SYMMETRICOM INC - FORM 10-Q - February 8, 2012

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EXCEL - IDEA: XBRL DOCUMENT - SYMMETRICOM INC	Financial_Report.xls
EX-32 - CERTIFICATION PURSUANT TO SECTION 906 - SYMMETRICOM INC	d260268dex32.htm
EX-31 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 302 - SYMMETRICOM INC	d260268dex31.htm

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 January 1, 2012

¨	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 x 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):

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 January 29, 2012

Common Stock

42,067,830

SYMMETRICOM, INC.

FORM 10-Q

INDEX


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets— January 1, 2012 and July 3, 2011		3

	Condensed Consolidated Statements of Operations—Three and six months ended January 1, 2012 and December 26, 2010		4

	Condensed Consolidated Statements of Cash Flows—Six months ended January 1, 2012 and December 26, 2010		5

	Notes to Condensed Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26

Item 4.	Controls and Procedures		26

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		27

Item 1A.	Risk Factors		27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27

Item 3.	Defaults Upon Senior Securities		27

Item 4.	Mine Safety Disclosures		27

Item 5.	Other Information		27

Item 6.	Exhibits		28

SIGNATURES			29

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

SYMMETRICOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)


	January 1, 2012			July 3, 2011
ASSETS
Current assets:
Cash and cash equivalents.	$	22,794		$	20,318
Short-term investments		35,352			43,340
Accounts receivable, net of allowance for doubtful accounts of $287 and $315		36,539			40,511
Inventories		62,469			62,622
Prepaids and other current assets		17,861			14,004

Total current assets		175,015			180,795
Property, plant and equipment, net		22,715			23,255
Intangible assets, net		1,954			2,429
Deferred taxes and other assets		27,418			29,361

Total assets	$	227,102		$	235,840

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,568		$	16,113
Accrued compensation		12,932			13,743
Accrued warranty		1,835			1,601
Other accrued liabilities		11,120			14,683

Total current liabilities		34,455			46,140
Long-term obligations		5,588			5,212
Deferred income taxes		334			334

Total liabilities		40,377			51,686

Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 500 shares authorized, none issued		—			—
Common stock, $0.0001 par value; 70,000 shares authorized, 50,913 shares issued and 42,112 outstanding at January 1, 2012; 50,579 shares issued and 42,960 outstanding at July 3, 2011		198,646			201,002
Accumulated other comprehensive loss		(296	)		(29	)
Accumulated deficit		(11,625	)		(16,819	)

Total stockholders’ equity		186,725			184,154

Total liabilities and stockholders’ equity	$	227,102		$	235,840

See notes to the condensed consolidated financial statements.

SYMMETRICOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Six Months Ended
	January 1, 2012			December 26, 2010			January 1, 2012			December 26, 2010
Net revenue	$	58,294		$	41,844		$	114,672		$	96,223
Cost of sales:
Cost of products and services		32,225			23,222			62,055			49,828
Amortization of purchased technology		185			267			371			554
Restructuring charges		674			3,910			1,091			7,657

Total cost of sales		33,084			27,399			63,517			58,039

Gross profit		25,210			14,445			51,155			38,184
Operating expenses:
Research and development		6,548			6,738			13,446			13,344
Selling, general and administrative		14,864			13,596			29,674			26,395
Amortization of intangible assets		52			61			104			123
Restructuring charges		103			38			199			(843	)

Total operating expenses		21,567			20,433			43,423			39,019

Operating income (loss)		3,643			(5,988	)		7,732			(835	)
Interest income, net of amortization (accretion) of premium (discount) on investments		(296	)		331			(230	)		223
Interest expense		—			—			—			(55	)

Income (loss) from continuing operations before taxes		3,347			(5,657	)		7,502			(667	)
Income tax provision (benefit)		902			(2,181	)		2,308			(285	)

Income (loss) from continuing operations	$	2,445		$	(3,476	)	$	5,194		$	(382	)
Income (loss) from discontinued operations, net of tax		—			(49	)		—			78

