NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements of Symmetricom, Inc. (Symmetricom, we,
us, the Company, or our) included herein are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of the management, necessary for a fair presentation
of the financial position, results of operations, comprehensive income (loss) and cash flows for the interim periods presented. In presenting the financial statements in accordance with accounting principles generally accepted in the United States
(US GAAP), management makes certain estimates and assumptions that impact the amounts reported and related disclosures. Estimates, by their nature, are judgments based upon available information. Accordingly, actual results could differ from those
estimates.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and
notes thereto included in Symmetricoms Annual Report on Form 10-K for the fiscal year ended June 30, 2013. The results of operations for the three months ended September 29, 2013 are not necessarily indicative of the results to
be anticipated for the entire fiscal year ending June 29, 2014.
The condensed consolidated balance sheet as of June 30, 2013
has been derived from the audited consolidated financial statements as of that date but does not include all of the information and footnotes required by US GAAP for complete financial statements.
Fiscal Quarter
Our fiscal quarter is 13 weeks ending on the Sunday closest to the end of the calendar quarter.
Note 2. Financial Instruments
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on
the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value
measurement in its entirety. These levels are:
|
|
|
Level 1inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;
|
|
|
|
Level 2inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for
which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
|
|
|
|
Level 3inputs are generally unobservable and typically reflect managements estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore
determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
|
7
Financial assets measured at fair value on a recurring basis consisted of the following types of
instruments as of September 29, 2013 and June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
September 29, 2013
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant Other
Unobservable Inputs
(Level 3)
|
|
|
|
(In thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
7,130
|
|
|
$
|
7,130
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities and certificates of deposits
|
|
|
34,857
|
|
|
|
|
|
|
|
34,857
|
|
|
|
|
|
Government sponsored enterprise debt securities
|
|
|
10,251
|
|
|
|
|
|
|
|
10,251
|
|
|
|
|
|
Mutual funds
|
|
|
2,773
|
|
|
|
2,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
47,881
|
|
|
|
2,773
|
|
|
|
45,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
55,011
|
|
|
$
|
9,903
|
|
|
$
|
45,108
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
650
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
650
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of
June 30, 2013
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant Other
Unobservable Inputs
(Level 3)
|
|
|
|
(In thousands)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
8,798
|
|
|
$
|
8,798
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities and certificates of deposits
|
|
|
35,034
|
|
|
|
|
|
|
|
35,034
|
|
|
|
|
|
Government sponsored enterprise debt securities
|
|
|
8,246
|
|
|
|
|
|
|
|
8,246
|
|
|
|
|
|
Mutual funds
|
|
|
2,851
|
|
|
|
2,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
|
46,131
|
|
|
|
2,851
|
|
|
|
43,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
54,929
|
|
|
$
|
11,649
|
|
|
$
|
43,280
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
650
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
650
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of our money market funds and mutual funds were derived from quoted market prices as active
markets for these instruments exist. The fair values of certificates of deposit, corporate debt securities and government sponsored enterprise debt securities were derived from non-binding market consensus prices that are corroborated by observable
market data.
The investments in mutual funds are held in a Rabbi trust to support the terms of our deferred compensation plan.
8
The following table summarizes available-for-sale and trading securities recorded as cash and
cash equivalents or short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost Basis
|
|
|
Gross Unrealized
Gains (Losses)
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
September 29, 2013
|
|
|
|
|
Money market funds
|
|
$
|
7,130
|
|
|
$
|
|
|
|
$
|
7,130
|
|
Corporate debt securities and certificates of deposits
|
|
|
34,899
|
|
|
|
(42
|
)
|
|
|
34,857
|
|
Government sponsored enterprise debt securities
|
|
|
10,258
|
|
|
|
(7
|
)
|
|
|
10,251
|
|
Mutual funds
|
|
|
2,773
|
|
|
|
|
|
|
|
2,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
55,060
|
|
|
$
|
(49
|
)
|
|
$
|
55,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
8,798
|
|
|
$
|
|
|
|
$
|
8,798
|
|
Corporate debt securities and certificates of deposits
|
|
|
35,171
|
|
|
|
(137
|
)
|
|
|
35,034
|
|
Government sponsored enterprise debt securities
|
|
|
8,263
|
|
|
|
(17
|
)
|
|
|
8,246
|
|
Mutual funds
|
|
|
2,851
|
|
|
|
|
|
|
|
2,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
55,083
|
|
|
$
|
(154
|
)
|
|
$
|
54,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the contractual maturities of fixed income securities (certificates of deposit,
corporate debt securities and government sponsored enterprise debt securities) recorded as short-term investments as of September 29, 2013:
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
Less than 1 year
|
|
$
|
6,367
|
|
|
$
|
6,368
|
|
Due in 1 to 3 years
|
|
|
38,790
|
|
|
|
38,740
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,157
|
|
|
$
|
45,108
|
|
|
|
|
|
|
|
|
|
|
Actual maturities may differ from the contractual maturities because borrowers may have the right to call or
prepay certain obligations.
