2
_______________________________________________________________________
_______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________________
_______
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 33-10965
SSE TELECOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1466297
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8230 Leesburg Pike, Suite 710
Vienna, Virginia 22182
(Address of principal
executive office)
Registrant's telephone number, including area code:
(703) 442-4503
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ____
As of February 7, 1997, the following number of shares of each of the
issuer's classes of common stock were outstanding:
Common Stock 6,037,671
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial
Statements
Page
Consolidated Statements of Income for the
three months ended December 28, 1996
and December 30, 1995 3
Consolidated Balance Sheets as of December 28, 1996
and September 28, 1996 4
Consolidated Statements of Cash Flows
for the three months ended December 28, 1996
and December 30, 1995 5
Notes to Consolidated Financial Statements 6
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-8
PART II - OTHER INFORMATION
Item 6. Exhibits
and Reports on Form 8-K 9-12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SSE Telecom, Inc.
Consolidated Statements of Income
For the three months ended
December 28, 1996, and December 30, 1995
(dollars and shares in thousands)
1996 1995
Revenue $12,295 $9,019
Cost of revenue 9,006 6,129
Gross margin 3,289 2,890
Operating expenses
Research and development
1,222 687
Marketing, general and
administrative
1,872 1,381
Operating income 195 822
Gain on sale of investments, 2,642 --
net of transaction expense
Net interest expense 128
43
Other expense
-- 21
Income before income taxes 2,709 758
Provision for income taxes 948 265
Net income $1,761 $493
Primary net income per share $0.30 $0.09
Fully diluted earnings per $0.29 $0.09
share
Shares used in computing
primary net income per share 5,956 5,441
Shares used in computing
fully diluted earnings per
share 6,327 5,441
The Notes to Consolidated Financial Statements are an integral part
of these statements.
SSE Telecom, Inc.
Consolidated Balance Sheets
(dollars in thousands)
December 28, September 28,
1996 1996
(unaudited) (audited)
Current Assets
Cash and cash equivalents $ 911 $ 1,241
Accounts receivable, net 12,226 11,041
Inventories 11,093 12,024
Other current assets 2,837 3,314
Total current assets 27,067 27,620
Net property, equipment, and
leasehold improvements 3,983 3,501
Long-term investments 17,191 23,421
Intangible assets 577 611
Other assets 110 110
Total assets $ 48,928 $ 55,263
Current liabilities
Accounts payable $ 2,426 $ 4,275
Short-term debt 5,363 3,342
Income taxes payable 585 672
Other accrued liabilities 2,431 2,605
Total current liabilities 10,805 10,894
Deferred tax liabilities 5,511 8,310
Convertible notes payable 3,644 4,771
Commitments and contingencies
Stockholders' equity
Common stock
59 59
Additional paid in capital 12,305 12,276
Treasury stock (1,376) (502)
Retained earnings 8,486 6,725
Net unrealized gain on
available for sale investments
9,494 12,730
Total stockholders' equity 28,968 31,288
Total liabilities &
stockholders' equity $ 48,928 $ 55,263
The Notes to Consolidated Financial Statements are an
integral part of these statements.
SSE Telecom, Inc.
Consolidated Statements of Cash Flows
For the three months ended December 28, 1996, and December 30, 1995
(dollars in thousands)
Operating Activities: 1996 1995
Net income $1,761 $493
Adjustments to reconcile net income to net
cash (used)by operating activities:
Depreciation and amortization 171 188
Gain on sale of Echostar stock (2,642) -
Deferred interest expense 48 147
Changes in operating assets and liabilities:
Accounts receivable (1,185) (331)
Inventories 930 (1,295)
Other current assets 478 (174)
Accounts payable (1,849) 559
Other accrued liabilities (262) (6)
Net cash (used) by operating activities (2,550) (419)
Investing Activities:
Purchases of equipment (616) (140)
Sale of Echostar shares 2,835
-
Other assets - (33)
Net cash provided (used) by investing 2,219 (173)
activities
Financing Activities:
Net borrowings under lines of credit 1,781 -
Net borrowings under equipment line of credit 240 -
Payments on convertible notes payable (1,175) -
Proceeds from issuance of common stock - 4
Treasury stock purchase (874) (735)
Other 29 -
Net cash provided (used) by financing 1 (731)
activities
Net (decrease) in cash and cash equivalents (330) (1,323)
Cash and cash equivalents beginning of period 1,241 3,547
Cash and cash equivalents end of period $ 911 $
2,224
The Notes to Consolidated Financial Statements are an integral part of
these statements.
SSE TELECOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The financial information at December 28, 1996, and for the three
months periods ended December 28, 1996 and December 30, 1995, is
unaudited. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and changes in cash flows
for the interim periods have been made.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the
Company's September 28, 1996 Form 10-K. The results of operations for
the period ended December 28, 1996 are not necessarily indicative of
the operating results for the full year.