Net income (loss)	$	2,445		$	(3,525	)	$	5,194		$	(304	)

Earnings per share—basic:
Income (loss) from continuing operations	$	0.06		$	(0.08	)	$	0.12		$	(0.01	)
Income (loss) from discontinued operations		—			—			—			—

Net income (loss)	$	0.06		$	(0.08	)	$	0.12		$	(0.01	)

Weighted average shares outstanding—basic		42,292			43,272			42,490			43,351

Earnings per share—diluted:
Income (loss) from continuing operations	$	0.06		$	(0.08	)	$	0.12		$	(0.01	)
Income (loss) from discontinued operations		—			—			—			—

Net income (loss)	$	0.06		$	(0.08	)	$	0.12		$	(0.01	)

Weighted average shares outstanding—diluted		42,762			43,272			42,989			43,351

See notes to the condensed consolidated financial statements.

SYMMETRICOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended
	January 1, 2012			December 26, 2010
Cash flows from operating activities:
Net income (loss)	$	5,194		$	(304	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		2,854			3,879
Deferred income taxes		2,048			(723	)
Loss on disposal of fixed assets		139			5
Stock-based compensation		2,843			1,456
Allowance for doubtful accounts		10			31
Provision for excess and obsolete inventory		2,012			333
Changes in assets and liabilities:
Accounts receivable		3,962			14,517
Inventories		(1,859	)		(4,769	)
Prepaids and other assets		(3,260	)		(122	)
Accounts payable		(7,601	)		341
Accrued compensation		(811	)		(4,882	)
Other accrued liabilities		(3,229	)		(863	)

Net cash provided by operating activities		2,302			8,899

Cash flows from investing activities:
Purchases of short-term investments		(15,576	)		(23,384	)
Maturities/sale of short-term investments		22,728			23,819
Purchases of property, plant and equipment		(1,922	)		(2,673	)
Remaining cash proceeds from sale of discontinued operations		210			—

Net cash provided by (used in) investing activities		5,440			(2,238	)

Cash flows from financing activities:
Proceeds from issuance of common stock		1,072			1,343
Repurchase of common stock		(6,102	)		(4,163	)

Net cash used in financing activities		(5,030	)		(2,820	)

Effect of exchange rate changes on cash		(236	)		87

Net increase in cash and cash equivalents		2,476			3,928
Cash and cash equivalents at beginning of period		20,318			21,794

Cash and cash equivalents at end of period	$	22,794		$	25,722

Non-cash investing and financing activities:
Unrealized gain (loss) on investments, net	$	(31	)	$	53
Property, plant and equipment purchases included in accounts payable		133			160
Cash payments for:
Income taxes		264			160

See notes to the condensed consolidated financial statements.

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 July 3, 2011. The results of operations for the three and six months ended January 1, 2012 are not necessarily indicative of the results to be anticipated for the entire fiscal year ending July 1, 2012.

The condensed consolidated balance sheet as of July 3, 2011 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 May 2011, the FASB issued guidance to amend the accounting and disclosure requirements for fair value measurements. The new guidance limits the highest-and-best-use measure to non-financial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance will be effective for us beginning third quarter of fiscal 2012. Other than requiring additional disclosures, we do not anticipate material impacts on our financial statements upon adoption.

In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance will be effective for us beginning first quarter of fiscal 2013, will require retrospective application, and will only affect presentation of comprehensive income (loss).

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 is 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 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

•

Level 2 – inputs 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 3 – inputs are generally unobservable and typically reflect management’s 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.

