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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 26, 2010

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 0-02287

 

 

SYMMETRICOM, INC.

(Exact name of registrant as specified in our charter)

 

 

 

Delaware		No. 95-1906306
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2300 Orchard Parkway, San Jose, California 95131-1017

(Address of principal executive offices)

Registrant’s telephone number: (408) 433-0910

 

 

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		¨		Accelerated filer		x
Non-accelerated filer		¨   (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

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 October 22, 2010
Common Stock		43,372,200

 

 

 

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SYMMETRICOM, INC.

FORM 10-Q

INDEX

 

						Page
PART I. FINANCIAL INFORMATION
		Item 1.		Financial Statements:
				Condensed Consolidated Balance Sheets—September 26, 2010 and June 27, 2010			3
				Condensed Consolidated Statements of Operations—Three months ended September 26, 2010 and September 27, 2009			4
				Condensed Consolidated Statements of Cash Flows—Three months ended September 26, 2010 and September 27, 2009			5
				Notes to Condensed Consolidated Financial Statements			6
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk			22
		Item 4.		Controls and Procedures			22
PART II. OTHER INFORMATION
		Item 1.		Legal Proceedings			23
		Item 1A.		Risk Factors			23
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			23
		Item 3.		Defaults Upon Senior Securities			23
		Item 4.		Removed and Reserved			23
		Item 5.		Other Information			23
		Item 6.		Exhibits			24
		SIGNATURES					25

 

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PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

SYMMETRICOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

 

		September 26, 2010				June 27, 2010
ASSETS
Current assets:
Cash and cash equivalents		$	21,972			$	21,794
Short-term investments			50,791				53,825
Accounts receivable, net of allowance for doubtful accounts of $430 and $427			41,425				40,075
Inventories			42,946				37,229
Prepaids and other current assets			15,594				15,108
Total current assets			172,728				168,031
Property, plant and equipment, net			22,787				23,077
Intangible assets, net			3,396				3,745
Deferred taxes and other assets			34,394				36,534
Total assets		$	233,305			$	231,387
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	9,763			$	6,768
Accrued compensation			16,613				18,731
Accrued warranty			2,339				2,900
Other accrued liabilities			11,594				10,506
Total current liabilities			40,309				38,905
Long-term obligations			7,276				8,296
Deferred income taxes			334				334
Total liabilities			47,919				47,535
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 500 shares authorized, none issued			—				—
Common stock, $0.0001 par value; 70,000 shares authorized, 49,970 shares issued and 43,279 outstanding at September 26, 2010; 49,933 shares issued and 43,699 outstanding at June 27, 2010			200,394				202,450
Accumulated other comprehensive income (loss)			13				(356	)
Accumulated deficit			(15,021	)			(18,242	)
Total stockholders’ equity			185,386				183,852
Total liabilities and stockholders’ equity		$	233,305			$	231,387

See notes to the condensed consolidated financial statements.

 

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SYMMETRICOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

		Three Months Ended
		September 26, 2010				September 27, 2009
Net revenue		$	54,379			$	52,268
Cost of sales:
Cost of products and services			26,606				29,537
Amortization of purchased technology			287				368
Restructuring charges			3,747				862
Total cost of sales			30,640				30,767
Gross profit			23,739				21,501
Operating expenses:
Research and development			6,606				5,714
Selling, general and administrative			12,799				13,539
Amortization of intangible assets			62				95
Restructuring charges			(881	)			476
Total operating expenses			18,586				19,824
Operating income			5,153				1,677
Interest income, net of amortization (accretion) of premium (discount) on investments			(108	)			461
Interest expense			(55	)			(1,274	)
Income from continuing operations before taxes			4,990				864
Income tax provision			1,896				315
Income from continuing operations		$	3,094			$	549
Income (loss) from discontinued operations, net of tax			127				(375	)
Net income		$	3,221			$	174
Earnings per share - basic:
Income from continuing operations		$	0.07			$	0.01
Income (loss) from discontinued operations			—				(0.01	)
Net income		$	0.07			$	—
Weighted average shares outstanding - basic			43,430				43,177
Earnings per share - diluted:
Income from continuing operations		$	0.07			$	0.01
Income (loss) from discontinued operations			—				(0.01	)
Net income		$	0.07			$	—
Weighted average shares outstanding - diluted			43,772				43,815

See notes to the condensed consolidated financial statements.

