the Company also entered into an agreement outlined in a
Joint Product Policy to identify certain satellite telecommunications products
which may be jointly developed and marketed by each party. The intent of the
Joint Product Policy is to add additional products to each company's product or
systems offerings thereby potentially increasing market share. The two
companies have collaborated in the development of certain satellite
communications equipment in the past. Alcatel Telspace is currently a primary
supplier of a key component in the Company's STAR satellite transceiver
products.
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENTS
The Company has classified all investments, except its common stock investment
in Media4, Inc. ("Media4") as available for sale. Available for sale
securities are stated at fair value with the unrealized gain 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 the consolidated statements of
income. The cost of securities sold is based on the average cost method. No
significant gains or losses were incurred on available for sale securities for
the years ended September 30, 1995 or October 1, 1994.
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.
On December 30, 1994, the Company completed the exchange of its 91.2% interest
in Directsat Corporation, a direct broadcast satellite licensee, which resulted
in the receipt of 912,717 shares of Echostar Communications Corporation
("Echostar"), Class A common stock. During the fourth quarter of fiscal 1996,
the Company sold 110,000 shares of Echostar for a total net realized gain of
$2,792,000 and had 802,717 shares remaining. As of September 27, 1996, (the
last trading day of the fiscal year) the stock was trading at $ 27 7/8 per
share. This investment is included in long-term investments on the balance
sheet.
On June 16, 1995, the Company and Alcatel Telspace agreed to invest equally in
Media4. Media4 is a privately held developer of products for distribution of
multimedia information over wireless networks to personal computers. This
emerging market is complimentary to the Company's business and SSE Telecom
intends to offer Media4 products through its own international distribution
channels. At September 28, 1996, the Company had invested approximately
$695,000 in Media4 common stock and $350,000 in Media4 convertible 7%
debentures. The convertible debt is due in five years. The Company continues
to monitor the progress of Media4 relative to its product and market
development. As of September 28, 1996, the Company believes Media4 has made
good 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
investment which is included on the balance sheet in long-term investments and
carried at cost.
The following is a summary of available-for-sale securities, at September 28,
1996:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
(in thousands) Cost Gains Losses Value
------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Convertible debenture - Media4 $ 350 $ -- $ -- $ 350
Common stock - Echostar 1,507 20,869 -- 22,376
-------- --------- --------- ---------
Total available-for-sale
securities $ 1,857 $ 20,869 $ -- $ 22,726
-------- --------- --------- ---------
</TABLE>
The following is a reconciliation of the investment categories and their
balance sheet classifications at September 28, 1996:
<TABLE>
<CAPTION>
Cash and Long-term
(in thousands) Cash Equivalents Investments Total
---------------- ----------- -----
<S> <C> <C> <C>
Cash and money market funds $ 1,241 $ -- $ 1,241
Available-for-sale
securities -- 22,726 22,726
Non-marketable equity
investments -- 695 695
-------- --------- ---------
$ 1,241 $ 23,421 $ 24,662
-------- --------- ---------
</TABLE>
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
government 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
Convertible debentures - Media4 150 150
--------------------------------------------------------------
Total debt securities $ 4,987 $ 19 $ (11) $ 4,995
--------------------------------------------------------------
Common stock - Echostar 1,689 11,545 - 13,234
--------------------------------------------------------------
Total equity securities 1,689 11,545 - 13,234
- --------------------------------------------------------------------------------------------------
Total available-for-sale
securities $ 6,676 $ 11,564 $ (11) $ 18,229
- --------------------------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the investment categories and their balance
sheet classifications at September 30, 1995:
<TABLE>
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 securities 495 4,350 13,384 $ 18,229
Non-marketable equity
investments - - 192 192
- -----------------------------------------------------------------------------------------------------------
$ 3,548 $ 4,350 $ 13,576 $ 21,474
- -----------------------------------------------------------------------------------------------------------
</TABLE>
5. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment, the design, manufacturing and
sale of satellite telecommunication equipment. The Company had exports of
approximately 56% of revenues in 1996, 48% of revenues in 1995, and 45% of
revenues in 1994. Export revenues are primarily to Asia Pacific, South America,
Western Europe, Canada, and Mexico. No individual geographic region represented
a significant portion of revenue. Nortel Dasa accounted for 13% of the Company's
sales in 1996 and 1995, respectively. In 1994, Tomen Telecom International, Inc.
accounted for approximately 10% of the Company's revenues. All of the export
sales each year were denominated in U.S. dollars.
