UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-2287
SYMMETRICOM, INC.
(Exact name of registrant as specified in its charter)
California No. 95-1906306
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
85 West Tasman Drive, San Jose, California 95134-1703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 943-9403
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 _____
Applicable Only to Issuers Involved in Bankruptcy Proceedings
During the Preceding Five Years:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes
No
Applicable Only to Corporate Issuers:
Indicate number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
CLASS OUTSTANDING AS OF APRIL 30, 1996
Common Stock 15,559,818
SYMMETRICOM, INC.
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1996 and June 30, 1995 3
Consolidated Statements of Operations
Three and nine months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Nine months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMMETRICOM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, June 30,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 29,132 $ 19,354
Short-term investments 5,965 13,851
Accounts receivable 12,133 11,845
Inventories 18,561 17,855
Other current assets 3,285 3,715
_________ _________
Total current assets 69,076 66,620
Property, plant and equipment, net 21,354 16,978
Other assets, net 1,573 1,728
_________ _________
$ 92,003 $ 85,326
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,736 $ 4,308
Accrued liabilities 9,235 11,521
Current maturities of long-term debt 56 52
_________ _________
Total current liabilities 14,027 15,881
Long-term debt, less current maturities 5,724 5,766
Deferred rent 71 231
Deferred income taxes 3,386 3,323
Shareholders' equity:
Preferred stock, no par value:
Authorized 500 shares
Issued none
Common stock, no par value:
Authorized 32,000 shares
Issued and outstanding 15,560
and 15,097 shares 21,306 19,062
Retained earnings 47,489 41,063
_________ _________
Total shareholders' equity 68,795 60,125
_________ _________
$ 92,003 $ 85,326
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
1996 1995 1996 1995
Net sales $ 22,693 $ 26,261 $ 78,797 $ 76,032
Cost of sales 14,365 13,798 43,814 41,368
________ ________ ________ ________
Gross profit 8,328 12,463 34,983 34,664
Operating expenses:
Research and development 3,667 3,313 10,815 9,609
Selling, general and
administrative 4,905 6,226 16,766 17,341
________ ________ ________ ________
Operating income (loss) (244) 2,924 7,402 7,714
Interest income 451 378 1,398 879
Interest expense (149) (150) (446) (450)
________ ________ ________ ________
Earnings before income taxes 58 3,152 8,354 8,143
Income taxes (260) 366 1,928 946
________ ________ ________ ________
Net earnings $ 318 $ 2,786 $ 6,426 $ 7,197
======== ======== ======== ========
Net earnings per common and
common equivalent share $ .02 $ .18 $ .40 $ .46
Weighted average common and common
equivalent shares outstanding 15,900 15,786 16,049 15,624
The accompanying notes are an integral part of these consolidated
financial statements.
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended
March 31,
1996 1995
Cash flows from operating activities:
Cash received from customers $ 78,286 $ 74,016
Cash paid to suppliers and employees (70,695) (64,272)
Interest received 1,346 770
Interest paid (446) (450)
Income taxes paid (260) (1,037)
_________ _________
Net cash provided by operating activities 8,231 9,027
_________ _________
Cash flows from investing activities:
Purchases of short-term investments (21,664) (5,899)
Maturities of short-term investments 29,550
Capital expenditures, net (7,746) (4,828)
Other assets (299) 75
_________ _________
Net cash used for investing activities (159) (10,652)
_________ _________
Cash flows from financing activities:
Repayment of long-term debt (38) (35)
Proceeds from issuance of common stock 1,744 1,469
_________ _________
Net cash provided by financing activities 1,706 1,434
_________ _________
Net increase (decrease) in cash and cash
equivalents 9,778 (191)
Cash and cash equivalents at beginning of
period 19,354 21,250
_________ _________
Cash and cash equivalents at end of period $ 29,132 $ 21,059
========= =========
Reconciliation of net earnings to net cash provided
by operating activities:
Net earnings $ 6,426 $ 7,197
Adjustments:
Depreciation and amortization 3,824 3,921
Net deferred income taxes 752 (660)
(Increase) in accounts receivable (288) (2,155)
(Increase) in inventories (706) (2,081)
(Increase) in other current assets (259) (360)
Increase in accounts payable 428 1,018
Increase (decrease) in accrued liabilities (1,786) 2,293
(Decrease) in deferred rent (160) (146)
_________ _________
Net cash provided by operating activities $ 8,231 $ 9,027
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
SYMMETRICOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation. The consolidated financial statements
included herein have been prepared by SymmetriCom, Inc., (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures,
normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes
that the disclosures which are made are adequate to make the information
presented not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended June 30, 1995.