 

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SYMMETRICOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		Three Months Ended
		September 26, 2010				September 27, 2009
Cash flows from operating activities:
Net income		$	3,221			$	174
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,919				1,923
Non-cash interest on convertible bonds			—				769
Deferred income taxes			1,786				(10	)
Loss on disposal of fixed assets			5				—
Stock-based compensation			338				604
Allowance for doubtful accounts			21				27
Provision for excess and obsolete inventory			333				663
Changes in assets and liabilities:
Accounts receivable			(1,371	)			8,025
Inventories			(6,050	)			212
Prepaids and other assets			219				219
Accounts payable			3,107				(1,154	)
Accrued compensation			(2,118	)			(3,372	)
Other accrued liabilities			(493	)			(13	)
Net cash provided by operating activities			917				8,067
Cash flows from investing activities:
Purchases of short-term investments			(12,533	)			(3,332	)
Maturities of short-term investments			15,013				2,978
Purchases of property, plant and equipment			(1,397	)			(1,724	)
Net cash provided by (used for) investing activities			1,083				(2,078	)
Cash flows from financing activities:
Proceeds from issuance of common stock			236				500
Repurchase of common stock			(2,321	)			(419	)
Net cash (used for) provided by financing activities			(2,085	)			81
Effect of exchange rate changes on cash			263				—
Net increase in cash and cash equivalents			178				6,070
Cash and cash equivalents at beginning of period			21,794				72,064
Cash and cash equivalents at end of period		$	21,972			$	78,134
Non-cash investing and financing activities:
Unrealized gain (loss) on investments, net		$	106			$	(9	)
Property, plant and equipment purchases included in accounts payable			21				171
Cash payments for:
Interest		$	—			$	—
Income taxes			53				542

See notes to the condensed consolidated financial statements.

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation and Recently Issued Accounting Pronouncements

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 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 Symmetricom’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010. The results of operations for the three months ended September 26, 2010 are not necessarily indicative of the results to be anticipated for the entire fiscal year ending July 3, 2011.

The condensed consolidated balance sheet as of June 27, 2010 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.

Recently Issued Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB) issued authoritative guidance on revenue recognition that became effective for us beginning June 28, 2010. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. The adoption of this authoritative guidance had no impact on the Company’s financial position, results of operations or cash flows in the periods presented.

Note 2. Financial Instruments

The following table presents our financial instruments that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs.

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

		Balance as of September 26, 2010				Quoted Prices in Active Markets Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)
		(In thousands)
Assets:
Money market funds		$	12,798			$	12,798			$	—
Short-term investments:
Corporate debt securities			34,820				—				34,820
Government sponsored enterprise debt securities			12,993				12,993				—
Mutual funds			2,978				2,184				794
Total short-term investments			50,791				15,177				35,614
Total financial assets		$	63,589			$	27,975			$	35,614
		Balance as of June 27, 2010				Quoted Prices in Active Markets Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)
		(In thousands)
Assets:
Money market funds		$	9,729			$	9,729			$	—
Short-term investments:
Corporate debt securities			37,264				—				37,264
Government sponsored enterprise debt securities			13,336				13,336				—
Mutual funds			3,225				2,500				725
Total short-term investments			53,825				15,836				37,989
Total financial assets		$	63,554			$	25,565			$	37,989

Our valuation techniques used to measure the fair values of our money market funds, government sponsored entity securities, and certain mutual funds were derived from quoted market prices as active markets for these instruments exist. Our valuation techniques used to measure the fair values of corporate debt securities and certain mutual funds were derived from non-binding market consensus prices that are corroborated by observable market data.

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

The following table summarizes Symmetricom’s available-for-sale and trading securities recorded as cash, cash equivalents or short-term investments:

 

		Cost Basis				Gross Unrealized Gains				Fair Value
						(In thousands)
September 26, 2010
Short-term investments and money market funds		$	60,514			$	97			$	60,611
Less amounts classified as cash equivalents			(12,798	)			—				(12,798	)
Deferred compensation plan assets			2,847				—				2,978
Total short-term investments		$	50,563			$	97			$	50,791
June 27, 2010
Short-term investments and money market funds		$	60,265			$	64			$	60,329
Less amounts classified as cash equivalents			(9,729	)			—				(9,729	)
Deferred compensation plan assets			2,854				—				3,225
Total short-term investments		$	53,390			$	64			$	53,825

Deferred compensation plan assets are classified as trading securities in order to maintain consistency with the method in which the Company accounts for deferred compensation obligations. As a result, all unrealized gains and losses related to the deferred compensation plan assets have been included in earnings.

Note 3. Inventories

Components of inventories were as follows:

 

		September 26, 2010				June 27, 2010
		(In thousands)
Raw materials		$	20,701			$	19,419
Work-in-process			9,025				8,593
Finished goods			13,220				9,217
Inventories		$	42,946			$	37,229

Note 4. Intangible Assets

Intangible assets as of September 26, 2010 and June 27, 2010 consist of:

 

		Gross Carrying Amount				Accumulated Amortization				Net Intangible Assets
						(in thousands)
Purchased technology		$	24,357			$	(22,439	)		$	1,918
Customer lists and trademarks			7,025				(5,547	)			1,478
Total as of September 26, 2010		$	31,382			$	(27,986	)		$	3,396
Purchased technology		$	24,357			$	(22,150	)		$	2,207
Customer lists and trademarks			7,025				(5,487	)			1,538
Total as of June 27, 2010		$	31,382			$	(27,637	)		$	3,745

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

The estimated future amortization expense by fiscal year is as follows:

 

Fiscal year:		(in thousands)
2011 (Remaining 9 months)		$	964
2012			726
2013			502
2014			502
2015			232
Thereafter			470
Total amortization		$	3,396

Intangible asset amortization expense for the first three months of fiscal 2011 and 2010 was $0.3 million and $0.5 million, respectively.