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Financial assets measured at fair value on a recurring basis consisted of the following types of instruments as of January 1, 2012 and July 3, 2011:


	Fair Value as of January 1, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
	(In thousands)
*Assets:*
Money market funds	$	12,385	$	12,385	$	—

Short-term investments:
Corporate debt securities		19,529		—		19,529
Government sponsored enterprise debt securities		12,934		—		12,934
Mutual funds		2,889		2,889		—

Total short-term investments		35,352		2,889		32,463

Total financial assets	$	47,737	$	15,274	$	32,463


	Fair Value as of July 3, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
	(In thousands)
*Assets:*
Money market funds	$	12,630	$	12,630	$	—

Short-term investments:
Corporate debt securities		23,430		—		23,430
Government sponsored enterprise debt securities		16,456		—		16,456
Mutual funds		3,454		3,454		—

Total short-term investments		43,340		3,454		39,886

Total financial assets	$	55,970	$	16,084	$	39,886

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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 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.

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


	Amortized Cost		Gross Unrealized Gains (Losses)			Fair Value
January 1, 2012	(In thousands)
Money market funds	$	12,385	$	—		$	12,385
Corporate debt securities		19,570		(41	)		19,529
Government sponsored enterprise debt securities		12,936		(2	)		12,934
Mutual funds		2,889		—			2,889

Total financial assets	$	47,780	$	(43	)	$	47,737


	Amortized Cost		Gross Unrealized Gains (Losses)			Fair Value
July 3, 2011	(In thousands)
Money market funds	$	12,630	$	—		$	12,630
Corporate debt securities		23,424		6			23,430
Government sponsored enterprise debt securities		16,456		—			16,456
Mutual funds		3,454		—			3,454

Total financial assets	$	55,964	$	6		$	55,970

The following table summarizes the contractual maturities of fixed income securities (Corporate debt securities and Government sponsored enterprise debt securities) recorded as short-term investments as of January 1, 2012:


	Amortized Cost		Fair Value
	(In thousands)
Less than 1 year	$	12,778	$	12,753
Due in 1 to 3 years		19,728		19,710

Total	$	32,506	$	32,463

Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 3. Inventories

Components of inventories were as follows:


	January 1, 2012		July 3, 2011
	(In thousands)
Raw materials	$	29,028	$	27,206
Work-in-process		8,593		9,520
Finished goods		24,848		25,896

Inventories	$	62,469	$	62,622

Note 4. Intangible Assets

Intangible assets consist of:


	Gross Carrying Amount		Accumulated Amortization			Net Intangible Assets
	(in thousands)
Purchased technology	$	24,357	$	(23,597	)	$	760
Customer lists and trademarks		7,025		(5,831	)		1,194

Total as of January 1, 2012	$	31,382	$	(29,428	)	$	1,954

Purchased technology	$	24,357	$	(23,226	)	$	1,131
Customer lists and trademarks		7,025		(5,727	)		1,298

Total as of July 3, 2011	$	31,382	$	(28,953	)	$	2,429

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)
2012 (Remaining 6 months)	$	252
2013		502
2014		502
2015		232
2016		159
Thereafter		307

Total amortization	$	1,954

Intangible asset amortization expense for the second quarter of fiscal 2012 and 2011 was $0.2 million and $0.3 million, respectively. Intangible asset amortization expense for the first six months of fiscal 2012 and 2011 was $0.5 million and $0.7 million, respectively.

Note 5. Warranty

Changes in our accrued warranty liability were as follows:


	Three Months Ended						Six Months Ended
	January 1, 2012			December 26, 2010			January 1, 2012			December 26, 2010
	(In thousands)						(In thousands)
Beginning balance	$	1,477		$	2,339		$	1,601		$	2,900
Provision for warranty		725			(52	)		1,230			2
Accruals related to change in estimate		251			237			343			422
Less: Actual warranty costs		(618	)		(522	)		(1,339	)		(1,322	)

Ending balance	$	1,835		$	2,002		$	1,835		$	2,002

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 6. Long-term Obligations

Long-term obligations consist of:


	January 1, 2012		July 3, 2011
	(In thousands)
Long-term obligations:
Deferred revenue	$	2,218	$	2,131
Lease loss accrual, net		2,060		1,793
Rent accrual		1,124		1,088
Post-retirement benefits		186		200