6. CREDIT FACILITIES AND CONVERTIBLE NOTES PAYABLE
At September 28, 1996, the Company had a $5.0 million operating line of credit
and a $2.0 million equipment line of credit with a national bank. Borrowings
bear interest at the prime rate plus 0.25% (8.50% at September 28, 1996). At
September 28, 1996, $3.0 million was outstanding under the operating line and
$0.4 million was outstanding under the equipment line. These lines of credit
require the Company to be in compliance with certain financial covenants and are
secured by the assets of the Company. As of September 28, 1996, the Company was
in compliance with all but the profitability covenant for which the Company has
received a waiver, which expires as of December 28, 1996. The operating and
equipment lines of credit expire on May 30, 1997 and March 31, 1997
respectively.
At September 28, 1996, the Company had an outstanding balance of $4.75 million
in its 6 1/2% convertible subordinated debentures due March 1, 2001, payable to
Echostar. The debentures are convertible at the option of the holder into the
Company's common stock at a conversion price of $12.00 per share at any time
prior to maturity. In the fourth quarter of 1996 the Company incurred a charge
of $208,000 related to the issuance to Echostar of warrants to purchase 60,000
shares of the Company's common stock. The warrants were issued pursuant to an
agreement between Echostar and the Company under which Echostar waived its right
to conversion into the Company's common stock any principal payments made by
the Company on outstanding 6 1/2% convertible subordinated debentures through
December 31, 1996. The Company repaid $4.0 million of the debenture principle
and $1.2 million of debenture interest prior to fiscal year end, with proceeds
from the Alcatel investment and sale of Echostar shares. The gain on the sale of
Echostar shares is shown net of the value of the warrants in the financial
statements. As part of this agreement the Company and Echostar agreed that
the Company could sell up to 250,000 shares of Echostar common stock (of which
15,000 were sold prior to year end) and apply 60% of the proceeds to retire a
portion of the accrued interest and principal on the outstanding debentures.
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The Company has granted certain registration rights in
respect to common stock acquired on conversion of debentures upon exercise of
warrants by Echostar.
At September 28, 1996 and September 30, 1995, debt obligations consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
---- ----
<S> <C> <C>
Line of credit - operating $ 2,970 $ --
- equipment 372 --
6 1/2 % convertible debenture, including accrued interest 4,771 9,426
------------------------------
$ 8,113 9,426
Less: Current portion 3,342 --
------------------------------
Total long-term convertible notes payable $ 4,771 $ 9,426
</TABLE>
Interest paid in fiscal 1996, 1995, and 1994 was approximately $1,341,000,
$14,000, and $211,000, respectively.
The 6 1/2% convertible debentures are due in full in fiscal year 2001 and
minimum interest payments of $17,000 are due annually from fiscal year 1997
through fiscal year 2000. Amounts accrued, but not paid, under these
debentures in fiscal years 1996, 1995, and 1994 were $21,000, $578,000, and
$98,000, respectively.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal
Current $ 1,198 $509 $1,081
Deferred (1,050) (140) (87)
------- ----- ----
148 369 994
--- --- ---
State
Current 219 45 230
Deferred (279) -- --
----- -- --
( 60) 45 230
-------- -- ------
Total $ 88 $414 $1,224
--------- ---- ------
</TABLE>
Current taxes stated above for the year ended September 28, 1996, September 30,
1995, and October 1, 1994 will be reduced by $621,000, $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) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax at the statutory
US rate $74 $515 $1,154
Tax-exempt FSC income -- (101) (34)
State taxes (net of
federal benefit) (40) 30 152
Research and
development credits (30) (65) (133)
Warrant conversion costs 71 -- --
Other 13 35 85
-- -- --
$88 $414 $1,224
--- ---- ------
</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) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Inventories $796 $ 239 $178
Accruals and reserves 558 340 223
Basis difference of
acquired assets
of Fairchild Data 609 -- --
----- ---- ----
Total deferred tax assets 1,963 579 401
Deferred tax liabilities:
Available-for-sale
securities (8,139) (4,502) --
Tax over book
depreciation (171) (116) (78)
----- ------ ----
Net deferred taxes $(6,347) $(4,039) $323
</TABLE>
Income taxes paid/(received) were $427,000, $415,000, and $(288,000) in 1996,
1995, and 1994, respectively.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RETIREMENT PLAN
The Company maintains a 401(k) tax deferred plan that is available to all
eligible employees. Effective in fiscal year 1996 the Company matched
employees 401(k) contributions with a cap of 3% of the employee's salary or
$500, whichever is lower. The Company does not offer any post employment
benefits.
9. LEASE COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment, as well as its headquarters
and manufacturing facilities, under non-cancelable operating leases which
expire at various periods through 2001. At September 28, 1996, the future
minimum payment obligations under these leases were as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1997 $588
1998 472
1999 435
2000 360
2001 282
</TABLE>
The total rent expense under all operating leases was approximately $1,056,000,
$498,000, and $495,000 for fiscal years 1996, 1995, and 1994, respectively.
