THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE
901(d) OF REGULATION S-T
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 1996
Common Stock 15,650,849
SYMMETRICOM, INC.
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
September 30, 1996 and June 30, 1996 3
Consolidated Statements of Operations
Three months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three months ended September 30, 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 10
SIGNATURES 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SYMMETRICOM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, June 30,
1996 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 24,500 $ 31,327
Short-term investments 10,413 2,943
--------- ---------
Cash and investments 34,913 34,270
Accounts receivable 17,493 14,544
Inventories 17,882 17,847
Other current assets 4,027 3,647
_________ _________
Total current assets 74,315 70,308
Property, plant and equipment, net 22,282 21,547
Other assets, net 1,459 1,676
_________ _________
$ 98,056 $ 93,531
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,131 $ 5,544
Accrued liabilities 10,088 9,185
Current maturities of long-term debt 59 57
_________ _________
Total current liabilities 16,278 14,786
Long-term debt, less current maturities 5,694 5,709
Deferred income taxes 2,708 2,633
Shareholders' equity:
Preferred stock, no par value:
Authorized 500 shares
Issued none
Common stock, no par value:
Authorized 32,000 shares
Issued and outstanding 15,651
and 15,570 shares 22,577 21,862
Retained earnings 50,799 48,541
_________ _________
Total shareholders' equity 73,376 70,403
_________ _________
$ 98,056 $ 93,531
========= =========
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
September 30,
1996 1995
Net sales $ 32,023 $ 27,678
Cost of sales 18,366 14,612
________ ________
Gross profit 13,657 13,066
Operating expenses:
Research and development 3,954 3,626
Selling, general and
administrative 7,103 5,940
________ ________
Operating income 2,600 3,500
Interest income 458 466
Interest expense (148) (149)
________ ________
Earnings before income taxes 2,910 3,817
Income taxes 652 1,046
________ ________
Net earnings $ 2,258 $ 2,771
======== ========
Net earnings per common and
common equivalent share $ .14 $ .17
======== ========
Weighted average common and common
equivalent shares outstanding 16,117 16,203
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
SYMMETRICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
September 30,
1996 1995
Cash flows from operating activities:
Cash received from customers $ 29,056 $ 25,440
Cash paid to suppliers and employees (27,391) (24,247)
Interest received 476 441
Interest paid (148) (149)
Income taxes paid (11) (98)
_________ _________
Net cash provided by operating activities 1,982 1,387
_________ _________
Cash flows from investing activities:
Purchases of short-term investments (8,470) (12,266)
Maturities of short-term investments 1,000 11,303
Capital expenditures, net (2,045) (1,747)
Other assets 4 50
_________ _________
Net cash used for investing activities (9,511) (2,660)
_________ _________
Cash flows from financing activities:
Repayment of long-term debt (13) (13)
Proceeds from issuance of common stock 715 1,044
_________ _________
Net cash provided by financing activities 702 1,031
_________ _________
Net decrease in cash and cash equivalents (6,827) (242)
Cash and cash equivalents at beginning of
period 31,327 19,354
_________ _________
Cash and cash equivalents at end of period $ 24,500 $ 19,112
========= =========
Reconciliation of net earnings to net cash provided
by operating activities:
Net earnings $ 2,258 $ 2,771
Adjustments:
Depreciation and amortization 1,523 1,280
Net deferred income taxes 300 421
Changes in assets and liabilities:
Accounts receivable (2,949) (2,058)
Inventories (35) 97
Other current assets (605) (662)
Accounts payable 587 577
Accrued liabilities 903 (1,039)
_________ _________
Net cash provided by operating activities $ 1,982 $ 1,387
========= =========
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, 1996.
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
September 30, 1996, the results of operations and its cash flows for the
three month period then ended. The results of operations for the period
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:
September 30, June 30,
1996 1996
(In thousands)
Raw materials $ 6,546 $ 6,704
Work-in-process 7,608 6,868
Finished goods 3,728 4,275
_______ _______
$17,882 $17,847
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Business Outlook and Risk Factors
Certain trend analysis and other information contained in
Management's Discussion and Analysis of Financial Condition and Results
of Operations consist of forward looking statements 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 are subject to
the safe harbor provisions of those Sections. The Company's actual
results could differ materially from those discussed in the forward
looking statements due to a number of factors, including the factors
listed below.
Fluctuations in Quarterly Operating Results. The Company's
quarterly results have fluctuated in the past, and are expected to
fluctuate in the future, due to a number of factors, including the
timing, cancellation or delay of customer orders; changes in the product
or customer mix of sales; the timing of new product introductions by the
Company or its competitors; customer delays in qualification of key new
products; delays in new product development and new product production;
increasing competition; market acceptance of the Company's and its
competitors' products; the long sales cycles associated with the
Company's products; other competitive factors; and the overall condition
of the semiconductor industry. Company operations entail a high level of
fixed costs and require an adequate sales volume 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
often dependent upon orders received during that quarter, of which a
significant portion may be received in the last month of that quarter.
Furthermore, most orders in backlog can be rescheduled or cancelled
without significant penalty. Such reschedules and cancellations
have happened in the past, most recently in the second
and third quarters of fiscal 1996. 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. While sales and bookings increased in the first quarter of
fiscal 1997 compared to the fourth quarter of fiscal 1996, the Company's
long-term challenge remains to increase earnings through sales growth and
improved gross margins. There can be no assurance that the Company will
achieve sales growth or improve gross margins.