Level 3 financial liability:
The following table reconciles the beginning and ending balances for Level 3 liabilities for the first three months of 2014 (in thousands):
|
|
|
|
|
|
|
Contingent
consideration
|
|
Balance as of June 30, 2013
|
|
$
|
650
|
|
Add: Adjustment to present value of contingent consideration
|
|
|
|
|
|
|
|
|
|
Balance as of September 29, 2013
|
|
$
|
650
|
|
|
|
|
|
|
9
Contingent consideration on acquired business is measured at fair value on a recurring basis
using Level 3 inputs as defined in the fair value hierarchy. The following table presents certain information about the significant unobservable inputs used in the fair value measurement for the contingent consideration measured at fair value on a
recurring basis using significant unobservable inputs:
|
|
|
|
|
Description
|
|
Valuation Techniques
|
|
Significant Unobservable Inputs
|
Liabilities: Contingent consideration
|
|
Present value of a Probability Weighted Earnout model using an appropriate discount rate.
|
|
Estimate of future revenue associated with acquired technology. Revenue of $4.9 million over a range of 3.5 years to 4 years.
|
An increase in the revenue growth percentage could result in a significantly higher estimated fair value of
the contingent consideration liability. Alternatively, a decrease in the revenue growth percentage could result in a significantly lower estimated fair value of contingent consideration liability.
The fair value of contingent consideration was derived from a probability weighted earn-out model of future contingent payments. The cash
payments, if any, are expected to be made quarterly, based upon revenue generated from the acquired product line, starting in the fourth quarter of fiscal 2013. No payments were made in the fiscal 2013 and in the first quarter of fiscal 2014. The
valuation of this liability is estimated based upon a collaborative effort of the Companys marketing and finance departments. These future contingent payments are calculated based on estimates of future revenue attributable to the acquired
technology. To obtain a current valuation of these projected cash flows, an expected present value technique is applied using an appropriate discount rate. The cash flow projections and discount rates will be reviewed quarterly and updated as and
when necessary. Potential valuation adjustments will be made as future revenue projections are updated which affect the calculation of the related contingent consideration payments. These adjustments will be recorded in the condensed consolidated
statement of operations.
Note 3. Inventories
Components of inventories were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 29,
2013
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
|
|
|
Raw materials
|
|
$
|
17,976
|
|
|
$
|
19,007
|
|
Work-in-process
|
|
|
10,055
|
|
|
|
11,025
|
|
Finished goods
|
|
|
13,188
|
|
|
|
14,484
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
41,219
|
|
|
$
|
44,516
|
|
|
|
|
|
|
|
|
|
|
Note 4. Intangible Assets
Intangible assets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Intangible
Assets
|
|
|
|
(in thousands)
|
|
Purchased technology
|
|
$
|
26,606
|
|
|
$
|
(24,827
|
)
|
|
$
|
1,779
|
|
Customer lists and trademarks
|
|
|
7,303
|
|
|
|
(6,404
|
)
|
|
|
899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of September 29, 2013
|
|
$
|
33,909
|
|
|
$
|
(31,231
|
)
|
|
$
|
2,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased technology
|
|
$
|
26,606
|
|
|
$
|
(24,633
|
)
|
|
$
|
1,973
|
|
Customer lists and trademarks
|
|
|
7,303
|
|
|
|
(6,318
|
)
|
|
|
985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of June 30, 2013
|
|
$
|
33,909
|
|
|
$
|
(30,951
|
)
|
|
$
|
2,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
The estimated future amortization expense by fiscal year is as follows:
|
|
|
|
|
Fiscal year:
|
|
(in thousands)
|
|
|
|
2014 (remaining 9 months)
|
|
$
|
807
|
|
2015
|
|
|
714
|
|
2016
|
|
|
540
|
|
2017
|
|
|
233
|
|
2018
|
|
|
212
|
|
Thereafter
|
|
|
172
|
|
|
|
|
|
|
Total amortization
|
|
$
|
2,678
|
|
|
|
|
|
|
Intangible asset amortization expense for the first quarter of fiscal 2014 and 2013 was $0.3 million and $0.3
million, respectively.