In the ordinary course of business, various lawsuits 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.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. 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. The total shares authorized under the
1992 Incentive Stock Option Plan is 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
compensation committee of 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 under the stock option plans:
<TABLE>
<CAPTION>
Outstanding Options
-------------------
Available Number of Exercise Price
for Grant Shares per Share
----------- --------- ---------------
<S> <C> <C> <C>
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) - $7.38 to $8.00
Options exercised - (71,350) $1.50 to $5.25
Options canceled 40,500 (47,500) $3.75 to $6.00
BALANCE AT SEPTEMBER 30, 1995 295,500 283,133 $1.50 to $9.35
Options granted (284,500) 284,500 $7.88 to $14.00
Options exercised - (55,326) $1.50 to $6.50
Options canceled 38,875 (39,875) $4.00 to $10.50
BALANCE AT SEPTEMBER 28, 1996 50,875 472,432 $2.88 to $14.00
</TABLE>
In connection with all stock options, 523,307 shares of common stock were
reserved for issuance as of September 28, 1996. At September 28, 1996,
September 30, 1995, and October 1, 1994 options exercisable were 144,558,
121,383 and 105,309, respectively.
Treasury shares: The Company acquired 363,768, 64,127 and 79,148 shares of its
Common stock on the open market in fiscal 1996, 1995 and 1994, respectively.
The Company re-issued 450,000 shares of treasury stock to Alcatel Telspace in
September 1996 (see note 3). As of September 28, 1996, the Company had 57,043
shares of treasury stock.
Warrants: During 1996, warrants to purchase 150,000 shares were exercised and
warrants to purchase 410,000 shares were issued (see note 2, 3, and 6). At
September 28, 1996, 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>
50,000 $11.09 January 1999
15,000 $ 6.25 July 1999
300,000 $11.00 September 1999
7,500 $12.00 February 2000
52,500 $12.00 April 2000
</TABLE>
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RELATED PARTY TRANSACTIONS
The Company has significant investments in Echostar, Media4, and debentures due
to Echostar (see notes 3, 4 and 6).
The Company had shipments to Alcatel Telspace of $1.3 million and purchases
from Alcatel Telspace of $1.5 million, during fiscal 1996. As of September 28,
1996 the Company had trade receivables and payables with Alcatel Telspace of
$80,000 and $420,000, respectively. Sales and gross margins realized on
related party transactions have not been materially different from gross
margins realized on similar types of transactions with unaffiliated companies.
The Company purchased $36,000 of products for resale to Media4. Related to
these purchases as of September 28, 1996, the Company had $34,000 of
receivables with Media4.
There were no other significant sales or purchases from Media4 or Echostar in
fiscal 1996.
23
<PAGE> 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
24
<PAGE> 25
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.
Jerome de Vitry (age 35) was named a Director of SSE Telecom on November 18,
1996. He is deputy general manager of Alcatel Telspace S.A. and vice president
for radio communications of the Alcatel Telecom Radio, Space & Defence
Division. During the last 5 years he has held positions at Alcatel of director
of the Microwave Department, and product line manager for audio-video
transmission products. Mr. de Vitry received his engineering degree from the
Ecole Nationale des Ponts at Chaussees in Paris, and Master Degree in Business
Administration from INSEAD, in Fontainebleau, France.
Charles W. Ergen (age 43) 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 manufacturer and worldwide
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 Echostar Communications Corporation. Mr. Ergen was a co-founder of
Echosphere, a predecessor to Echostar, in 1980.
Daniel E. Moore (age 43) has served as a Director of SSE Telecom since April
1989. He is a member of the Audit and Compensation Committees of the Board of
Directors of SSE Telecom. Mr. Moore served as acting chief financial officer
from August 1992 to December 1993 and joined the Company in February 1994 as
executive vice president and chief financial officer. Mr. Moore is a founder
and principal of Venture America, a private venture capital firm that invested
in the Company in 1989. Mr. Moore also serves on the Board of Directors of
several technology companies, including Direct Broadcasting Satellite
Corporation and Media4, Inc. 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 55) has served as a Director of SSE Telecom since March
1995. He is a member of the Audit and Executive Committees of the Board of
Directors of SSE Telecom. He is Chairman and CEO of Network Storage Solutions,
Inc., a network-attached storage manufacturer. From February 1995 to May 1996,
he was president of Network Imaging Corporation, an enterprise client-server
software company. From April 1993 until June 1994, Mr. Pisula was Chairman and
Chief Executive Officer of Digital Transmission System Inc., a
telecommunications equipment manufacturer. From 1988 to 1993, he was President
and Chief Executive Officer of Teleos Communications, Inc., a video conference
network equipment manufacturer. Mr. Pisula received his Master's Degree in
Business Administration from the University of Rochester and his Bachelor of
Science in Electrical Engineering from the University of Pittsburgh.
