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 March 31, 1997
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 practicable
date:
CLASS OUTSTANDING AS OF March 31, 1997
Common Stock 15,916,368
SYMMETRICOM, INC.
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1997 and June 30, 1996 3
Consolidated Statements of Operations
Three and nine months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
Nine months ended March 31, 1997 and 1996 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 12
SIGNATURES 12
SYMMETRICOM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, June 30,
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 26,880 $ 31,327
Short-term investments 13,840 2,943
Cash and investments 40,720 34,270
Accounts receivable 21,508 14,544
Inventories 19,988 17,847
Other current assets 3,851 3,647
_________ _________
Total current assets 86,067 70,308
Property, plant and equipment, net 26,106 21,547
Other assets, net 988 1,676
_________ _________
$ 113,161 $ 93,531
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,901 $ 5,544
Accrued liabilities 13,892 9,185
Current maturities of long-term debt 58 57
_________ _________
Total current liabilities 21,851 14,786
Long-term debt, less current maturities 5,670 5,709
Deferred income taxes 2,714 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 15,916
and 15,570 shares 25,146 21,862
Retained earnings 57,780 48,541
_________ _________
Total shareholders' equity 82,926 70,403
_________ _________
$ 113,161 $ 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 Nine months ended
March 31, March 31,
1997 1996 1997 1996
Net sales $ 37,754 $ 22,693 $105,224 $ 78,797
Cost of sales 20,243 14,365 57,946 43,814
________ ________ ________ ________
Gross profit 17,511 8,328 47,278 34,983
Operating expenses:
Research and development 5,009 3,667 13,388 10,815
Selling, general and
administrative 8,078 4,905 22,970 16,766
________ ________ ________ ________
Operating income (loss) 4,424 (244) 10,920 7,402
Interest income 515 451 1,427 1,398
Interest expense (147) (149) (442) (446)
________ ________ ________ ________
Earnings before income taxes 4,792 58 11,905 8,354
Income taxes 1,073 (260) 2,666 1,928
________ ________ ________ ________
Net earnings $ 3,719 $ 318 $ 9,239 $ 6,426
Net earnings per common and
common equivalent share $ .23 $ .02 $ .57 $ .40
Weighted average common and common
equivalent shares outstanding 16,414 15,900 16,299 16,049
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,
1997 1996
Cash flows from operating activities:
Cash received from customers $ 98,208 $ 78,286
Cash paid to suppliers and employees (85,930) (70,695)
Interest received 1,513 1,346
Interest paid (442) (446)
Income taxes paid (608) (260)
_________ _________
Net cash provided by operating activities 12,741 8,231
_________ _________
Cash flows from investing activities:
Purchases of short-term investments (24,397) (21,664)
Maturities of short-term investments 13,500 29,550
Capital expenditures, net (8,759) (7,746)
Other assets 122 (299)
_________ _________
Net cash used for investing activities (19,534) (159)
_________ _________
Cash flows from financing activities:
Repayment of long-term debt (38) (38)
Proceeds from issuance of common stock 2,384 1,744
_________ _________
Net cash provided by financing activities 2,346 1,706
_________ _________
Net increase (decrease) in cash and
cash equivalents (4,447) 9,778
Cash and cash equivalents at beginning of
period 31,327 19,354
_________ _________
Cash and cash equivalents at end of period $ 26,880 $ 29,132
Reconciliation of net earnings to net cash provided
by operating activities:
Net earnings $ 9,239 $ 6,426
Adjustments:
Depreciation and amortization 4,766 3,824
Net deferred income taxes 166 752
Changes in assets and liabilities:
Accounts receivable (6,964) (288)
Inventories (2,141) (706)
Other current assets (289) (259)
Accounts payable 2,357 428
Accrued liabilities 5,607 (1,946)
_________ _________
Net cash provided by operating activities $ 12,741 $ 8,231
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 March 31, 1997, 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,
1997 1996
(In thousands)
Raw materials $ 6,677 $ 6,704
Work-in-process 7,520 6,868
Finished goods 5,791 4,275
_________ _________
$ 19,988 $ 17,847
3. Contingencies. In January 1994, a complaint was filed in
the United States District Court for the Northern District of
California against the Company and certain of its officers, by
one of the Company's shareholders. The plaintiff requests
that the court certify him as representative of a class of
persons who purchased shares of the Company's common stock
during a specified period in 1993. The complaint alleges that
false and misleading statements made during that period
artificially inflated the price of the Company's common stock
in violation of federal securities laws. There is no specific
amount of damages requested in the complaint.