Note 5. Long-term Obligations

Long-term obligations consist of:

 

		September 26, 2010				June 27, 2010
		(In thousands)
Long-term obligations:
Lease loss accrual, net		$	3,798			$	4,784
Deferred revenue			1,883				1,919
Rent accrual			1,076				1,066
Income tax			300				300
Post-retirement benefits			219				227
Total		$	7,276			$	8,296

Note 6. Stockholders’ Equity

Stock Award Activity

Stock award activity for the three months ended September 26, 2010 is as follows:

 

		Shares Available For Grant				Non Performance-based Options Outstanding								Restricted Stock Outstanding
						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 27, 2010			5,697				6,043			$	5.84				219			$	5.20
Granted - options			(76	)			76				5.05				—				—
Exercised			—				(50	)			4.73				—				—
Vested			—				—				—				(175	)			5.19
Cancelled			581				(393	)			7.22				(12	)			5.25
Expired			—				—				—				—				—
Balances at September 26, 2010			6,202				5,676			$	5.75				32			$	5.25

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

In-the-money options outstanding, vested and expected to vest, and exercisable as of September 26, 2010 were as follows:

 

Options		Number of Shares				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price				Aggregate Intrinsic Value
		(In thousands)				(In years)								(In thousands)
Outstanding			5,676				4.05			$	5.75			$	2,852
Vested and expected to vest			5,155				3.92			$	5.84			$	2,514
Exercisable			2,692				2.45			$	6.74			$	975

The aggregate intrinsic value in the preceding table represents the total pre-tax value of stock options outstanding as of September 26, 2010, based on our common stock closing price of $5.45 on September 24, 2010, 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 2011 was approximately $31,000.

For the quarters ended September 26, 2010 and September 27, 2009, the weighted-average estimated fair value of options granted was $2.53 and $2.43 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 26, 2010 and September 27, 2009 as follows:

 

		Three months ended
		September 26, 2010				September 27, 2009
Expected life (in years)			5.2				4.5
Risk-free interest rate			1.1	%			2.0	%
Volatility			57.1	%			54.8	%

We recorded stock-based compensation expense of $0.3 million and $0.6 million in the first quarter of fiscal 2011 and 2010, respectively. We calculated these stock-based compensation expenses using a net cumulative impact of 8% to estimate future annual forfeitures. At September 26, 2010, the total cumulative compensation cost related to unvested stock-based awards granted to employees, directors and consultants under the Company’s stock option plans, but not yet recognized, was approximately $4.1 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.

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations:

 

		Three Months Ended
		September 26, 2010				September 27, 2009
		(In thousands)
Cost of sales		$	23			$	210
Research and development			138				200
Selling, general and administrative			291				194
Stock compensation expense from continuing operations			452				604
Stock compensation expense from discontinued operations			(114	)			—
Total		$	338			$	604

Stock Repurchases

During the first quarter of fiscal 2011, we repurchased 396,844 shares of common stock pursuant to our repurchase program for an aggregate price of approximately $2.0 million. A further 60,781 shares were repurchased by us in the first quarter of fiscal 2011 for an aggregate price of approximately $0.3 million to cover the cost of taxes on vested restricted stock.

As of September 26, 2010, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 0.9 million.

Note 7. Restructuring Charges

The following table shows the details of the restructuring cost accruals included in other accrued liabilities on our condensed consolidated balance sheet, which consist of facilities and severance costs, at September 26, 2010 and June 27, 2010:

 

		Balance at June 27, 2010				Expense Additions				Payments and Non-cash Settlements				Balance at September 26, 2010
		(in thousands)
Lease loss accrual (fiscal 2004)		$	198			$	1			$	(10	)		$	189
All other restructuring charges (fiscal 2004)			85				22				(7	)			100
Lease loss accrual (fiscal 2009)			5,330				(905	)			(259	)			4,166
Additional depreciation charges (fiscal 2009)			—				461				(461	)			—
All other restructuring charges (fiscal 2009)			2,604				3,285				(1,639	)			4,250
Lease loss accrual (fiscal 2010)			304				2				(2	)			304
Total		$	8,521			$	2,866			$	(2,378	)		$	9,009

During the first three months of fiscal 2011, we incurred approximately $2.9 million in severance, manufacturing transfer consulting services, lease loss charges and additional depreciation on leasehold improvements. These expenses included $3.3 million of severance, consulting and other charges for our Puerto Rico facility closure. The lease loss accrual was reduced by $0.9 million due to sublease of part of the Santa Rosa facility. The lease loss accruals are subject to periodic revisions based on current market estimates. The balance of these lease loss accruals will be paid over the next eight years.

During the first three months of fiscal 2011, we also incurred approximately $0.5 million in additional depreciation on property, plant and equipment at our Puerto Rico facility.