Frederick C. Toombs (age 50) 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.
Frank S. Trumbower (age 59) served SSE Telecom as its President, from March
1990 until March 1994 and, for the same period, as President of Directsat
Corporation. Mr. Trumbower served as a Director of SSE Telecom from April 1989
until February 1994 and since March 1995. Mr. Trumbower is a member of the
Compensation Committee of the Board. Mr. Trumbower is President of Cambridge
Technology Partners, Inc., a private venture capital company engaged in
financing early stage technology firms in the computer and telecommunications
areas. He serves on various Boards of Directors, including Network Storage
Solutions, Inc., Cambridge Imaging Technologies, Inc., Virtual Reality Systems,
Inc., and NuThena Systems, Inc. Mr. Trumbower is a graduate of the University
of San Francisco and from the London School of Economics where he was a British
Marshall Scholar.
Erik H. van der Kaay (age 56) has served as a Director of SSE Telecom since May
1993. He is a member of the Compensation and Executive Committees of the Board
of Directors of SSE Telecom. Mr. van der Kaay 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. Mr. van der Kaay is a
graduate of Sir George Williams University and Concordia University.
Olin L. Wethington (age 47) has served as a Director of SSE Telecom since
February 1994. He serves as Chairman of the Audit Committee. 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. Mr. Wethington is a graduate of the
University of Pennsylvania and Harvard Law School.
25
<PAGE> 26
Frank J. Peternell (age 56) has served as Executive Vice President from June
1988 until July 1996. Mr. Peternell has twenty-six (26) years of management,
sales, and business development experience in the microwave communications
field. He joined the Company as part of the satellite product line acquisition
from Avantek, Inc. Mr. Peternell has a Bachelor's of Science Degree in Chemical
Engineering from the University of Utah.
Claudio S. Mariotta (age 53) has served as an executive officer of SSE Telecom
since December 1995. Mr. Mariotta is Executive Vice President and Chief
Operating Officer of SSE Technologies. From 1988 to 1995 he was Vice President
of Engineering at Harris Corporation. Mr. Mariotta received his Diploma in
Electrical Engineering from the Swiss Institute of Technology in Zurich,
Switzerland, and Master of Science in Electrical Engineering from San Jose
State University.
Effective September 6, 1996, the Company, pursuant to a stock purchase
agreement, sold 525,000 shares of its common stock to Alcatel Telspace.
Pursuant to such stock purchase agreement, and a related agreement among the
Company and certain shareholders of the Company, the Company agreed to use its
best efforts to cause a nominee of Alcatel Telspace to be nominated for
election to the Board of Directors of the Company and such stockholders agreed
to vote for the nominee of Alcatel Telspace to the Board of Directors of the
Company. Mr. Jerome de Vitry was the nominee of Alcatel Telspace and was
elected to the Board effective November 11, 1996.
DIRECTOR'S COMPENSATION
In fiscal year 1996, Directors that are not employees of the Company received
cash compensation for (i) each meeting of the board attended in person or by
teleconference, which extended for more than four hours, at the rate of $750
for each meeting, and (ii) any other board meeting over two hours in length, at
the rate of $250 for each meeting. In addition Directors are reimbursed for
reasonable travel expenses to attend these meetings.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act, as amended, requires the Company's directors
and executive officers and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file various reports
with the Securities and Exchange Commission and the National Association of
Security Dealers, Inc. concerning their holding of, and transactions in,
securities of the Company. Copies of these filings must be furnished to the
Company.
Based on a review of the copies of such forms furnished to the Company and
written representations from the Company's executive officers and directors in
fiscal year 1996, the Company believes that all individual filing requirements
applicable to the Company's executive officers and directors were complied with
under Section 16(a).