Total	$	5,588	$	5,212

Note 7. Stockholders’ Equity

Stock Options and Awards Activity

Stock award activity for the six months ended January 1, 2012 is as follows:


				Non Performance-based Options Outstanding					Restricted Stock Outstanding
	Shares Available For Grant			Number of Shares			Weighted Average Exercise Price Per Share		Number of Shares			Weighted Average Grant-Date Fair Value
	(In thousands, except per share amounts)
Balances at July 3, 2011		4,463			6,534		$	5.78		228		$	6.39
Granted - options		(1,808	)		1,808			5.08		—			—
Granted -restricted shares		(200	)		—			—		100			5.13
Exercised		—			(96	)		4.47		—			—
Vested		—			—			—		(67	)		5.76
Cancelled and Expired		320			(320	)		6.67		—			—

Balances at January 1, 2012		2,775			7,926		$	5.60		261		$	6.07

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Stock options outstanding, vested and expected to vest, and exercisable as of January 1, 2012 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		7,926		4.70	$	5.60	$	2,603
Vested and expected to vest		7,489		4.59	$	5.62	$	2,497
Exercisable		3,624		3.21	$	5.79	$	1,540

The aggregate intrinsic value in the preceding table represents the total pre-tax value of stock options outstanding as of January 1, 2012, based on our common stock closing price of $5.39 on December 30, 2011, 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 second quarter of fiscal 2012 and 2011 was approximately $54,000 and $335,000, respectively.

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

For the second quarter of fiscal 2012 and 2011, the weighted-average estimated fair value of options granted was $2.43 and $3.10 per share, respectively. For the six months ended January 1, 2012 and December 26, 2010, the weighted-average estimated fair value of options granted was $2.43 and $3.08 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 and six months ended January 1, 2012 and December 26, 2010 as follows:


	Three months ended						Six months ended
	January 1,			December 26,			January 1,			December 26,
	2012			2010			2012			2010
Expected life (in years)		4.9			5.1			5.0			5.1
Risk-free interest rate		0.6	%		1.1	%		0.7	%		1.1	%
Volatility		56.8	%		56.7	%		56.2	%		56.9	%

We calculated the stock-based compensation expense in the second quarter of fiscal 2012 and 2011, using an estimated annual forfeiture rate of 7.2% and 8.0%, respectively. At January 1, 2012, 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 $6.8 million, net of estimated forfeitures of $1.5 million. This cost will be amortized on an accelerated method basis over a period of approximately 1.5 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				Six Months Ended
	January 1, 2012		December 26, 2010		January 1, 2012		December 26, 2010
	(In thousands)				(In thousands)
Cost of sales	$	215	$	230	$	334	$	253
Research and development		295		184		584		322
Selling, general and administrative		1,170		704		1,925		995

Stock compensation expense from continuing operations		1,680		1,118		2,843		1,570
Stock compensation expense from discontinued operations		—		—		—		(114	)

Total	$	1,680	$	1,118	$	2,843	$	1,456

The above table includes expense of $0.2 million and $0.3 million, relating to the employee stock purchase plan (ESPP) for the second quarter and first six months of fiscal 2012, respectively. There was no ESPP in the second quarter and first six months of fiscal 2011.

Performance Awards

In the second quarter of fiscal 2012, the Company communicated its intention to grant 110,000 shares of performance based restricted stock to its executive management employees subject to the achievement of certain financial performance targets. The number of stock awards that will ultimately vest depends on actual business performance measured for fiscal 2012 against certain targets for revenue and profitability for the Company’s business as well as continued employment with the Company.

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Stock Repurchases

During the second quarter of fiscal 2012, we repurchased 779,245 shares of common stock pursuant to our repurchase program for an aggregate price of approximately $4.0 million. Further, we repurchased 12,841 shares in the second quarter of fiscal 2012 for an aggregate price of approximately $66,000 to cover the cost of employee income taxes on vested restricted stock.