Over the next nine months, we expect to incur restructuring charges amounting to $5.1 million, including approximately $2.0 million in facility related charges and approximately $3.1 million in one-time termination benefits and other restructuring related charges.

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

Note 8. Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of two components: net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under US GAAP are recorded as an element of stockholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) is comprised of unrealized gains and losses, net of taxes, on marketable securities categorized as available-for-sale and foreign currency translation adjustments. The components of comprehensive income (loss), net of tax, are as follows:

 

		Three Months Ended
		September 26, 2010				September 27, 2009
		(in thousands)
Net income		$	3,221			$	174
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments			263				(1	)
Unrealized gain (loss) on investments			106				(9	)
Other comprehensive income (loss)			369				(10	)
Total comprehensive income		$	3,590			$	164

Note 9. Net Income (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period less unvested shares of restricted common stock. Diluted earnings (loss) per share is calculated by dividing net income by the weighted-average number of common shares outstanding and common equivalent shares from stock options, warrants and unvested restricted stock using the treasury method, except when anti-dilutive.

The following table reconciles the number of shares utilized in the net income (loss) per share calculations:

 

		Three Months Ended
		September 26, 2010				September 27, 2009
		(In thousands, except per share amounts)
Numerator:
Income from continuing operations		$	3,094			$	549
Income (loss) from discontinued operations			127				(375	)
Net income		$	3,221			$	174
Shares (denominator):
Weighted average common shares outstanding			43,556				43,648
Weighted average common shares outstanding subject to repurchase			(126	)			(471	)
Weighted average shares outstanding—basic			43,430				43,177
Weighted average dilutive share equivalents from stock options			235				279
Weighted average dilutive common shares subject to repurchase			107				359
Weighted average shares outstanding— diluted			43,772				43,815
Earnings (loss) per share — basic:
Income from continuing operations		$	0.07			$	0.01
Income (loss) from discontinued operations			—				(0.01	)
Net income		$	0.07			$	—
Earnings (loss) per share — diluted:
Income from continuing operations		$	0.07			$	0.01
Income (loss) from discontinued operations			—				(0.01	)
Net income		$	0.07			$	—

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

The following common stock equivalents were excluded from the net income (loss) per share calculation as their effect would have been anti-dilutive:

 

		Three Months Ended
		September 26, 2010				September 27, 2009
		(In thousands)
Stock options			4,273				3,142
Common shares subject to repurchase			—				—
Total shares of common stock excluded from diluted net income (loss) per share calculation			4,273				3,142

Note 10. Contingencies

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 Commission’s 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 26, 2010, we had an accrual of $0.1 million for remediation costs and other ongoing monitoring costs.

Shipments of Product with Lead-free Solder

In the fourth quarter of fiscal 2007 until the third quarter of fiscal 2008, we inadvertently shipped certain products that included lead-free solder in the product backplanes to two customers whose contracts specified that the products would be made with lead solder. As of September 26, 2010, we have received a waiver from one customer to use lead-free solder but not the other. The total sales value of product shipped with lead-free solder to the customer that has not as yet granted us the waiver is $1.2 million. Management believes that this customer will not request that the parts be replaced and that our existing warranty accrual is adequate to cover any potential product failures. Also, since March 2008, new product shipments to this customer include lead solder.

Other

Under the indemnification provisions of our standard sales contracts, we agree to defend our customers against third 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 financial position and results of operations.

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

Note 11. Business Segment Information

In the third quarter of fiscal 2010, we changed our segment reporting structure from four operating and reporting segments to two operating and reporting segments. This change was effected to better reflect how the Chief Operating Decision Maker (CODM) makes decisions about resource allocation and segment performance. The 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. Symmetricom is now organized into two operating segments corresponding to our two divisions: Communications and Government. Given the measure of profit reviewed by our CEO, we have changed our segment profit measure to operating income (loss). Prior to this change, the CEO used gross margin as the segment profit measure.

During the first quarter of fiscal 2011, the Company changed its method of allocating revenue between its two reportable segments. Such revenue is now allocated based on the nature of the product sold versus the end customer (as presented in previous reporting periods). As a result of this change, the Company has revised the applicable segment financial information for the first quarter of fiscal 2010 to be presented on a consistent basis.

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 taxes to operating segments.

During the second quarter of fiscal 2010, we classified our Quality of Experience Assurance (QoE) business as a discontinued operation and its respective assets as held for sale. During the third quarter of fiscal 2010, we sold our QoE business. QoE was a reportable segment within our Telecom Solutions Division segment under previous segment presentation. Due to this sale, the results of QoE have been removed from the Communications segment, shown as discontinued operations, and all comparative information from prior periods has been updated to reflect this change.

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, embedded components and software, and test and measurement equipment, all of which support the timing and synchronization requirements of telecommunications and cable networks and equipment.

Government

Our Government business provides time technology products for aerospace/defense, 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.