26
<PAGE> 27
ITEM 11. EXECUTIVE COMPENSATION
The following table shows, the Chief Executive Officer and each of the other
most highly compensated executive officers whose salary plus bonus exceeded
$100,000 during the last fiscal year, information concerning compensation paid
for services to the Company in all capacities during the fiscal year ended
September 28, 1996, as well as total compensation paid to each such individual
for the Company's previous two fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long Term
Annual Compensation Compensation
------------------- ------------
All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Frederick C. Toombs (3) 1996 $174,636 $ -- -- $ 12,908 (1)
President, SSE Telecom, Inc. 1995 171,539 $21,750 (5) -- $ 9,729 (1)
President, SSE Technologies, Inc. 1994 $140,913 $38,775 40,000 $ 9,729 (1)
Daniel E. Moore 1996 $150,958 $ -- -- $ 10,408 (1)
Executive Vice President & Chief 1995 $133,552 $16,380 (5) -- $ 17,590 (4)
Financial Officer, SSE Telecom, Inc. 1994 $ 90,000 (2) $ -- 50,000 $ --
Frank J. Peternell (7) 1996 $143,123 $ -- -- $ 28,953 (1)(6)
SSE Technologies, Inc. 1995 $128,766 $14,012 (5) -- $ 11,156 (1)
1994 $112,008 $ 8,271 6,000 $ 11,276
Claudio S. Mariotta 1996 $100,000 (2) $ -- 30,000 $ --
Chief Operating Officer &
Vice President of Engineering
SSE Technologies, Inc.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes car allowance and employee insurance benefits
(2) Employed for less than a full year
(3) Mr. Toombs was appointed President of SSE Telecom, Inc. in February 1994;
prior to that he was Chief Operating Officer
(4) Includes car allowance reimbursement for two years, fiscal 1994 and 1995
(5) Bonus payments relate to fiscal year 1994
(6) Includes accrued vacation payout
(7) Mr. Peternell's position was Executive Vice President and a full-time
employee until July 1, 1996; he remains in the employment of the Company
as a part time employee.
OPTION GRANTS IN FISCAL 1996
----------------------------
<TABLE>
<CAPTION>
Potential Realizable
Values at Assumed
Annual Rates of Stock
% of Price Appreciation
Total Options for Option Term
Granted to Exercise (5 Years)
Options Employees in Price Expiration ---------------------------
Name Granted Fiscal Year Per Share Date 5% ($) 10% ($)
---- ------- ----------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Claudio S. Mariotta 30,000 10.5% $8.38 3/1/01 150,629 255,911
</TABLE>
27
<PAGE> 28
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table shows, as to individuals named in the Summary Compensation
table above, information concerning stock options exercised during the fiscal
year ended September 28, 1996.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End ($) (2)
Shares
Acquired
on Value
Exercise Realized
Name (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Frederick C. Toombs -- -- 30,000 20,000 $ 125,100 $ 62,600
Daniel E. Moore 50,000 $393,500 25,000 25,000 $ 78,250 $ 78,250
Frank J. Peternell -- -- 3,000 3,000 $ 9,390 $ 9,390
Claudio S. Mariotta -- -- -- 30,000 -- $ 22,500
</TABLE>
(1) Market value of underlying securities based on the closing price of the
Company's Common Stock on the date of exercise minus the exercise price.
(2) Market value of underlying securities based on the closing price of the
Company's Common Stock on September 27, 1996, (the last trading day prior
to September 28, 1996) on the NASDAQ National Market System of $9.125
minus the exercise price.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Mr. Toombs, Mr. Peternell and Mr.
Moore. The agreements for Messrs. Toombs and Moore provide, among other
things, for payment of an amount equal to their then current annual base salary
in the event the Company terminates employment associated with the sale of the
Company. Payment equal to half of their then current annual salary will be
provided in the event the Company terminates employment other than for just
cause and not associated with the sale of the Company. The severance would be
in monthly installments and benefits are continued during the payment period.
In addition, the employment agreement of Mr. Toombs provides for a bonus of up
to $300,000, and Mr. Moore's employment agreement provides for a bonus of up to
one times his then current annual salary, in the event that the Company is sold
at a certain stock price.
28
<PAGE> 29
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee (the "Committee") of the Board of Directors is
composed of three directors, two outside directors, Messrs. Trumbower and van
der Kaay, and Daniel E. Moore, Executive Vice President of the Company.
Effective November 1996, the Committee consists of Messrs. Trumbower and van
der Kaay. The Committee administers the Company's Executive Compensation
Program. Participants in the Executive Compensation Program in 1996 were
Frederick Toombs, Frank Peternell and Daniel Moore. The Committee is
responsible for developing and making recommendations to the Board with respect
to the Company's executive compensation policies including the amounts and
forms of compensation. In addition, the Committee is responsible for making
annual recommendations to the Board for the compensation to be paid to the
President and/or Chief Executive Officer as well as each executive officer of
the Company.
The objectives of the Company's Executive Compensation Program are to provide
the following:
-Levels of compensation that are competitive with those provided in
the industry and market in which the Company competes for its
executive resources,
-Annual incentive compensation that varies with the financial
performance of the Company, and rewards corporate and individual
performance, and
-Long-term incentives which align the interests of management with
those of the shareholders.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's Executive Compensation program is composed of base salary, annual
cash incentive compensation, long-term incentive compensation principally in
the form of stock options, and various other customary benefits. To align pay
with performance, a portion of compensation is contingent upon the overall
financial performance of the company as well as individual achievement of
objectives that positively impact the financial performance of the Company.