On November 17, 2011, the Company’s Board of Directors authorized management to repurchase an additional 4.1 million shares of Symmetricom common stock in addition to the remaining shares available for repurchase under previously approved programs. As of January 1, 2012, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 4.5 million.

Note 8. Restructuring Charges

The following table shows the details of the restructuring cost accruals, which consist of facilities and severance costs, at January 1, 2012 and July 3, 2011:


	Balance at July 3, 2011		Expense Additions		Payments and Non-cash Settlements			Balance at January 1, 2012
	(in thousands)
Lease loss accrual (fiscal 2004)	$	161	$	2	$	(19	)	$	144
All other restructuring changes (fiscal 2004)		50		36		(36	)		50
Lease loss accrual (fiscal 2009)		1,797		26		(206	)		1,617
All other restructuring changes (fiscal 2010)		409		83		(228	)		264
Lease loss accrual (fiscal 2011 and 2012)		403		830		(64	)		1,169
All other restructuring changes (fiscal 2011 and 2012)		979		313		(1,267	)		25

Total	$	3,799	$	1,290	$	(1,820	)	$	3,269

During the first six months of fiscal 2012, we incurred approximately $1.3 million in lease loss charges, severance, consulting, and other charges in connection with the Company’s restructuring activities associated with the shutdown of certain activities at our Santa Rosa facility.

The lease loss accruals are subject to periodic revisions based on current market estimates. The lease loss accruals as of January 1, 2012 will be paid over the next five years.

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 9. 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					Six Months Ended
	January 1, 2012		December 26, 2010			January 1, 2012			December 26, 2010
	(in thousands)					(in thousands)
Net income (loss)	$	2,445	$	(3,525	)	$	5,194		$	(304	)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments		11		(176	)		(236	)		87
Unrealized gain (loss) on investments		4		(53	)		(31	)		53

Other comprehensive income (loss)		15		(229	)		(267	)		140

Total comprehensive income (loss)	$	2,460	$	(3,754	)	$	4,927		$	(164	)

Note 10. 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.

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

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


	Three Months Ended						Six Months Ended
	January 1, 2012			December 26, 2010			January 1, 2012			December 26, 2010
	(In thousands, except per share amounts)
Numerator:
Income (loss) from continuing operations	$	2,445		$	(3,476	)	$	5,194		$	(382	)
Income (loss) from discontinued operations		—			(49	)		—			78

Net income (loss)	$	2,445		$	(3,525	)	$	5,194		$	(304	)

Shares (denominator):
Weighted average common shares outstanding		42,530			43,405			42,715			43,480
Weighted average common shares outstanding subject to repurchase		(238	)		(133	)		(225	)		(129	)

Weighted average shares outstanding—basic		42,292			43,272			42,490			43,351
Weighted average dilutive share equivalents from stock options		355			—			392			—
Weighted average dilutive common shares subject to repurchase		115			—			107			—

Weighted average shares outstanding— diluted		42,762			43,272			42,989			43,351

Earnings (loss) per share — basic:
Income (loss) from continuing operations	$	0.06		$	(0.08	)	$	0.12		$	(0.01	)
Income (loss) from discontinued operations		—			—			—			—

Net income (loss)	$	0.06		$	(0.08	)	$	0.12		$	(0.01	)

Earnings (loss) per share — diluted:
Income (loss) from continuing operations	$	0.06		$	(0.08	)	$	0.12		$	(0.01	)
Income (loss) from discontinued operations		—			—			—			—

Net income (loss)	$	0.06		$	(0.08	)	$	0.12		$	(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.

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				Six Months Ended
	January 1, 2012		December 26, 2010		January 1, 2012		December 26, 2010
	(In thousands)				(In thousands)
Stock options		5,531		6,456		4,785		6,182
Common shares subject to repurchase		—		133		—		129

Total shares of common stock excluded from diluted net income (loss) per share calculation		5,531		6,589		4,785		6,311

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 11. Litigation and Contingencies

Litigation—The 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 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 January 1, 2012, we had an accrual of $50,000 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. The complaint has since been amended for the second time and 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. 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.