The comparative information from prior periods related to the following tables has been updated to reflect our change in segment reporting. Segment revenue, gross profit and operating income (loss) were as follows during the periods presented:

 

Three months ended September 26, 2010		Communications				Government				Corporate				Total
		(In thousands)
Net revenue		$	33,149			$	21,230			$	—			$	54,379
Cost of sales			15,495				11,398				3,747				30,640
Gross profit			17,654				9,832				(3,747	)			23,739
Operating expenses			8,416				5,967				4,203				18,586
Operating income (loss)		$	9,238			$	3,865			$	(7,950	)		$	5,153
Three months ended September 27, 2009		Communications				Government				Corporate				Total
		(In thousands)
Net revenue		$	32,954			$	19,314			$	—			$	52,268
Cost of sales			17,961				11,944				862				30,767
Gross profit			14,993				7,370				(862	)			21,501
Operating expenses			9,153				4,886				5,785				19,824
Operating income (loss)		$	5,840			$	2,484			$	(6,647	)		$	1,677

 

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

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 26, 2010				September 27, 2009
		(In thousands)
Selling, general and administrative costs		$	(10,816	)		$	(7,985	)
Restructuring charges			2,866				1,338
Corporate-related total		$	(7,950	)		$	(6,647	)

Note 12. Warranty

Changes in our accrued warranty liability during the first three months of fiscal 2011 and 2010 were as follows:

 

		Three Months Ended
		September 26, 2010				September 27, 2009
		(In thousands)
Beginning balance		$	2,900			$	3,737
Provision for warranty			54				619
Accruals related to change in estimate			185				(182	)
Less: Actual warranty costs			(800	)			(399	)
Ending balance		$	2,339			$	3,775

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the condensed consolidated financial statements and related notes included elsewhere in this report.

When used in this discussion or elsewhere in this report, the words “expects,” “anticipates,” “estimates,” “believes,” “plans,” “will,” “intend,” “can” and similar expressions are intended to identify forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

These risks and uncertainties include, but are not limited to, risks relating to general economic conditions in the markets we address and the telecommunications market in general, risks related to the development of our new products and services, the transition of our manufacturing operations in Puerto Rico to our contract manufacturer, the effects of increasing competition and competitive pricing pressure, uncertainties associated with changing intellectual property laws, developments in and expenses related to litigation, inability to obtain sufficient amounts of key components, the rescheduling or cancellations of key customer orders, the loss of a key customer, the effects of new and emerging technologies, the risk that excess inventory may result in write-offs, price erosion and decreased demand, fluctuations in the rate of exchange of foreign currency, changes in our effective tax rate, market acceptance of our new products and services, technological advancements, undetected errors or defects in our products, the risks associated with our international sales, potential short-term investment losses and other risks due to credit market dislocation, geopolitical risks and risk of terrorist activities, the risks associated with attempting to integrate other companies and businesses we acquire, and the risks set forth below in Part II, Item 1A, “Risk Factors.”

These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances or on which any such statement is based.

All references to “Symmetricom,” “we,” “us,” and “our” mean Symmetricom, Inc. and its subsidiaries, except where it is made clear that the term means only the parent company.

Overview

Symmetricom, a world leader in precise time solutions, sets the world’s standard for time. We generate, distribute and apply precise time for the communications, aerospace/defense, IT infrastructure and metrology industries. Symmetricom’s customers, from communications service providers and network equipment manufacturers to governments and their suppliers worldwide, are able to build more reliable networks and systems by using our advanced timing technologies, atomic clocks, services and solutions. Our products support today’s precise timing standards, including GPS-based timing, IEEE 1588 (PTP), Network Time Protocol (NTP), Synchronous Ethernet, Building Integrated Timing Supply (BITS) and Data Over Cable Service Interface Specifications (DOCSIS(R)) timing.

Critical Accounting Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures at the date of our financial statements. On an ongoing basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably likely to occur could materially impact the financial statements. We believe that there have been no significant changes during the three months ended September 26, 2010 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 27, 2010.

 

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Known Trends and Uncertainties Impacting Future Results of Operations: Global Market and Economic Conditions

In the second half of calendar year 2008, the financial markets in the U.S. and abroad experienced a severe downturn arising from a multitude of factors, including concerns about the systemic impact of large financial institutions experiencing acute credit crises, geopolitical issues, broad adverse credit conditions, higher energy costs, lower corporate profits and capital spending, and declining real estate and mortgage markets, combined with volatile oil prices, decreased business and consumer confidence and increased unemployment. While some of these conditions have abated in recent months, general concerns about the stability of the markets and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases cease, to provide funding to borrowers.

While there has been some improvement in general macro-economic conditions since late calendar year 2009 and continuing in 2010, the current macro-economic factors remain dynamic and uncertain and are likely to remain so into calendar 2011. If difficult economic conditions or the constrained credit environment markedly continue, our customers may delay or reduce capital expenditures. This could result in reductions in sales of our products, longer sales cycles, difficulties in collecting accounts receivable, additional excess and obsolete inventory, potential impairment charges related to our intangible assets, gross margin deterioration, slower adoption of new technologies, increased price competition and supplier difficulties.