Note 5. Warranty
Changes in our accrued warranty liability were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 29,
2013
|
|
|
September 30,
2012
|
|
|
|
(In thousands)
|
|
Beginning balance
|
|
$
|
1,550
|
|
|
$
|
1,722
|
|
Provision for warranty
|
|
|
970
|
|
|
|
731
|
|
Accruals related to change in estimate
|
|
|
(104
|
)
|
|
|
117
|
|
Less: Actual warranty costs
|
|
|
(790
|
)
|
|
|
(791
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,626
|
|
|
$
|
1,779
|
|
|
|
|
|
|
|
|
|
|
Note 6. Long-term Obligations
Long-term obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
September 29,
2013
|
|
|
June 30,
2013
|
|
|
|
(In thousands)
|
|
Long-term obligations:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
2,055
|
|
|
$
|
1,979
|
|
Lease loss accrual, net
|
|
|
1,156
|
|
|
|
1,579
|
|
Rent accrual
|
|
|
633
|
|
|
|
713
|
|
Post-retirement benefits
|
|
|
182
|
|
|
|
186
|
|
Income tax
|
|
|
216
|
|
|
|
216
|
|
Contingent consideration for acquired business
|
|
|
591
|
|
|
|
591
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,833
|
|
|
$
|
5,264
|
|
|
|
|
|
|
|
|
|
|
11
Note 7. Stockholders Equity
Stock Options and Awards Activity
Stock award activity for the three months ended September 29, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Performance-based
Options Outstanding
|
|
|
Restricted Stock
Outstanding
|
|
|
|
Shares
Available
For Grant
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant-Date
Fair Value
|
|
|
|
(In thousands, except per share amounts)
|
|
Balances at June 30, 2013
|
|
|
2,893
|
|
|
|
8,086
|
|
|
$
|
5.64
|
|
|
|
396
|
|
|
$
|
5.28
|
|
Granted - options
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
4.97
|
|
|
|
|
|
|
|
|
|
Granted - restricted shares
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
4.92
|
|
Exercised
|
|
|
|
|
|
|
(239
|
)
|
|
|
4.71
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled and expired
|
|
|
516
|
|
|
|
(511
|
)
|
|
|
5.67
|
|
|
|
(3
|
)
|
|
|
5.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 29, 2013
|
|
|
3,357
|
|
|
|
7,340
|
|
|
$
|
5.64
|
|
|
|
419
|
|
|
$
|
5.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 25, 2013, the shareholders approved an amendment to the 2006 Incentive Award Plan that
authorized an additional 1.5 million shares for future issuance.
Stock options outstanding, vested and expected to vest, and
exercisable as of September 29, 2013 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Number of
Shares
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(In thousands)
|
|
|
(In years)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Outstanding
|
|
|
7,340
|
|
|
|
3.96
|
|
|
$
|
5.67
|
|
|
$
|
258
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
7,172
|
|
|
|
3.86
|
|
|
$
|
5.68
|
|
|
$
|
256
|
|
|
|
|
|
|
Exercisable
|
|
|
4,305
|
|
|
|
2.65
|
|
|
$
|
5.77
|
|
|
$
|
221
|
|
The aggregate intrinsic value in the preceding table represents the total pre-tax value of stock options
outstanding as of September 29, 2013, based on our common stock closing price of $4.83 on September 27, 2013, which would have been received by the option holders had all option holders exercised their options as of that date.
The total intrinsic value of options exercised during the first quarter of fiscal 2014 and 2013 was approximately $0.1 million and $0.3
million, respectively.