General

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

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Note 12. Business Segment Information

Symmetricom is organized into two operating segments corresponding to our two divisions: Communications and Government and Enterprise. These two operating segments are 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, 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 and Enterprise

Our Government and Enterprise 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. Through fiscal 2011, we named this business as Government; however, in the first quarter of fiscal 2012, we changed the name to Government and Enterprise to more accurately reflect the business’ customers and initiatives.

SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Segment revenue, gross profit and operating income (loss) were as follows during the periods presented:


Three months ended January 1, 2012	Communications			Government and Enterprise		Corporate			Total
	(In thousands)
Net revenue	$	33,307		$	24,987	$	—		$	58,294
Cost of sales		16,856			15,554		674			33,084

Gross profit		16,451			9,433		(674	)		25,210
Operating expenses		9,518			6,746		5,303			21,567

Operating income (loss)	$	6,933		$	2,687	$	(5,977	)	$	3,643


Three months ended December 26, 2010	Communications			Government and Enterprise		Corporate			Total
	(In thousands)
Net revenue	$	20,369		$	21,475	$	—		$	41,844
Cost of sales		11,752			11,737		3,910			27,399

Gross profit		8,617			9,738		(3,910	)		14,445
Operating expenses		8,767			5,803		5,863			20,433

Operating income (loss)	$	(150	)	$	3,935	$	(9,773	)	$	(5,988	)


Six months ended January 1, 2012	Communications			Government and Enterprise		Corporate			Total
	(In thousands)
Net revenue	$	66,877		$	47,795	$	—		$	114,672
Cost of sales		33,135			29,291		1,091			63,517

Gross profit		33,742			18,504		(1,091	)		51,155
Operating expenses		19,248			13,015		11,160			43,423

Operating income (loss)	$	14,494		$	5,489	$	(12,251	)	$	7,732


Six months ended December 26, 2010	Communications			Government and Enterprise		Corporate			Total
	(In thousands)
Net revenue	$	53,518		$	42,705	$	—		$	96,223
Cost of sales		27,247			23,135		7,657			58,039

Gross profit		26,271			19,570		(7,657	)		38,184
Operating expenses		17,183			11,770		10,066			39,019

Operating income (loss)	$	9,088		$	7,800	$	(17,723	)	$	(835	)

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				Six Months Ended
	January 1, 2012		December 26, 2010		January 1, 2012		December 26, 2010
	(In thousands)				(In thousands)
Selling, general and adminstrative costs	$	5,200	$	5,825	$	10,961	$	10,909
Restructuring charges		777		3,948		1,290		6,814

Corporate-related total	$	5,977	$	9,773	$	12,251	$	17,723

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 reliance on 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. Dollar amounts in the tables in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are in thousands.

Overview

Symmetricom is a leading source worldwide of highly precise timekeeping technologies, instruments and solutions. 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 and six months ended January 1, 2012 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 July 3, 2011.

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

Current macro-economic factors are dynamic and uncertain and are likely to remain so for the remainder of fiscal year 2012. If economic conditions remain uncertain or worsen (for example, due to the ongoing financial crisis in Europe or a slowdown in the economic growth rate in China), or if there are reductions in government and/or defense spending, our customers may delay or reduce capital expenditures. Among other things, these factors could result in reductions in sales of our products, longer sales cycles, difficulties in collecting accounts receivable, additional excess and obsolete inventory, 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 net revenue for the three and six months ended January 1, 2012 and December 26, 2010:


	Three Months Ended						Six Months Ended
	January 1, 2012			December 26, 2010			January 1, 2012			December 26, 2010
	January 1, 2012			December 26, 2010			January 1, 2012			December 26, 2010
Net revenue
Communications		57.1	%		48.7	%		58.3	%		55.6	%
Government and Enterprise		42.9	%		51.3	%		41.7	%		44.4	%