Results of Operations

The following table presents selected items in our condensed consolidated statements of operations as a percentage of total revenues for the three months ended September 26, 2010 and September 27, 2009:

 

		Three Months Ended
		September 26, 2010				September 27, 2009
Net revenue
Communications			61.0	%			63.0	%
Government			39.0	%			37.0	%
Total net revenue			100.0	%			100.0	%
Cost of products and services			48.9	%			56.5	%
Amortization of purchased technology			0.5	%			0.7	%
Restructuring charges			6.9	%			1.7	%
Gross profit			43.7	%			41.1	%
Operating expenses:
Research and development			12.1	%			10.9	%
Selling, general and administrative			23.6	%			25.9	%
Amortization of intangible assets			0.1	%			0.2	%
Restructuring charges			(1.6	)%			0.9	%
Operating income			9.5	%			3.2	%
Interest income, net of amortization (accretion) of premium (discount) on investments			(0.2	)%			0.9	%
Interest expense			(0.1	)%			(2.4	)%
Income from continuing operations before taxes			9.2	%			1.7	%
Income tax provision			3.5	%			0.6	%
Income from continuing operations			5.7	%			1.1	%
Income (loss) from discontinued operations, net of tax			0.2	%			(0.8	)%
Net income			5.9	%			0.3	%

 

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Net Revenue:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Net Revenue (dollars in thousands):
Communications		$	33,149			$	32,954			$	195				0.6	%
Government			21,230				19,314				1,916				9.9
Total Net Revenue		$	54,379			$	52,268			$	2,111				4.0
Percentage of Revenue			100	%			100	%

Net revenue consists of sales of products, software licenses and services. In the first quarter of fiscal 2011, net revenue increased $2.1 million, or 4.0%, compared to the corresponding quarter of fiscal 2010. Communications revenue increased $0.2 million, or 0.6%, compared to the same quarter for the prior year, primarily due to an increase in sale of PackeTime products and our traditional sync products which was partially offset by a decrease in installation revenue. Government revenue increased $1.9 million, or 9.9% compared to the same quarter for the prior year, primarily due to an increase in sales of instruments and enterprise products.

Gross Profit:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Gross Profit (dollars in thousands):
Communications		$	17,654			$	14,993			$	2,661				17.7	%
Government			9,832				7,370				2,462				33.4
Corporate related			(3,747	)			(862	)			(2,885	)			334.7
Total Gross Profit		$	23,739			$	21,501			$	2,238				10.4
Percentage of Revenue			43.7	%			41.1	%

Gross profit in the first quarter of fiscal 2011 increased by $2.2 million or 10.4% compared to the corresponding quarter of fiscal 2010. Gross profit as a percentage of revenue in the first quarter of fiscal 2011 increased to 43.7% as compared to 41.1% in the corresponding quarter of fiscal 2010 primarily due to the increased sales of higher margin products such as PackeTime products which was partially offset by increase in corporate related restructuring charges. Gross profit for our Communications segment increased by $2.7 million, or 17.7%, which was greater than the revenue increase of 0.6%, due to a favorable sales mix of higher margin products and lower period costs and variances. Gross profit for our Government segment increased $2.5 million, or 33.4%, which was greater than the revenue increase of 9.9% in this segment for the same period, due to a favorable sales mix of higher margin products, (mainly instruments and enterprise products) and lower period costs and variances.

Corporate related restructuring charges increased by $2.9 million, or 335%, due to severance, product transfer costs and additional depreciation costs related to restructuring activities of the phased closure of our Puerto Rico manufacturing facility, which is anticipated to be completed by the fourth quarter of fiscal 2011.

 

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Operating Expenses:

Research and Development Expense:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Research and development expense (dollars in thousands)		$	6,606			$	5,714			$	892				15.6	%
Percentage of Revenue			12.1	%			10.9	%

Research and development expense consists primarily of salaries and benefits, prototype expenses and fees paid to outside consultants. Research and development expense in the first quarter of fiscal 2011 increased $0.9 million, or 15.6%, compared to the same quarter of fiscal 2010 primarily due to higher engineering expenses related to product development projects. We expect that research and development expenses in the second quarter of fiscal 2011 will be consistent with the first quarter of fiscal 2011.

Selling, General and Administrative:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Selling, general and administrative (dollars in thousands)		$	12,799			$	13,539			$	(740	)			(5.5	)%
Percentage of Revenue			23.6	%			25.9	%

Selling, general and administrative expenses consist primarily of salaries, benefits, sales commissions and travel-related expenses for our sales and services, marketing, finance, human resources, information technology and facilities departments. These expenses decreased by $0.7 million or 5.5%, to $12.8 million for the first quarter of fiscal 2011, compared to $13.5 million in the corresponding quarter of fiscal 2010. The decrease in expenses consisted primarily of a $0.6 million decrease in compensation-related expenses including stock-based compensation and incentive compensation related expenses and commission expenses. We expect that selling, general and administrative expenses in the second quarter of fiscal 2011 will increase when compared with the first quarter of fiscal 2011.