In February 1997, the Court dismissed the complaint
with leave to amend. In March 1997, the plaintiff filed an
amended class action complaint. After consultation with counsel,
the Company and its officers believe that the complaint is
entirely without merit, and intend to vigorously defend
against the action.
4. Common Stock. In April 1997, the Company's Board of Directors
authorized a program to repurchase up to 500,000
shares of the Company's outstanding
Common Stock which will be used to offset shares issued
pursuant to the Company's stock plans. Repurchases may be
made from time to time by the Company in the open market in
compliance with Rule 10b-18 of the Securities Act of 1933 and
applicable Securities and Exchange Commission guidelines.
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 sales mix;
the timing of new product introductions by the Company or its
competitors; customer delays in qualification of products;
delays in new product development and new product production;
manufacturing inefficiencies; increasing competition; market
acceptance of the Company's and its competitors' products; the
long sales cycles and short product life cycles associated
with some of the Company's products; other competitive
factors; and the overall demand for semiconductors,
particularly semiconductors used in personal computers. Any
significant decline in sales could have a material adverse
effect on the Company's business, operating results and
financial condition due to the high level of fixed costs.
Although net sales and the gross margin percentage increased
in the third quarter of fiscal 1997 compared to the first and
second quarters of fiscal 1997, there can be no assurance that
net sales will continue to grow or that gross margins will
improve in future periods.
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, and even the last few days, 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. The sales cycle for
the Company's products can be long and subject to
uncertainties, particularly for Telecom Solutions products
which can be affected by changes in customer funding of
capital equipment programs. Cancellations or delays in the
timing or funding of such programs by one or more customers,
which have happened in the past, could have a material adverse
impact on the Company's business, operating results and
financial condition. 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.
Dependence on Major Customers. The Company often depends,
and expects to continue to depend, upon a relatively small
number of customers for a significant percentage of its net
sales. For the third quarter and the first three quarters of
fiscal 1997, the Company's three largest customers accounted
for approximately 36% and 30% of net sales, respectively.
AT&T accounted for approximately 15% and 14% of net sales, for
such periods, respectively. Southwestern Bell accounted for
approximately 12% and 10% of net sales in the third quarter
and first three quarters of fiscal 1997, respectively. The
loss of any one or more of the Company's large customers or
the significant reduction in sales to any such customer would
have a material adverse effect on the Company's business,
operating results and financial condition. In the past, some
of the Company's large customers have significantly reduced or
delayed the amount of products they have ordered. There can
be no assurance that the Company will continue to receive
large orders from these customers or that the Company will
generate significant sales from new customers.
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. Delays in product
development and production startup inefficiencies have
happened in the past, most recently in the first and second
quarters of fiscal 1997. There can be no assurance that such
delays will not recur or 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.
In addition, the Company's products are complex and use state
of the art components, processes and techniques. Accordingly,
there can be no assurance that the Company's products do not
contain 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 Company results are due in large
part to 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, specific
conditions in the markets in which the Company competes,
regulatory and legislative environment, export rules and
conditions, and interest rates.
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 actions taken by competitors, the entry
of new competitors and the introduction of new or enhanced
competing products. Competition for many of the Company's
products continues to increase in existing markets. In
addition, the Company has entered into new, highly competitive
markets. Future results will depend on the Company's ability
to provide competitive performance, quality, price and
service.
Future Dependence on Foundries. The Company anticipates
that future growth will also depend on its ability to secure
sufficient outside foundry capacity. There can be no
assurance that the Company will be able to secure and maintain
sufficient outside foundry capacity or that such foundries
will be able or willing to satisfy all of the Company's
requirements on a timely basis at favorable prices. In
addition, the Company may encounter delays in the
qualification process and production ramp-up at new foundries.
Also, there can be no assurance that the Company will not
suffer from service disruptions, raw material shortages or
future price increases with any contract foundry with which it
develops a relationship.