Total net revenue		100.0	%		100.0	%		100.0	%		100.0	%
Cost of products and services		55.3	%		55.6	%		54.1	%		51.7	%
Amortization of purchased technology		0.3	%		0.6	%		0.3	%		0.6	%
Restructuring charges		1.2	%		9.3	%		1.0	%		8.0	%

Gross profit		43.2	%		34.5	%		44.6	%		39.7	%
Operating expenses:
Research and development		11.2	%		16.1	%		11.7	%		13.9	%
Selling, general and administrative		25.5	%		32.5	%		25.9	%		27.5	%
Amortization of intangible assets		0.1	%		0.1	%		0.1	%		0.1	%
Restructuring charges		0.2	%		0.1	%		0.2	%		(0.9	)%

Operating income (loss)		6.2	%		(14.3	)%		6.7	%		(0.9	)%
Interest income, net of amortization (accretion) of premium (discount) on investments		(0.5	)%		0.8	%		(0.2	)%		0.3	%
Interest expense		—	%		—	%		—	%		(0.1	)%

Income (loss) from continuing operations before taxes		5.7	%		(13.5	)%		6.5	%		(0.7	)%
Income tax provision (benefit)		1.5	%		(5.2	)%		2.0	%		(0.3	)%

Income (loss) from continuing operations		4.2	%		(8.3	)%		4.5	%		(0.4	)%
Income (loss) from discontinued operations, net of tax		—	%		(0.1	)%		—	%		0.1	%

Net income (loss)		4.2	%		(8.4	)%		4.5	%		(0.3	)%

Net Revenue:


	Three Months Ended						$ Change		% Change			Six Months Ended						$ Change		% Change
	January 1, 2012			December 26, 2010								January 1, 2012			December 26, 2010
Net Revenue:
Communications	$	33,307		$	20,369		$	12,938		63.5	%	$	66,877		$	53,518		$	13,359		25.0	%
Government and Enterprise		24,987			21,475			3,512		16.4			47,795			42,705			5,090		11.9

Total Net Revenue	$	58,294		$	41,844		$	16,450		39.3	%	$	114,672		$	96,223		$	18,449		19.2	%
Percentage of Revenue		100.0	%		100.0	%							100	%		100	%

Second Quarter of Fiscal 2012: Net revenue consists of sales of products, software licenses and services. In the second quarter of fiscal 2012, net revenue increased $16.5 million, or 39.3%, compared to the corresponding quarter of fiscal 2011. The increase in Communications revenue is due to the completion of our transition to an outsourced manufacturing and logistics model that adversely impacted revenue in the second quarter of fiscal 2011. Further, the increase in Communications revenue is attributable to higher shipments of traditional sync, PackeTime™ and DOCSIS Timing Interface (DTI) products. The increase in Government and Enterprise segment revenue is due to an increase in our government program business, sale of atomic clocks and Quantum™ Chip Scale Atomic Clocks (CSAC), partially offset by a decrease in sales of enterprise and instrument products.

First Six Months of Fiscal 2012: In the first six months of fiscal 2012, net revenue increased $18.4 million, or 19.2%, compared to the corresponding period of fiscal 2011. Communications revenue increased $13.4 million, or 25.0%, compared to the same period for the prior year, due to the completion of our transition to an outsourced manufacturing and logistics model that adversely impacted revenue in the second quarter of fiscal 2011. Further, in the first six months of fiscal 2012, Communication revenue increased due to higher shipments of traditional sync, DTI and PackeTime™ products and higher installation revenues, offset by lower sales of embedded solutions products. Government and Enterprise segment revenue increased $5.1 million, or 11.9% compared to the same period for the prior year, due to an increase in our government programs business, enterprise products, and sales of Quantum™ Chip Scale Atomic Clocks (CSAC).