2. 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 the average cost method,
which approximates actual cost on the first-in, first-out ("FIFO")
basis. At December 28, 1996 and September 28, 1996, inventories
consisted of:
($000's) December 28, September 28,
1996 1996
Manufacturing raw $4,777 $5,693
materials
Work-in-process 5,817 6,016
Finished goods 499 315
Total $11,093 $12,024
3. COMMITMENTS, AND CONVERTIBLE NOTES PAYABLE
The Company leases office and manufacturing space under leases that
expire in June 2001
At December 28, 1996, the Company had an outstanding balance of $3.58
million on its 6 1/2% convertible subordinated debentures due March 1,
2001, payable to Echostar Communication Corporation. During the first
quarter of fiscal 1997 the Company repaid $1.0 million of the debenture
principle and $.2 million of debenture interest from the proceeds from
the sale of Echostar shares.
4. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares (stock options and warrants)
outstanding during the period (using the treasury stock method).
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Information contained in this Form 10-Q that is not historical facts,
including any statements about expectations for the fiscal year and
beyond, involve certain risks and uncertainties. This Form 10-Q
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 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 and 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.
The following table sets forth, for the quarters ended on the dates
indicated, certain income and expense items expressed as an approximate
percentage of the Company's total revenues:
Three months ended
December 28, December 30,
1996 1995
Revenue 100% 100%
Gross margin 27% 32%
Research and development expense 10% 8%
Marketing, general and administrative 15% 15%
expenses
Operating income 2% 9%
Net interest expense 1% --
Other expense -- --
Net gain on sale of investments 21%
Income before income taxes 22% 9%
Provision for income taxes 8% 3%
Net income 14% 6%
Overview
On January 28, 1996, the Company acquired the business and assets of
Fairchild Data (the Company's Datacom subsidiary), a leading
manufacturer of satellite modems and related earth station products.
Comparisons between the first quarter of 1996 and 1995 on an absolute
and percentage change basis are affected by the results of the
Company's SSE Datacom subsidiary.
Revenue. Sales were $12.3 million for the first quarter of fiscal year
1997 as compared to $9.0 million for the same period in fiscal year
1996, representing an increase of 37%. The increase in revenue mainly
reflects shipments of the Company's Deployable Downsized Terminal (DDT)
to the federal government, and the inclusion of modem sales from
Datacom. The Company continues to increase the number of units shipped
of its STAR series of advanced transceivers products.
Gross Margin. Gross margin was $3.3 million or 27% of sales in the
first quarter of fiscal year 1997, compared to $2.9 million or 32% of
sales for the first quarter of 1996. The decline in gross margin
percentage from the first quarter of 1996 was due to continued
competitive price pressure and product mix. In the fourth quarter of
fiscal year 1996 gross margin as percentage of sales was 24%. The
improvements in gross margin during the first quarter of fiscal 1997
were attributable to better manufacturing efficiencies related to
higher production volume of the new STAR line of transceivers.
Research and Development. Research and development expenses grew by
78% to $1.2 million or 10% of sales for the first quarter of fiscal
1997 from $.7 million or 8% of sales for the first quarter of fiscal
1996. The Company continues to focus on the development of the STAR
line of transceivers, and advanced digital modem products. Research
and development expenses may fluctuate in the future both in dollars
and as a percentage of sales.
Marketing, General and Administrative. Marketing, general and
administrative expenses were $1.9 million or 15% of sales in the first
quarter of fiscal year 1997 as compared to $1.4 million or 15% of sales
for the same period in fiscal 1996. The majority of the increase in
expenses relates to the expansion of sales and marketing efforts to
generate additional customers for the Company's products, particularly
in international markets, and a relocation of the Company's repair
center from Singapore to Bangkok, Thailand.
Net Interest Expense. Interest expense was $128,000 in the first
quarter of fiscal 1997. During the same period of last fiscal year,
interest income was $114,000 and interest expense was $157,000. The
decrease in interest expense reflects a reduction of the Company's
debenture principle offset with a need of the Company to borrow against
its credit lines to fund operating and capital expenditures. The loss
of interest income in the first quarter of fiscal 1997 reflects the
redirection of funds previously invested in short term securities that
were utilized for the purchase of Fairchild Data.
Net (Gain) on Sale of Investments. During the first quarter of fiscal
1997 the Company realized a gain of $2.6 million on sales of 92,937
shares of Echostar Communication Corporation (NASDAQ: DISH) common
stock. The proceeds generated from these sales were used for repayment
of convertible debentures payable to Echostar, purchase of treasury
stock, and to fund operating expenditures. As of December 28, 1996 the
Company has a total of 709,780 shares of Echostar common stock.
Provision for Income Taxes.. The effective tax rate was 35% for the
first quarter of fiscal year 1997 as well as the first quarter of
fiscal year 1996.
Backlog. The Company's total backlog was $6.8 million at the end of
the first quarter of fiscal year 1997, as compared to backlog of $8.9
million at the end of fiscal year 1996. Management expects
substantially all backlog to be delivered in fiscal 1997. Timing
differences from quarter to quarter as to the receipt of large orders
and changes in factory production make meaningful quarter to quarter
comparisons of backlog difficult.