Amortization of intangibles:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Amortization of intangible assets (dollars in thousands)		$	62			$	95			$	(33	)			(34.7	)%
Percentage of Revenue			0.1	%			0.2	%

Amortization of intangibles decreased in the first quarter of fiscal 2011 compared to the corresponding period of fiscal 2010 due to certain assets being fully amortized before or during the first quarter of fiscal 2011.

Restructuring charges:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Restructuring charges (dollars in thousands)		$	(881	)		$	476			$	(1,357	)			(285.1	)%
Percentage of Revenue			(1.6	)%			0.9	%

 

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Restructuring charges decreased by $1.4 million in the first three months of fiscal 2011 compared to the corresponding period of fiscal 2010 due to the partial reduction in the lease loss accrual associated with the sublease of Santa Rosa facility.

Interest income, net of amortization (accretion) of premium (discount) on investments:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Interest income, net of amortization (accretion) of premium (discount) on investments (dollars in thousands)		$	(108	)		$	461			$	(569	)			(123.4	)%
Percentage of Revenue			(0.2	)%			0.9	%

Interest income (loss), net of amortization (accretion) of premium (discount) on investments decreased $0.6 million in the first quarter of fiscal 2011 compared to the same period in the prior year due to an increase in amortization of premium on short-term investments.

Interest expense:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Interest expense (dollars in thousands)		$	(55	)		$	(1,274	)		$	1,219				(95.7	)%
Percentage of Revenue			(0.1	)%			(2.4	)%

Interest expense decreased $1.2 million in the first quarter of fiscal 2011 compared to the same period in the prior fiscal year due to the repayment of convertible notes in the fourth quarter of fiscal 2010.

Income tax provision:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Income tax provision (dollars in thousands)		$	1,896			$	315			$	1,581				501.9	%
Percentage of Revenue			3.5	%			0.6	%

Our income tax provision was $1.9 million in the first quarter of fiscal 2011, compared to $0.3 million in the corresponding quarter of fiscal 2010. Our effective tax rate in the first quarter of fiscal 2011 was 38.0 %, compared to an effective tax rate of 35.2% in the corresponding period of fiscal 2010. The effective tax rate for fiscal 2010 benefited from federal research credits, which expired in second quarter of fiscal 2010.

 

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Income (loss) from discontinued operations, net of tax:

 

		Three Months Ended								$ Change				% Change
		September 26, 2010				September 27, 2009
Income (loss) from discontinued operations, net of tax (in thousands)		$	127			$	(375	)		$	502				(133.9	)%
Percentage of Revenue			0.2	%			(0.8	)%

Discontinued operations relate to our Quality of Experience business which we sold in the third quarter of fiscal 2010. In the first quarter of fiscal 2011, we recorded an income of $0.1 million, net of income taxes, due primarily to the finalization of compensation costs of former employees. The $0.4 million loss in the first quarter of fiscal 2010 represents the general operating expenses, net of taxes, for the first quarter of fiscal 2010.

Key Operating Metrics

Key operating metrics for measuring our performance include sales backlog and contract revenue. A comparison of these metrics at the end of the first quarter of fiscal 2011 with the end of fiscal 2010 is discussed below:

Sales Backlog:

Our backlog consists of firm orders that have yet to be shipped to the customer, or may not be shippable to a customer until a future period. Most orders included in backlog can be rescheduled or cancelled by customers without significant penalty. Historically, a substantial portion of net revenue in any fiscal period has been derived from orders received during that fiscal period.

Our backlog amounted to $54.4 million as of September 26, 2010, compared to $42.5 million as of June 27, 2010. The $11.9 million increase in backlog was due to strong government bookings that came in as the federal government closed out their fiscal year. Also, some of this government backlog is for multi-year delivery and will not ship until after this fiscal year. Our backlog, which is shippable within the next six months, was $33.4 million as of September 26, 2010, compared to $28.7 million as of June 27, 2010.

Contract Revenue:

As of September 26, 2010, we had approximately $9.5 million in contract revenue to be performed and recognized within the next 36 months, the same as approximately $9.5 million in contract revenue that was to be performed and recognized within 36 months following June 27, 2010. These amounts have been included in our sales backlog discussed above.

Liquidity and Capital Resources

Balance Sheet and Cash Flows

The following table summarizes our cash, cash equivalents and short-term investments (in thousands):

 

		September 26, 2010				June 27, 2010				Change
										$
Cash and cash equivalents		$	21,972			$	21,794			$	178
Short-term investments			50,791				53,825				(3,034	)
Total		$	72,763			$	75,619			$	(2,856	)

As of September 26, 2010, our principal sources of liquidity consisted of cash, cash equivalents and short-term investments of $72.8 million and accounts receivable net of $41.4 million.

 

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As of September 26, 2010, working capital was $132.4 million compared to $129.1 million as of June 27, 2010. Cash, cash equivalents and short-term investments as of September 26, 2010 decreased slightly to $72.8 million from $75.6 million as of June 27, 2010.