BASE SALARY
Officers' base salaries are reviewed annually by the Committee based on the
results achieved by each officer relative to that officer's assigned goals and
with regard to competitive salary practices of other similar employers. In
general, the Committee believes that base salaries should approximate to those
in the upper quartile range of competitive base salaries.
ANNUAL INCENTIVE COMPENSATION
The purpose of the Company's incentive compensation plan is to provide a direct
financial incentive in the form of an annual cash bonus to executives to
achieve the Company's annual profit and operational goals. These objectives
are developed in conjunction with management and approved by the Committee near
the beginning of each year and are based upon financial plans and budget
approved by the Board. For the last three (3) fiscal years, corporate earnings
per share ("EPS") and the operating income of SSE Technologies Inc. were the
primary measures of performance.
29
<PAGE> 30
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
STOCK OPTION PLAN
The stock option plan is the Company's principal long-term incentive plan for
executive officers and key managers. The objectives of the program are to
align executive and shareholder long-term interests by creating a strong and
direct link between executive compensation and shareholder return, and to
enable executives to develop and maintain a significant, long-term ownership
position of the Company's common stock. The Company believes that stock
options, better than other long-term incentives, create a mutuality of interest
between the management and shareholders because stock options provide value to
the optionee only if the stock price increases.
Stock options are granted at an option price equal to the fair market value of
the Company's common stock on the date of grant, and have a five (5) year term
and generally vest ratably over a four-year period. Options are granted at the
market value of common shares on the date of grant so as to provide a reward
only for future stock appreciation. This long-term program encourages equity
ownership through stock options and aligns the interests of management with
those of shareholders.
BENEFITS
The Company provides benefits to the executive officers that are generally
available to all management employees. The amount of perquisites, as
determined in accordance with the rules of the Securities and Exchange
Commission relating to executive compensation, did not exceed 10% of total
salary and bonus for fiscal 1996 for any executive officer.
REPORT SUMMARY
The Committee has reviewed the total compensation of the President of the
Company, Frederick C. Toombs, and the other highest paid executive officers in
fiscal 1996, Daniel E. Moore, Frank J. Peternell, and Claudio S. Mariotta. The
Committee has concluded that their compensation is reasonable and consistent
with the Company's compensation philosophy and industry practice.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Erik H. van der Kaay Frank S. Trumbower Daniel E. Moore
30
<PAGE> 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN SHAREHOLDERS
The following table sets forth information as of December 13, 1996, regarding
securities ownership, by (i) each person who is known by the Company to own
beneficially more than 5% of the Company's outstanding common stock, (ii) each
executive officer named in the Summary Compensation Table, (iii) the directors
and nominees individually, and (iv) all executive officers and directors as a
group.
COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner** NUMBER PERCENT
<S> <C> <C>
Frederick C. Toombs, President and Director (1) 147,737 2.5%
Daniel E. Moore, Executive Vice President and
Director (2) 282,327 4.8%
Charles W. Ergen, Director (3) 10,000 *
Joseph T. Pisula, Director (4) 10,000 *
Frank S. Trumbower (5) 590,013 10.0%
Erik H. van der Kaay, Director (6) 13,250 *
Olin L. Wethington, Director (7) 21,250 *
Frank J. Peternell, Vice President (8) 93,000 1.6%
Claudio S. Mariotta, Vice President 1,000 *
Alcatel Telspace, S.A. 625,000 10.6%
Kennedy Capital Management, Inc. 425,495 7.2%
Directors and Executive Officers 1,168,577 19.8%
as a Group (9 persons) (9)
of the outstanding shares.
</TABLE>
* Represents less than 1%
** The address for each Director and Officer named in the table is c/o of the
Company at Suite 710, 8230 Leesburg Pike, Vienna, Virginia 22182; the address
for Alcatel Telspace, S.A. is 5 Rue Noel Pons, 92734 Nanterre Cedex, France;
and the address for Kennedy Capital Management is 10829 Olive Blvd., St. Louis,
Missouri 63141.
1. Includes exercisable options for 30,000 shares.
2. Includes exercisable options for 25,000 shares and 2,200 shares owned by
Venture America Management Limited Partnership and 124,169 shares owned by
Venture America Services Limited Partnership. These Limited Partnerships are
commonly managed by a general partnership of which Mr. Moore is one of two
general partners.
3. Includes exercisable options for 10,000 shares. Does not include
$4,075,000 of debentures owned by Echostar Communications Corporation which are
convertible into shares at $12 per share and warrants for 67,500 shares issued
to Echostar Communications Corporation.