12
For the first quarter of fiscal 2014 and 2013, the weighted-average estimated fair value of
options granted was $2.31 and $2.89 per share, respectively. Our calculations were made using the Black-Scholes option-pricing model. The fair value of Symmetricom stock-based awards to employees was estimated assuming no expected dividend and the
weighted-average assumptions for the three months ended September 29, 2013 and September 30, 2012 as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
September 29,
2013
|
|
|
September 30,
2012
|
|
Expected life (in years)
|
|
|
4.9
|
|
|
|
4.9
|
|
Risk-free interest rate
|
|
|
1.6
|
%
|
|
|
0.7
|
%
|
Volatility
|
|
|
53.7
|
%
|
|
|
56.6
|
%
|
We calculated the stock-based compensation expense in the first quarter of fiscal 2014 and 2013, using an
estimated annual forfeiture rate of 4.6% and 5.6%, respectively. At September 29, 2013, the total cumulative compensation cost related to unvested stock-based awards granted to employees, directors and consultants under the Companys stock
option plans, but not yet recognized, was approximately $5.9 million, net of estimated forfeitures of $0.8 million. This cost will be amortized on an accelerated method basis over a period of approximately 1.2 years and will be adjusted for
subsequent changes in estimated forfeitures.
The following table shows total stock-based compensation costs included in the condensed
consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 29,
2013
|
|
|
September 30,
2012
|
|
|
|
(In thousands)
|
|
|
|
|
Cost of sales
|
|
$
|
239
|
|
|
$
|
291
|
|
Research and development
|
|
|
176
|
|
|
|
361
|
|
Selling, general and administrative
|
|
|
1,139
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
Pre-tax stock-based compensation expense
|
|
|
1,554
|
|
|
|
1,772
|
|
Less: Income Tax effect
|
|
|
575
|
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
Net stock-based compensation expense
|
|
$
|
979
|
|
|
$
|
1,116
|
|
|
|
|
|
|
|
|
|
|
The above table includes expense of $0.1 million, relating to the employee stock purchase plan (ESPP) for the
first quarter of both fiscal 2014 and 2013.
13
Note 8. Restructuring Charges
The following table shows the details of the restructuring cost accruals, which consist of facilities, severance costs, and
consulting and outside services, at September 29, 2013 and June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
June 30,
2013
|
|
|
Expense
Additions
|
|
|
Payments
|
|
|
Balance at
September 29,
2013
|
|
|
|
(in thousands)
|
|
Lease loss accrual (fiscal 2004)
|
|
$
|
112
|
|
|
$
|
1
|
|
|
$
|
(12
|
)
|
|
$
|
101
|
|
All other restructuring charges (fiscal 2004)
|
|
|
79
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
74
|
|
Lease loss accrual (fiscal 2009)
|
|
|
723
|
|
|
|
5
|
|
|
|
(68
|
)
|
|
|
660
|
|
All other restructuring charges (fiscal 2010)
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
Lease loss accrual (fiscal 2011)
|
|
|
131
|
|
|
|
1
|
|
|
|
(14
|
)
|
|
|
118
|
|
Lease loss accrual (fiscal 2012)
|
|
|
767
|
|
|
|
5
|
|
|
|
(79
|
)
|
|
|
693
|
|
Lease loss accrual (fiscal 2013)
|
|
|
898
|
|
|
|
(290
|
)
|
|
|
(92
|
)
|
|
|
516
|
|
Severance (fiscal 2013)
|
|
|
1,691
|
|
|
|
901
|
|
|
|
(1,672
|
)
|
|
|
920
|
|
All other restructuring charges (fiscal 2013)
|
|
|
10
|
|
|
|
352
|
|
|
|
(352
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,416
|
|
|
$
|
970
|
|
|
$
|
(2,294
|
)
|
|
$
|
3,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first three months of fiscal 2014, we incurred approximately $1.0 million in severance, consulting,
and outside service charges related to our reduction in work-force and a reduction in facilities, partially off-set by sub-lease of one of our facilities that had previously been recorded as a lease loss at the time we ceased using that space. The
lease loss accruals are subject to periodic revisions based on current market estimates. The lease loss accruals as of September 29, 2013 will be paid over the next three years.
Note 9. Net Income (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding and common equivalent shares from dilutive stock options, employee stock
purchase plan and restricted stock using the treasury stock method, except when antidilutive.