In the opinion of the management, these unaudited statements contain
all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position of the Company at
March 31, 1996, the results of operations for the three and nine month
periods then ended and cash flows for the nine month period then ended.
The results of operations for the periods presented are not necessarily
indicative of those that may be expected for the full year.
2. Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories consist of:
March 31, June 30,
1996 1995
(In thousands)
Raw materials $ 6,653 $ 5,433
Work-in-process 7,390 6,910
Finished goods 4,518 5,512
_______ _______
$18,561 $17,855
======= =======
3. Recent Accounting Pronouncements. In October 1995, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," was issued which allows the adoption of a fair value
based method of accounting for stock-based compensation plans. The
Company believes at this time that it will continue to account for
employee stock options under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company will provide
certain disclosures including pro forma net earnings and net earnings
per share information as if the fair value method had been adopted for
fiscal 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Business Outlook and Risk Factors
The statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations include "forward
information" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, and is subject to the safe harbor created by those
Sections. The Company's actual results could differ materially from
those projected in the forward looking information. Some factors which
could cause future actual results to differ materially from the
Company's recent results or those projected in the forward looking
information are listed below. The Company assumes no obligation to
update the information contained herein.
Potential Fluctuations in Quarterly Operating Results. The Company's
quarterly results have fluctuated in the past, and may continue to
fluctuate in the future, due to a number of factors, including the
timing, cancellation or delay of customer orders; the mix of products
sold; the timing of new product introductions by the Company or its
competitors; delays in new product development and new product
production; market acceptance of the Company's and its competitors'
products; the long sales cycles associated with the Company's products
and other competitive factors. Company operations entail a high level
of fixed costs and require an adequate volume of production and sales to
maintain reasonable gross margins. Accordingly, any significant decline
in demand could have a material adverse effect on the Company's
business, operating results and financial condition.
Order Timing. A substantial portion of each quarter's shipments is
based on orders received during that quarter, and from time to time, a
significant portion of each quarter's shipments is based on orders
received in the last month of that quarter. Therefore, operating
results may fluctuate significantly from the Company's expectations
quarter to quarter due to uncertainty in the timing and the receipt of
orders, delays in product shipment and rescheduling or cancellation of
orders. The Company presently expects only modest improvement in sales
and earnings in the fourth quarter of fiscal 1996 compared to the third
quarter of fiscal 1996. The expected improvement is due, in part, to
the higher backlog at the beginning of the fourth quarter than at the
beginning of the third quarter. However, orders can generally be
cancelled or rescheduled by the Company's customers at any time without
significant penalty. In addition, there can be no assurance that the
Company will receive a sufficient number of new orders during the fourth
quarter or that these orders can be shipped in the fourth quarter.
Furthermore, there can be no assurance that fourth quarter sales and
earnings will show modest improvement from those of the preceding
quarter.
New Product Development. The Company is affected by changing
technologies and frequent new product introductions. The Company's
success will depend on its ability to respond to changing technologies
and customer requirements. Delays in new product development or delays
in new product production could have a material adverse effect on the
Company's business, operating results and financial condition. There
can be no assurance that the Company will successfully develop and
introduce new products, or such new products will achieve market
acceptance.
Product Performance and Reliability. The Company's customers
establish demanding specifications for performance and reliability. The
Company's products are complex and use state of the art components,
processes and techniques. There can be no assurance that new products
or enhancements of existing products will not contain undetected errors
or failures due to the complexities of such products. Any such
unforeseen problem could have a material adverse effect on the Company's
business, operating results and financial condition.