4. Includes exercisable options for 10,000 shares.
5. Includes exercisable options for 10,000 shares held by Mr. Trumbower, and
192,827 shares that are owned by Mr. Trumbower's spouse, as to which Mr.
Trumbower disclaims beneficial ownership. Additionally, includes 16,667 shares
owned by Prescap Limited Partnership of which Mr. Trumbower is a general
partner, 26,803 shares owned by Avenel Capital Management Corporation, a
company controlled by Mr. Trumbower, and 115,000 shares owned by Prinz
Corporation, a company controlled by Mr. Trumbower. Does not include shares
that are owned by his adult children and shares held in trust for his
grandchildren, as to which Mr. Trumbower disclaims beneficial ownership.
6. Includes 2,000 shares that are owned by Mr. van der Kaay's spouse, as to
which Mr. van der Kaay disclaims beneficial ownership. Includes exercisable
warrants for 5,000 shares and exercisable options for 6,250 shares.
7. Includes exercisable warrants for 5,000 shares and exercisable options for
11,250 shares.
8. Includes exercisable options for 3,000 shares.
9. Includes the Directors and Officers named in the table.
31
<PAGE> 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 6, 1996 two Directors, Mr. Frederick Toombs and Mr. Daniel Moore
each sold 50,000 shares of common stock to Alcatel Telspace at a price of
$10.75 per share. In addition both Mr. Toombs and Mr. Moore agreed to limit
future sales of their stock until March 1997.
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:
1. Financial Statements: Reference Page
Report of Ernst & Young LLP, Independent Auditors 10
Consolidated Balance Sheets - September 28, 1996 and
September 30, 1995 11
Consolidated Statements of Income - Fiscal Years Ended
September 28, 1996, September 30, 1995, and
October 1, 1994 12
Consolidated Statements of Cash Flows - Fiscal Years Ended
September 28, 1996, September 30, 1995, and
October 1, 1994 13
Consolidated Statement of Stockholders' Equity - Fiscal
Years Ended September 28, 1996, September 30, 1995, and
October 1, 1994 14
Notes to Consolidated Financial Statements 15-23
2. Financial Statement Schedule: The following financial statement
schedule of SSE Telecom, Inc. for the fiscal years ended September
28, 1996, September 30, 1995, and October 1, 1994 is filed as part of
this Report and should be read in conjunction with the Consolidated
Financial Statements of SSE Telecom, Inc.
Schedule II Valuation and Qualifying Accounts 36
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Consolidated Financial Statements or
Notes thereto.
32
<PAGE> 33
3. 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)
2.2 Asset Purchase Agreement among SSE Telecom, Inc., SSE Datacom, Inc., The Fairchild
Corporation, Fairchild Data Corporation, and VSI Corporation, dated January 28, 1996
(Incorporated by reference to Exhibit 2.2, 8-K January 28, 1996, #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)
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)
4.6 Warrant from SSE Telecom, Inc. to Fairchild Data Corporation dated January 28, 1996
(Incorporated by reference to Exhibit 4.6, 8-K January 28, 1996, #33-10965)
4.7 Warrant from SSE Telecom, Inc. to Alcatel Telspace, S.A., dated September 6, 1996
(Incorporated by reference to Exhibit 4.7, 8-K September 6, 1996, #33-10965)
9.2 Voting Agreement by and among SSE Telecom, Inc., Alcatel Telspace, S.A., and certain
stockholders of SSE Telecom, Inc., dated September 6, 1996 (Incorporated by reference
to Exhibit 9.2, 8-K September 6, 1996, #33-10965)
9.3 Stockholder Agreement by and among SSE Telecom, Inc., Alcatel Telspace, S.A., and
certain stockholders of SSE Telecom, Inc., dated September 6, 1996 (Incorporated by
reference to Exhibit 9.3, 8-K September 6, 1996, #33-10965)
10.14 Employment Agreement Frederick Toombs (Incorporated by reference to Exhibit 10.14, 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)
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
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)
10.22 Sublease Agreement between SSE Datacom, Inc. and Fairchild Data Corporation, dated
January 28, 1996 (Incorporated by reference to Exhibit 10.22, 8-K January 28, 1996,
#33-10965)
10.23 Registration Agreement between SSE Telecom, Inc. and Fairchild Data Corporation, dated
January 28, 1996 (Incorporated by reference to Exhibit 10.23, 8-K January 28, 1996,
#33-10965)
10.25 Stock Purchase and Investment Agreement by and between SSE Telecom, Inc., and Alcatel
Telspace, S.A., dated September 6, 1996 (Incorporated by reference to Exhibit 10.25, 8-
K September 6, 1996, #33-10965)
10.26 Registration Rights Agreement between SSE Telecom, Inc. and Alcatel Telspace, S.A.,
dated September 6, 1996 (Incorporated by reference to Exhibit 10.26, 8-K September 6,
1996, #33-10965)
11 Computation of Earnings per share (Page 37)
21.1 Subsidiaries of Registrant (Page 38)
23.1 Consent of Ernst & Young LLP, Independent Auditors (Page 39)
27 Financial Data Schedule (Page 40)
</TABLE>
(b) Reports on 8-K: The Company filed a current report on Form 8-K reporting
effective September 6, 1996, the purchase by Alcatel Telspace, S.A., of
525,000 shares of the common stock from the Company and the related
purchase of 100,000 shares of common stock from two of the members of the
Company's management. The report also described the issuance of a warrant
and certain related agreements.