The following table reconciles the number
of shares utilized in the net income (loss) per share calculations:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 29,
2013
|
|
|
September 30,
2012
|
|
|
|
(In thousands, except per share amounts)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,000
|
)
|
|
$
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator):
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
41,260
|
|
|
|
40,826
|
|
Weighted average common shares outstanding subject to repurchase
|
|
|
(397
|
)
|
|
|
(316
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic and diluted
|
|
|
40,863
|
|
|
|
40,510
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
Unvested restricted stock is subject to repurchase by the Company and therefore is not included in the
calculation of the weighted-average shares outstanding for basic earnings per share.
14
The following common stock equivalents were excluded from the earnings (loss) per share
calculation as their effect would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 29,
2013
|
|
|
September 30,
2012
|
|
|
|
(In thousands)
|
|
|
|
|
Stock options
|
|
|
7,340
|
|
|
|
7,281
|
|
Common shares subject to repurchase
|
|
|
419
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
Total shares of common stock excluded from diluted net income (loss) per share calculation
|
|
|
7,759
|
|
|
|
7,597
|
|
|
|
|
|
|
|
|
|
|
Note 10. Litigation and Contingencies
LitigationThe Company is or was a party to the following material litigations:
Former Texas Facility Environmental Cleanup
We formerly leased a tract of land in Texas for our operations. Those operations involved the use of solvents and, at the end of the
lease, we remediated an area where the solvents had been deposited on the ground and obtained regulatory approval for that remedial activity. In 1996, an environmental investigation of the property detected those same contaminants in
groundwater in excess of then current regulatory standards. The groundwater contamination has migrated to some adjacent properties. We have entered into the Texas Natural Resource Conservation Commissions Voluntary Cleanup
Program (the Voluntary Cleanup Program) to obtain regulatory approval for closure of this site and a release from liability to the State of Texas for subsequent landowners and lenders. We have notified adjacent property owners affected
by the contamination of participation in the Voluntary Cleanup Program. On May 20, 2004, we received a demand from the owner of several adjacent lots for damages in the amount of $1.3 million, as well as seeking an indemnity for the
contamination and a promise to remediate the contamination. On March 14, 2006, the adjacent property owner filed suit in Probate Court No. 1, Travis County, Texas (Anna B. Miller, Individually and as Executrix of the
Estate of Robert L. Miller, et al. vs. Austron, Inc., et al.), seeking damages. Symmetricom has not yet been served in this matter, but we intend to defend this lawsuit vigorously. We are continuing to work on the
remediation of the formerly leased site as well as the adjacent properties, and have also taken steps to begin work on the Miller property. As of September 29, 2013, we had an accrual of $75,000 for remediation costs and
other ongoing monitoring costs which has been included within other accrued liabilities on our condensed consolidated balance sheet.
Michael E. McNeil, et al. vs. Jason Book, et al.
On or around May 25, 2010, Symmetricom was served with the first amended complaint in the case of Michael E. McNeil, et al. vs. Jason
Book, et al. (Case No. CV165643) filed in Santa Cruz County Superior Court, California. The first amended complaint added Symmetricom and several other parties to the lawsuit, which had been originally filed in 2009 by plaintiffs against their
former attorney for legal malpractice in connection with certain settlement agreements in 1999 between plaintiffs and Datum (a company acquired by Symmetricom) in which they assigned to Datum certain intellectual property rights. Symmetricom was
served with the second amended complaint on or around January 7, 2011. The second amended complaint alleges several causes of action, including claims against Symmetricom for contract rescission, breach of contract, conversion and unjust
enrichment, and seeks unspecified monetary damages along with equitable relief. On or around October 8, 2013, plaintiffs dismissed their state court claim without prejudice and filed a complaint in the United States District Court for the
Northern District of California. The federal complaint asserts claims for breaches of the same settlement agreements at issue in the prior state court complaints, as well as related claims for unjust enrichment, tortuous interference and declaratory
relief. Management believes that this lawsuit has no merit or basis and intends to defend this lawsuit vigorously and as a result, no accrual has been made in relation to this litigation. Management believes the final outcome of this matter
will not have a material adverse effect on our financial position and results of operations.
Barron Young vs. Symmetricom, Inc., et
al.