Market Change. Future results depend in large part on growth in the
markets for the Company's products. The growth in each of these markets
depends on, among other things, changes in general economic conditions,
or conditions which relate specifically to the markets in which the
Company competes. Some factors which affect the markets for the
Company's products include changes in regulatory conditions,
legislation, export rules or conditions, interest rates and fluctuations
in the business cycle for any particular market segment.
Competition. Markets for the Company's products are highly
competitive, and some of the Company's competitors, or potential
competitors are much larger than the Company, with substantially greater
financial, manufacturing, technical and marketing resources. Operating
results are subject to fluctuation based on unforeseen actions taken by
competitors, the entry of new competitors and the introduction of new or
enhanced competing products. Competition for some of the Company's
products is increasing. Results will depend on the Company's ability to
maintain competitive performance, quality, cost and service.
The Company's stock price has been and may continue to be subject to
significant volatility. Many factors, including any shortfall in sales
or earnings from levels expected by securities analysts and investors
could have an immediate and significant adverse effect on the trading
price of the Company's common stock.
Liquidity and Capital Resources
Working capital increased to $55.0 million at March 31, 1996 from
$50.7 million at June 30, 1995 and the current ratio increased to 4.9 to
1.0 from 4.2 to 1.0 during the same period primarily due to the decrease
in accrued liabilities to $9.2 million from $11.5 million. This
decrease was essentially due to the payment of fiscal 1995 earnings-
based incentive compensation and to the reversal of substantially all
accrued fiscal 1996 earnings-based incentive compensation. Cash and
cash equivalents, and short-term investments increased to $35.1 million
at March 31, 1996 from $33.2 million at June 30, 1995 principally due to
$8.2 million in cash provided by operating activities and $1.7 million
in proceeds from the issuance of common stock, partially offset by $7.7
million used for capital expenditures. At March 31, 1996, the Company
had $7.0 million of unused credit available under its bank line of
credit.
The Company believes that cash and cash equivalents, short-term
investments, funds generated from operations and funds available under
its bank line of credit will be sufficient to satisfy working capital
and capital equipment requirements over the near term. At March 31,
1996, the Company had no material outstanding commitments to purchase
capital equipment.
Results of Operations
Net sales for the three and nine month periods ended March 31, 1996
and 1995 were as follows:
Three Months Nine Months
Ended Ended
March 31, March 31,
1996 1995 Change 1996 1995 Change
(Dollars in millions)
Net sales data*:
Telecom Solutions $14.3 $16.0 (11)% $49.9 $46.2 8%
Linfinity
Microelectronics Inc. 8.4 10.2 (18)% 28.9 29.8 (3)%
_____ _____ _____ _____
$22.7 $26.3 (14)% $78.8 $76.0 4 %
* May not add due to rounding.
Telecom Solutions net sales decreased 11% in the third quarter of
fiscal 1996 compared to the third quarter of fiscal 1995 essentially due
to lower synchronization sales as some orders received during the third
quarter of fiscal 1996 were not deliverable until after the end of the
quarter and other orders were delayed pending completion of engineering.
Telecom Solutions net sales increased 8% in the first three quarters of
fiscal 1996 compared to the first three quarters of fiscal 1995
principally due to the increase in Integrated Digital Services Terminal
(IDST) and new synchronization product sales which offset declines in
mature synchronization product sales. Linfinity Microelectronics Inc.
(Linfinity) net sales decreased by 18% in the third quarter of fiscal
1996 compared to the third quarter of fiscal 1995 primarily due to lower
orders received, customer rescheduling of orders in backlog and a shift
in sales to lower priced products. Linfinity net sales decreased by 3%
in the first three quarters of fiscal 1996 compared to the corresponding
period of fiscal 1995 principally due to a shift in sales to lower
priced products.
The gross profit margin, as a percentage of net sales, decreased to
37% and 44% in the third quarter and first three quarters of fiscal
1996, respectively, compared to 47% and 46% in the corresponding periods
of fiscal 1995 principally due to lower manufacturing efficiencies at
both operations. Future gross profit margins will largely depend on
product mix, manufacturing efficiencies and selling prices.