LIQUIDITY AND CAPITAL RESOURCES
At December 28, 1996, the Company had working capital of $16.2 million,
including $.9 million in cash and cash equivalents, compared with
working capital of $16.7 million, including cash and cash equivalents
of $1.2 million at September 28, 1996.
Net cash used in operating activities was $2.6 million during the first
quarter of fiscal year 1997 as compared to net cash used of $.4 million
in the similar period of fiscal year 1996. Cash used in operations was
primarily due to an increase in accounts receivable and decreases in
accounts payable during the period. The increase in accounts
receivable of $1.2 million in the first quarter of fiscal year 1997 was
due to the consolidation of SSE Datacom and the timing of shipments in
the quarter. The decrease in accounts payable of $1.9 million in the
first quarter of fiscal year 1997 was attributable to lowering of
inventories purchased during the quarter.
The Company's investing activities provided $2.2 million during the
first quarter of fiscal 1997 as compared to cash used of $.2 million
during the same period in fiscal year 1996. During the first quarter
of fiscal 1997 $2.8 million was realized from the sale of Echostar
shares which offset capital expenditures of $.6 million.
The Company's financing activities provided $1,000 during the first
quarter of fiscal 1997 as compared to net cash used of $731,000 during
the first quarter of fiscal year 1996. The Company utilized its lines
of credit to finance operations and used funds to reduce convertible
debentures by $1.2 million and to purchase 108,200 shares of treasury
stock.
At December 28, 1996 the Company's principal sources of liquidity
consisted of $.9 million in cash, and bank lines of credit of $5.0
million for operations and $2.0 million for equipment financing. At
December 28, 1996, $4.8 million was outstanding under the operating
line of credit and $.6 million under the equipment lines. The lines of
credit require the Company to be in compliance with certain financial
covenants. As of December 28, 1996 the Company was in compliance with
all covenants. The Company intends to renew these lines of credit in
fiscal year 1997.
The Company's capital requirements could change in the event of factors
such as lower than anticipated demand for the Company's products or
unanticipated limitations on debt financing. 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. If these events occur, the Company
may be required to raise additional capital using other means to meet
all of its needs.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein (numbered in accordance with Item 601 of
Regulation S-K)
Exhibit Number Description Sequential Page
Number
11 Computation of Per Share Page 11
Earnings
27 Financial Data Schedule Page 12
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: February 13, 1997 SSE TELECOM, INC.
By:/s/Frederick C.Toombs
Frederick C. Toombs,
President
By:/s/Daniel E. Moore
Daniel E. Moore,
Chief Financial Officer
EXHIBIT 11
Attached and Made Part of Part II
Of 10Q for the Quarters Ended December 28, 1996 and December 30, 1995
(dollars and shares in thousands, except per share)
Three months ended
December 28, December 30,
1996 1995
Primary
Weighted common average shares
outstanding applying the
treasury stock method 5,877 5,310
Increase in weighted average shares due
to applying the treasury stock
method for stock options and warrants 79 131
Primary weighted average shares 5,956 5,441
Primary net income $1,761 $493
Net income per share $.30 $.09
Fully diluted
Weighted common average shares
outstanding applying the
treasury stock method 5,877 5,310
Increase in weighted average shares due
to applying the treasury stock
method for stock options and warrants 79 190
Shares issuable from assumed exercises
of conversion of 6 1/2% convertible
subordinated debentures 371 729
Fully diluted weighted average shares 6,327 6,229
Net income $1,761 $493
Interest on 6 1/2% convertible subordinated
debentures, net of income tax effect 43 99
Net income, as adjusted $1,804 $592
Total fully diluted net income per share $.29 $.10*
* 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..
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
[DESCRIPTION]Article 5 Fin. Data Schedule for 1st Qtr 10-Q
[TEXT]
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Sep-27-1997
<PERIOD-START> Sep-29-1996
<PERIOD-END> Dec-28-1996
<PERIOD-TYPE> 3-MOS
<CASH> 911
<SECURITIES> 0
<RECEIVABLES> 12,736
<ALLOWANCES> 510
<INVENTORY> 11,093
<CURRENT-ASSETS> 27,067
<PP&E> 10,967
<DEPRECIATION> 6,984
<TOTAL-ASSETS> 48,928
<CURRENT-LIABILITIES> 10,805
<BONDS> 3,644
0
0
<COMMON> 59
<OTHER-SE> 28,909
<TOTAL-LIABILITY-AND-EQUITY> 48,928
<SALES> 0
<TOTAL-REVENUES> 12,295
<CGS> 9,006
<TOTAL-COSTS> 3,094
<OTHER-EXPENSES> (2,642)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128
<INCOME-PRETAX> 2,709
<INCOME-TAX> 948
<INCOME-CONTINUING> 1,761
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,761
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
</TABLE>