Our days sales outstanding in accounts receivable was 69 days as of September 26, 2010, compared to 66 days as of June 27, 2010.

Our principal uses of cash historically have consisted of the purchase of inventories, payroll and other operating expenses related to the manufacturing of products, development of new products and purchase of property and equipment.

Cash flows from operating activities

Net cash provided by operating activities in the first quarter of fiscal 2011 was $0.9 million. The net cash provided by operating activities was driven by the net income of $3.2 million and non-cash charges of $4.4 million. The non-cash charges consisted of $1.9 million in depreciation and amortization expenses, $1.8 million deferred tax charges, $0.3 million of stock-based compensation expense and $0.3 million of provisions for excess and obsolete inventories. Cash provided by operating activities during the first quarter of fiscal 2011 also reflects net changes in operating assets and liabilities, which used $6.7 million. It consisted primarily of a $6.0 million increase in inventories arising primarily to support the transfer of manufacturing activity to a third-party contract manufacturer, $1.4 million increase in accounts receivable, $2.1 million decrease in accrued compensation, and $0.5 million decrease in other liabilities, partially offset by a $3.1 million increase in accounts payable and a decrease in prepaid and other assets of $0.2 million.

Cash flows from investing activities

Net cash provided by investing activities was $1.1 million in the first quarter of fiscal 2011, which represented sale/maturities of short-term investments of $15.0 million, partially off-set by the purchase of short-term investments and property, plant and equipment of $12.5 million and $1.4 million, respectively.

Cash flows from financing activities

Net cash used for financing activities was $2.1 million in the first quarter of fiscal 2011, which represented the repurchases of common stock of $2.3 million, partially offset by cash generated from the exercise of common stock options of $0.2 million.

Contingencies

See Item 1 of Part I, Financial Statements — Note 10 — Contingencies.

Recently Issued Accounting Pronouncements

See Item 1 of Part I, Financial Statements-Note1- Basis of Presentation and Recently Issued Accounting Pronouncements

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting Symmetricom, Inc. see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended June 27, 2010. Our exposure to market risk has not changed materially since June 27, 2010.

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed in the reports that we file or submit under the Exchange Act and that such information has been accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There was no material change in our internal control over financial reporting that occurred during the quarter ended September 26, 2010 that has affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

See Item 1 of Part I, Financial Statements — Note 10 — Contingencies.

 

Item 1A.

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended June 27, 2010. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

a)

Not applicable.

 

b)

Not applicable.

 

c)

The following table provides monthly detail regarding our share repurchases during the three months ended September 26, 2010:

 

Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Approximate Number of Shares That May Yet Be Purchased Under the Plans or Programs
June 28, 2010 through July 25, 2010			—			$	—				—				1,324,160
July 26, 2010 through August 22, 2010			126,321			$	4.92				65,540				1,258,620
August 23, 2010 through September 26, 2010			331,304			$	5.13				331,304				927,316
Total			457,625			$	5.10				396,844

During the first quarter of fiscal 2011, we repurchased 396,844 shares of common stock pursuant to our repurchase program for an aggregate price of approximately $2.0 million. A further 60,781 shares were repurchased by us in the first quarter of fiscal 2011 for an aggregate price of approximately $0.3 million to cover the cost of taxes on vested restricted stock.

As of September 26, 2010, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 0.9 million.

 

Item 3.

Defaults Upon Senior Securities

Not applicable.

 

Item 4.

Removed and Reserved

 

Item 5.

Other Information

During the first quarter of fiscal 2011, the Company changed its method of allocating revenue between its two reportable segments. Such revenue is now allocated based on the nature of the product sold versus the end customer (as presented in previous reporting periods). Subsequent to the filing of our Current Report on Form 8-K on October 26, 2010 that included our news release in which we furnished our unaudited financial results for the first quarter of fiscal 2011 and furnished comparative financial results for the first quarter of fiscal 2010, the Company determined that it was appropriate to reflect this change in the revenue allocations between its reportable segments for the first quarter of fiscal 2010 to be consistent with the method that was adopted in the first quarter of fiscal 2011. As a result of this determination, we have revised the revenue allocations for the two reportable segments for the first quarter of fiscal 2010. This revision resulted in a revenue increase for the communications segment of $0.6 million and a corresponding decrease in revenue for the government segment. The revision also resulted in a year-over-year increase in government segment revenue of 9.9%. These revisions result in a difference between the segment revenue information for the first quarter of fiscal 2010, reported for comparative purposes in the financial statements contained in this Quarterly Report on Form 10-Q from the information furnished in the October 26, 2010 news release.

 

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Item 6.

Exhibits

 

Exhibit Number		Description of Exhibits
31		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

 

				SYMMETRICOM, INC.
				(Registrant)
Date: November 5, 2010				By:		/S/    DAVID G. CÔTÉ
						Dave G. CÔTÉ
						Chief Executive Officer (Principal Executive Officer) and Director
Date: November 5, 2010				By:		/S/    JUSTIN R. SPENCER
						Justin R. Spencer
						Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

 

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