Research and development expense, and selling, general and
administrative expense in the third quarter and the first three quarters
of fiscal 1996 are net of the significant reversal, in the fiscal 1996
third quarter, of substantially all fiscal 1996 year to date earnings-
based incentive compensation due to lower than expected performance in
Telecom Solutions and Linfinity whereas the corresponding periods of
fiscal 1995 included significant accruals for earnings-based incentive
compensation.
Research and development expense was $3.7 million (or 16% of sales)
and $10.8 million (or 14% of sales) in the third quarter and first three
quarters of fiscal 1996, respectively, compared to $3.3 million (or 13%
of sales) and $9.6 million (or 13% of sales) in the corresponding
periods of fiscal 1995 as the Company continued to focus on new product
development at both Telecom Solutions and Linfinity.
Selling, general and administrative expense decreased to $4.9 million
(or 22% of sales) and $16.8 million (or 21% of sales) in the third
quarter and first three quarters of fiscal 1996, respectively, compared
to $6.2 million (or 24% of sales) and $17.3 million (or 23% of sales) in
the corresponding periods of fiscal 1995.
Interest income increased to $.5 million and $1.4 million in the
third quarter and first three quarters of fiscal 1996, respectively,
compared to $.4 million and $.9 million in the corresponding periods of
fiscal 1995 principally due to an increase in funds invested.
The tax credit in the third quarter of fiscal 1996 resulted from the
adjustment of the annual estimated effective tax rate due to the
increase in the percentage of income expected to be earned in Puerto
Rico as a result of lower than anticipated earnings at Linfinity. The
Company's effective tax rate was 23% in the first three quarters of
fiscal 1996 compared to 12% in the corresponding period of fiscal 1995
and 11% for all of fiscal 1995. The effective tax rate for fiscal 1996
is expected to be lower than the combined federal and state tax rate
primarily due to the benefit of lower income tax rates on income earned
in Puerto Rico and state tax credits. However, the effective tax rate
in fiscal 1996 is estimated to be higher than the effective tax rate in
fiscal 1995 primarily due to the reduction in the valuation allowance
for deferred tax assets in fiscal 1995. In future years, certain
provisions of the Omnibus Budget Reconciliation Act of 1993 may result
in less favorable tax treatment for income earned in Puerto Rico.
Additionally, several legislative proposals currently in Congress, if
enacted, would result in the eventual elimination of the favorable tax
treatment for income earned in Puerto Rico.
As a result of the above factors, net earnings in the third quarter
of fiscal 1996 decreased to $.3 million, or $.02 per share, compared to
$2.8 million, or $.18 per share, in the third quarter of fiscal 1995.
Net earnings in the first three quarters of fiscal 1996 decreased to
$6.4 million, or $.40 per share, from $7.2 million, or $.46 per share,
in the same period of fiscal 1995.
Accounting Pronouncement
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued which allows the
adoption of a fair value based method of accounting for stock-based
compensation plans. The Company believes at this time that it will
continue to account for employee stock options under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company will provide certain disclosures including pro
forma net earnings and net earnings per share information as if the fair
value method had been adopted for fiscal 1997.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
March 31, 1996.
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 thereunto duly authorized.
SYMMETRICOM, INC.
(Registrant)
DATE: May 9, 1996 By:
/s/J. Scott Kamsler
J. Scott Kamsler
Vice President, Finance
and Chief Financial Officer
(for Registrant and as Principal
Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 29132
<SECURITIES> 5965
<RECEIVABLES> 12571
<ALLOWANCES> 438
<INVENTORY> 18561
<CURRENT-ASSETS> 69076
<PP&E> 49735
<DEPRECIATION> 28381
<TOTAL-ASSETS> 92003
<CURRENT-LIABILITIES> 14027
<BONDS> 0
<COMMON> 21306
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 92003
<SALES> 78797
<TOTAL-REVENUES> 78797
<CGS> 43814
<TOTAL-COSTS> 43814
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446
<INCOME-PRETAX> 8354
<INCOME-TAX> 1928
<INCOME-CONTINUING> 6426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6426
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