Effective Tax Rate. The Company's future net earnings
will be affected by changes in its effective tax rate due to
the extent there are 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 $64.2 million at March 31,
1997 from $55.5 million at June 30, 1996 and the current ratio
decreased to 3.9 to 1.0 from 4.8 to 1.0 during the same
period. Cash, cash equivalents and short-term investments
increased to $40.7 million at March 31, 1997 from $34.3
million at June 30, 1996 principally due to $12.7 million in
cash provided by operating activities and $2.4 million in
proceeds from the issuance of common stock, partially offset
by $8.8 million used for capital expenditures. At March 31,
1997, 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. The Company currently has both the intent
and ability to refinance the existing $5.7 million note,
payable in November 1997, on a long-term basis. At March 31,
1997, the Company had outstanding capital spending commitments
of $6.3 million for tenant improvements at the new San Jose
facility and other equipment purchases. In April
1997, the Company's Board of Directors
authorized a program to repurchase up to 500,000 shares of the
Company's outstanding common stock which will be used to
offset shares issued pursuant to the Company's stock plans.
Results of Operations
Net sales for the three and nine month periods ended March 31,
1997 and 1996 were as follows:
Three months Nine months
Ended Ended
March 31, March 31,
1997 1996 Change 1997 1996 Change
(In millions)
Net sales data*:
Telecom
Solutions $ 23.5 $ 14.3 64% $ 65.1 $ 49.9 30%
Linfinity
Microelectronics
Inc. 14.2 8.4 70% 40.1 28.9 39%
______ _____ ______ ______
$ 37.8 $ 22.7 66% $105.2 $ 78.8 34%
* May not add due to rounding.
Telecom Solutions net sales increased by 64% and 30% in the
third quarter and first three quarters of fiscal 1997,
respectively, compared to the third quarter and first three
quarters of fiscal 1996 primarily due to higher domestic sales
of synchronization products. Linfinity net sales increased by
70% and 39% in the third quarter and first three quarters of
fiscal 1997, respectively, compared to the corresponding
periods of fiscal 1996 principally due to higher unit volume
of new standard commercial products and a shift in sales to
higher priced products.
The Company's gross margin percentage increased to 46% and
45% in the third quarter and first three quarters of fiscal
1997, respectively, compared to 37% and 44% in the
corresponding periods of fiscal 1996 principally due to higher
volume and increased manufacturing efficiencies at both
operations. Future gross margins will largely depend on
product mix, manufacturing efficiencies and selling prices.
Research and development expense was $5.0 million (or 13%
of net sales) and $13.4 million (or 13% of net sales) in the
third quarter and first three quarters of fiscal 1997,
respectively, compared to $3.7 million (or 16% of net sales)
and $10.8 million (or 14% of net sales) in the corresponding
periods of fiscal 1996. The increases were principally due to
the development of new wireless synchronization products at
Telecom Solutions.
Selling, general and administrative expense increased to
$8.1 million (or 21% of net sales) and $23.0 million (or 22%
of net sales) in the third quarter and first three quarters of
fiscal 1997, respectively, compared to $4.9 million (or 22% of
net sales) and $16.8 million (or 21% of net sales) in the
corresponding periods of fiscal 1996. The increases were
essentially due to higher earnings-based incentive
compensation, higher marketing and sales expense related to
expanded sales support, new product promotion and higher
selling expense associated with higher sales.
Interest income of $.5 million and $1.4 million in the
third quarter and first three quarters of fiscal 1997,
respectively, remain unchanged from the corresponding periods
of fiscal 1996.
The Company's effective tax rate was 22% in both the third
quarter and first three quarters of fiscal 1997, compared to
23% in the first three quarters 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 essentially due to the benefit of lower income tax rates
on income earned in Puerto Rico and state tax credits. The
Company's future net earnings will be affected by changes in
its effective tax rate to the extent there are 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 Puerto Rico earnings, prior to the
statutory termination of the current favorable tax treatment
in fiscal 2006.
As a result of the factors discussed above, net earnings
in the third quarter of fiscal 1997 were $3.7 million, or $.23
per share, compared to $.3 million, or $.02 per share, in the
third quarter of fiscal 1996. Net earnings in the first three
quarters of fiscal 1997 increased to $9.2 million, or $.57 per
share, from $6.4 million, or $.40 per share, in the first
three quarters 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
No reports on Form 8-K were filed during the three
months ended March 31, 1997.
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: April 25, 1997 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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