Product Development. The Company is affected by changing
technologies and frequent product introductions. The Company's
success will depend on its ability to respond to changing technologies
and customer requirements. Delays in product development or
production startup inefficiencies could have a material adverse effect on
the Company's business, operating results and financial condition. Such
delays in product development and production startup inefficiencies
have happened in the past, most recently in the first quarter of fiscal
1997. There can be no assurance that the Company will successfully
develop and introduce new or enhanced products, or that such new or
enhanced products will achieve market acceptance.
Product Performance and Reliability. The Company's customers demand
exacting product performance and reliability specifications.
These products are complex and use state of the art components,
processes and techniques. There can be no assurance that
the Company's products do not contain undetected errors
or design flaws. Such engineering issues have happened
in the past, most recently in the third quarter of fiscal 1996.
Any such unforeseen problems 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 continues to increase in existing markets. In addition, the
Company has entered into new, highly competitive markets. Results will
depend on the Company's ability to provide competitive performance,
quality, price and service.
Semiconductor Manufacturing Capacity. Linfinity Microelectronics
Inc. (Linfinity) is nearing full utilization of its wafer fabrication
facility and anticipates increasing its capacity by improving yields,
adding resources including capital equipment and utilizing outside
foundries. Wafers manufactured by outside foundries may result in lower
gross profit percentages. While the Company believes that foundry
capacity is currently available, there can be no assurance that the
Company will be able to obtain such capacity or that such capacity will
be available in the future.
Effective Tax Rate. The Company's future net earnings will be affected by
changes in its effective tax rate due to shifts in the earnings mix
between Puerto Rico and the United States. In addition certain
provisions of the Omnibus Budget Reconciliation Act of
1993 and the Small Business Job Protection Bill of 1996 may result in
less favorable tax treatment for future income earned in Puerto Rico,
prior to the statutory termination of this favorable tax treatment
in fiscal 2006.
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 the Company, 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 $58.0 million at September 30, 1996 from
$55.5 million at June 30, 1996 and the current ratio decreased to 4.6 to
1.0 from 4.8 to 1.0 during the same period. Cash, cash equivalents and
short-term investments increased to $34.9 million at September 30, 1996
from $34.3 million at June 30, 1996 principally due to $2.0 million in
cash provided by operating activities and $.7 million in proceeds from
the issuance of common stock, partially offset by $2.0 million used for
capital expenditures. At September 30, 1996, the Company had $7.0
million of unused credit available under its bank line of credit.
The Company believes that cash, 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 September 30,
1996, the Company had no material outstanding commitments to purchase
capital equipment.
Results of Operations
Net sales increased by $4.3 million (16%) to $32.0 million in the
first quarter of fiscal 1997 from $27.7 million in the first quarter of
fiscal 1996. Telecom Solutions net sales increased by $2.8 million (16%)
to $20.0 million in the first quarter of fiscal 1997 from $17.2 million
in the corresponding period of fiscal 1996 primarily due to higher
domestic sales of synchronization products. Linfinity net sales
increased by $1.6 million (15%) to $12.0 million in the first quarter of
fiscal 1997 from $10.5 million in the first quarter of fiscal 1996
principally due to higher unit volume and a shift in sales to higher
priced products.
The Company's gross profit, as a percentage of net sales, decreased
to 43% in the first quarter of fiscal 1997, compared to 47% in the first
quarter of fiscal 1996 principally due to lower manufacturing
efficiencies at Linfinity, higher costs related to the initial production
of Linfinity's new module products, and to inefficient operations at
Telecom Solutions partially offset by a shift to higher margin products
at Telecom Solutions. Future gross profit, as a percentage
of net sales, will largely depend on product mix, manufacturing
efficiencies, selling prices and the development of and market
acceptance of new products.
Research and development expense was $4.0 million (or 12% of net
sales) in the first quarter of fiscal 1997, compared to $3.6 million (or
13% of net sales) in the first quarter of fiscal 1996 as the Company
continued to invest in new product development and the enhancement of
existing products at both Telecom Solutions and Linfinity.
Selling, general and administrative expense increased to $7.1 million
(or 22% of net sales) in the first quarter of fiscal 1997 from $5.9
million (or 21% of net sales) in the first quarter of fiscal 1996. The
increase was essentially due to higher marketing and sales expense
related to expanded geographic sales support at Telecom
Solutions, the introduction of new products at both operations,
and to higher selling expense associated with higher sales at both
operations.
Interest income was $.5 million in both the first quarter of fiscal
1997 and fiscal 1996.
The Company's effective tax rate was 22% in the first quarter of
fiscal 1997, compared to 27% in the first quarter of fiscal 1996 and 21%
for all of fiscal 1996. The effective tax rate for fiscal 1997 is
expected to be lower than the combined federal and state tax rate
principally due to the benefit of lower income tax rates on income earned
in Puerto Rico and state tax credits. Certain provisions of the Omnibus
Budget Reconciliation Act of 1993 and the Small Business Job Protection
Bill of 1996 may result in less favorable tax treatment for future income
earned in Puerto Rico, prior to the statutory termination of this favorable
tax treatment in fiscal 2006.
As a result of the factors discussed above, net income in the first
quarter of fiscal 1997 decreased to $2.3 million, or $.14 per share,
compared to $2.8 million, or $.17 per share, in the first quarter of
fiscal 1996.
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
A report on Form 8-K was filed during July 1996, pursuant to Item
5 of Form 8-K, to report the retirement on August 15, 1996, of Paul
Risinger, a Director and the Vice Chairman of the Company.
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: October 25, 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)
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