On October 29, 2013, the Company, members of the Companys board of directors, and Microsemi Corporation were named as
defendants in an alleged class action lawsuit brought by a purported Company stockholder challenging the transactions contemplated by the Merger Agreement (described in further detail below in Note 12 Subsequent Event), which was filed in the
Superior Court of the State of California, County of Santa Clara, and captioned Barron Young vs. Symmetricom, Inc. et al., Case Number 3CV255292 (the Young Action). The Young Action purports to be brought individually and as a class
action on behalf of the Companys stockholders and generally alleges that, among other things, (i) each member of the Companys board of directors breached his or her fiduciary duties in connection with the transactions contemplated by the
Merger Agreement, (ii) the Company and Microsemi Corporation aided and abetted those breaches, and (iii) the proposed compensation payable to plaintiff and the class in the transactions contemplated by the Merger Agreement is unfair and inadequate.
The Young Action seeks, among other relief, to enjoin the defendants from consummating the transactions contemplated by the Merger Agreement, rescission to the extent such transactions are consummated, and attorneys fees and costs.
15
William Rapien v. Symmetricom, Inc., et al.
On November 4, 2013, the Company, members of the Companys board of directors, and Microsemi Corporation were named as defendants in an
alleged class action lawsuit brought by a purported Company stockholder challenging the transactions contemplated by the Merger Agreement, which was filed in the Court of Chancery of the State of Delaware, and captioned William Rapien v.
Symmetricom, Inc., et al., Case Number 9058 (the Rapien Action and, together with the Young Action, the Lawsuits). The Rapien Action purports to be brought individually and as a class action on behalf of the Companys
stockholders and generally alleges that, among other things, (i) each member of the Companys board of directors breached his or her fiduciary duties in connection with the transactions contemplated by the Merger Agreement, including by
making inadequate and misleading disclosures to Company stockholders relating to the transactions contemplated by the Merger Agreement, (ii) the Company and Microsemi Corporation aided and abetted those breaches, and (iii) the proposed
compensation payable to plaintiff and the class in the transactions contemplated by the Merger Agreement is unfair and inadequate. The Rapien Action seeks, among other relief, to enjoin defendants from consummating the transactions contemplated by
the Merger Agreement, rescission and rescissory damages to the extent the transactions are consummated, damages and attorneys fees and costs.
The Companys management believes that the claims asserted in each of the Lawsuits are without merit and intends to defend its position
against the allegations in each Lawsuit. However, a negative outcome in either Lawsuit could have a material adverse effect on the Company if either Lawsuit results in preliminary or permanent injunctive relief or rescission of the Merger Agreement.
The Company is not currently able to predict the outcome of either Lawsuit with any certainty. Additional lawsuits arising out of or relating to the Merger Agreement may be filed in the future. If additional similar complaints are filed, absent new
or different allegations that are material, the Company will not necessarily announce such additional filings.
General
Under the indemnification provisions of our standard sales contracts, we agree to defend the customer against First party claims asserting
infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the reseller/customer. The exposure to us under these indemnification
provisions is generally limited to the total amount paid by the customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the
agreement. To date, there have been no claims under such indemnification provisions. We believe the estimated fair value of these indemnification agreements is not material.
We are also a party to certain other claims in the normal course of our operations. While the results of these claims cannot be predicted with
any certainty, we believe that the final outcome of these matters will not have a material adverse effect on our consolidated financial position and results of operations.
Note 11. Business Segment Information
Symmetricom has two operating segments:
Communications
and
Government and Enterprise
. These two operating
segments are also our reporting segments. The Chief Operating Decision Maker (CODM), as defined by authoritative accounting guidance on Segment Reporting, is our President and Chief Executive Officer (CEO). Our CEO allocates resources to and
assesses the performance of each operating segment using information about its revenue and operating income (loss) before interest and taxes.
With the exception of intangible assets, we do not identify or allocate assets by operating segment, nor does our CEO evaluate operating
segments using discrete asset information. We do not allocate restructuring charges, interest and other income, interest expense, or income taxes to operating segments.
The following describes our two reporting segments:
Communications
Our Communications business supplies timing technologies and services for worldwide communications infrastructure. Products include primary
reference sources, synchronization distribution systems and embedded components and software, all of which support the timing and synchronization requirements of telecommunications and cable networks and equipment.