34
<PAGE> 35
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, INC.
Dated: December 18, 1996 /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 20, 1996
- ----------------------- -----------------
Frederick C. Toombs Director
/s/ Daniel E. Moore Executive Vice President December 20, 1996
- ------------------- and Chief Financial Officer -----------------
Daniel E. Moore Director
/s/ Joseph T. Pisula Director December 20, 1996
- -------------------- -----------------
Joseph T. Pisula
/s/ Frank S. Trumbower Director December 20, 1996
- ---------------------- -----------------
Frank S. Trumbower
/s/ Erik H. van der Kaay Director December 20, 1996
- ------------------------ -----------------
Erik H. van der Kaay
/s/ Olin L. Wethington Director December 20, 1996
- ----------------------- -----------------
Olin L. Wethington
</TABLE>
35
<PAGE> 36
SCHEDULE II
SSE TELECOM
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
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 28, 1996 $ 223 $300 $(103) $420
------ ---- ------ ----
Year Ended
September 30, 1995 $ 94 $143 $(14) $223
----- ---- ----- ----
Year Ended
October 1, 1994 $109 $(12) $ (3) $ 94
---- ----- ------ ----
</TABLE>
36
<PAGE> 1
EXHIBIT 11
SSE TELECOM
COMPUTATION OF EARNINGS PER SHARE
FOR YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995, OCTOBER 1, 1994
(dollars and shares in thousands, except per share)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
PRIMARY:
Weighted common average shares outstanding
5,368 5,370 5,145
Increase in weighted average shares due to
stock options and warrants
227 217 322
--- --- ---
Primary weighted average shares 5,595 5,587 5,467
----- ----- -----
Net income: $131 $1,099 $2,170
Net income per share: $.02 $.20 $.40
---- ---- ----
FULLY DILUTED
Weighted average common shares outstanding :
5,368 5,370 5,145
Increase in weighted average shares due to
stock options and warrants
230 220 322
Shares issuable from assumed exercise of conversion
of 6 1/2% convertible subordinated debentures 711 729 125
--- --- ---
Fully diluted shares 6,309 6,319 5,592
----- ----- -----
Net Income: $131 $1,099 $2,170
Interest on 6 1/2% convertible subordinated net of
income tax effect 358 420 68
--- --- --
Net income, as adjusted $489 $1,519 $2,238
---- ------ ------
Total fully diluted net income per share $.08* $.24* $.40
----- ----- ----
</TABLE>
* This calculation is submitted in accordance with Regulation S-K item 601
(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because
it produces an anti-dilutive effect.
37
<PAGE> 1
EXHIBIT 21.1
SSE TELECOM
SUBSIDIARIES OF REGISTRANT
SSE Technologies, Inc.
SSE Datacom Inc.
38
<PAGE> 1
Exhibit 23.1
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 the 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 8, 1996, with respect to the
consolidated financial statements and schedule of SSE Telecom, Inc. included in
the Annual Report (Form 10-K), for the year ended September 28, 1996.
/s/ Ernst & Young LLP
San Jose, California
December 20, 1996
39
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-28-1996
<CASH> 1,241
<SECURITIES> 0
<RECEIVABLES> 11,461
<ALLOWANCES> 420
<INVENTORY> 12,024
<CURRENT-ASSETS> 27,620
<PP&E> 10,336
<DEPRECIATION> 6,835
<TOTAL-ASSETS> 55,263
<CURRENT-LIABILITIES> 10,894
<BONDS> 4,771
0
0
<COMMON> 59
<OTHER-SE> 31,229
<TOTAL-LIABILITY-AND-EQUITY> 55,263
<SALES> 46,220
<TOTAL-REVENUES> 46,220
<CGS> 33,697
<TOTAL-COSTS> 48,106
<OTHER-EXPENSES> (2,584)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 479
<INCOME-PRETAX> 219
<INCOME-TAX> 88
<INCOME-CONTINUING> 131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