Government and Enterprise
Our Government and Enterprise business provides time technology products for aerospace/defense, power, IT infrastructure and science and
metrology applications. Precision time and frequency systems enable a range of critical operations, including the international time scale, global navigation, the management of power grids, synchronization of complex control systems, and signals
intelligence for securing communications in remote and hostile environments.
16
Segment revenue, gross profit, and operating income (loss) were as follows during the periods
presented:
Three months ended September 29, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
Government and
Enterprise
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
Net revenue
|
|
$
|
23,569
|
|
|
$
|
24,475
|
|
|
$
|
|
|
|
$
|
48,044
|
|
Cost of sales
|
|
|
10,741
|
|
|
|
16,840
|
|
|
|
3
|
|
|
|
27,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
12,828
|
|
|
|
7,635
|
|
|
|
(3
|
)
|
|
|
20,460
|
|
Operating expenses
|
|
|
7,567
|
|
|
|
6,154
|
|
|
|
8,283
|
|
|
|
22,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
5,261
|
|
|
$
|
1,481
|
|
|
$
|
(8,286
|
)
|
|
$
|
(1,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
Government and
Enterprise
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
Net revenue
|
|
$
|
31,439
|
|
|
$
|
24,952
|
|
|
$
|
|
|
|
$
|
56,391
|
|
Cost of sales
|
|
|
15,210
|
|
|
|
16,924
|
|
|
|
(45
|
)
|
|
|
32,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
16,229
|
|
|
|
8,028
|
|
|
|
45
|
|
|
|
24,302
|
|
Operating expenses
|
|
|
9,691
|
|
|
|
7,188
|
|
|
|
7,802
|
|
|
|
24,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
6,538
|
|
|
$
|
840
|
|
|
$
|
(7,757
|
)
|
|
$
|
(379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The information in the Corporate category above represents corporate-related costs that are not allocated to
either of our two segments for the purpose of evaluating their performance. The following table outlines our major corporate-related costs:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 29,
2013
|
|
|
September 30,
2012
|
|
|
|
(In thousands)
|
|
|
|
|
Selling, general and administrative costs
|
|
$
|
7,316
|
|
|
$
|
7,747
|
|
Restructuring charges
|
|
|
970
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Corporate-related total
|
|
$
|
8,286
|
|
|
$
|
7,757
|
|
|
|
|
|
|
|
|
|
|
Note 12. Subsequent Event
On October 21, 2013, we entered into an Agreement and Plan of Merger (the Merger Agreement) by and among
the Company, Microsemi Corporation, a Delaware corporation (Microsemi), and PETT Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Microsemi (Purchaser), pursuant to which Microsemi will acquire the
Company.
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Purchaser commenced a cash tender offer
(the Offer) on October 28, 2013 to purchase all of the outstanding shares of the Companys common stock, par value $0.0001 per share (the Shares), at a purchase price of $7.18 per Share, net to the tendering
stockholder in cash, without interest and less any required withholding taxes (the Per Share Amount). The Offer is presently scheduled to expire at 12:00 a.m. New York City time on November 25, 2013. Upon successful completion of
the Offer, and subject to the terms and conditions of the Merger Agreement, Purchaser will be merged with and into the Company (the Merger), and the Company will survive the Merger as a wholly owned subsidiary of Microsemi. At the
effective time of the Merger (the Effective Time), each outstanding Share, other than Shares owned by the Company, Microsemi or their respective subsidiaries immediately prior to the Effective Time, will automatically be converted into
the right to receive the Per Share Amount on the terms and subject to the conditions set forth in the Merger Agreement.
The Company,
Microsemi and Purchaser have made customary representations and warranties in the Merger Agreement and agreed to certain customary covenants, including covenants regarding the operation of the Companys business prior to the closing of the
Merger. The Merger Agreement provides for a go-shop period for the Company through November 8, 2013, during which period the Company will be permitted to solicit, and provide information and enter into discussions concerning,
proposals relating to alternative business combination transactions. Following such date, the Company will be generally prohibited from engaging in such activities, subject to certain exceptions set forth in the Merger Agreement. The Merger
Agreement contains certain termination rights for each of the Company, Microsemi and Purchaser and further provides that upon termination of the Merger Agreement under specified circumstances the Company may be required to pay Microsemi a
termination fee of $10,400,000 or, in certain specified circumstances, a lower termination fee of $5,050,000.
17