Gross Profit:


	Three Months Ended						$ Change			% Change			Six Months Ended						$ Change			% Change
	January 1, 2012			December 26, 2010									January 1, 2012			December 26, 2010
Gross Profit:
Communications	$	16,451		$	8,617		$	7,834			90.9	%	$	33,742		$	26,271		$	7,471			28.4	%
Government and Enterprise		9,433			9,738			(305	)		(3.1	)		18,504			19,570			(1,066	)		(5.4	)
Corporate related		(674	)		(3,910	)		3,236			(82.8	)		(1,091	)		(7,657	)		6,566			(85.8	)

Total Gross Profit	$	25,210		$	14,445		$	10,765			74.5	%	$	51,155		$	38,184		$	12,971			34.0	%
Percentage of Revenue		43.2	%		34.5	%								44.6	%		39.7	%

Second Quarter of Fiscal 2012: Gross profit in the second quarter of fiscal 2012 increased by $10.8 million, or 74.5%, compared to the corresponding quarter of fiscal 2011. Gross profit as a percentage of revenue in the second quarter of fiscal 2012 increased to 43.2% as compared to 34.5% in the corresponding quarter of fiscal 2011 due to a decrease in corporate-related restructuring charges.

Gross profit for our Communications segment increased by 90.9% in the second quarter of fiscal 2012 compared to the corresponding quarter of fiscal 2011 whereas the revenue in this segment increased by 63.5% compared to the same period in the prior year due to higher revenues and a lower sales mix of lower margin embedded products. Gross profit for our Government and Enterprise segment decreased by 3.1% in the second quarter of fiscal 2012 compared to the corresponding quarter of fiscal 2011 due to a higher mix of government programs business and CSAC which carries lower gross margins. Gross profit was also impacted in the second quarter of fiscal 2012 by higher manufacturing costs due to lower-than normal production and ramp up of new products, including CSAC.

Corporate related charges decreased by $3.2 million, or 82.8%, in the second quarter of fiscal 2012 due to higher restructuring charges in the second quarter of fiscal 2011 related to activities associated with the phased closure of our Puerto Rico manufacturing facility, which was completed in fiscal 2011.

We expect gross margins in the third quarter of fiscal 2012 to remain similar to or slightly lower than the second quarter of fiscal 2012 as we maintain lower-than-normal production and ramp up new products, including CSAC.

First Six Months of Fiscal 2012

Gross profit in the first six months of fiscal 2012 increased by $13.0 million, or 34.0%, compared to the corresponding period of fiscal 2011. Gross profit as a percentage of revenue in the first six months of fiscal 2012 increased to 44.6% as compared to 39.7% in the corresponding period of fiscal 2011 due primarily to a decrease in corporate-related restructuring charges.

Gross profit for our Communications segment increased by 28.4% in the first six months of fiscal 2012 compared to the corresponding period of fiscal 2011 whereas the revenue in this segment increased 25.0% compared to the same period in the prior year due to higher revenues and a sales mix of higher margin products (PackeTime™ and DTI products). Gross profit for our Government and Enterprise segment decreased by 5.4% in the first six months of fiscal 2012 compared to the corresponding period of fiscal 2011 whereas revenue increased 11.9% compared to the same period in the prior year, due to higher revenues and sales mix of lower margin products (government programs business and CSAC).

Corporate related charges decreased $6.6 million, or 85.8% , in the first six months of fiscal 2012, due to higher restructuring charges in the first six months of fiscal 2011 from activities associated with the phased closure of our Puerto Rico manufacturing facility, which was completed in fiscal 2011.

Operating Expenses:

Research and Development Expense:


	Three Months Ended						$ Change			% Change			Six Months Ended						$ Change		% Change
	January 1, 2012			December 26, 2010									January 1, 2012			December 26, 2010
Research and development expense	$	6,548		$	6,738		$	(190	)		(2.8	)%	$	13,446		$	13,344		$	102		0.8	%
Percentage of Revenue		11.2	%		16.1	%								11.7	%		13.9	%

Second Quarter of Fiscal 2012: Research and development expense consists primarily of salaries and benefits, prototype expenses and fees paid to outside consultants. Research and development expenses in the second quarter of fiscal 2012 were comparable to the same quarter of fiscal 2011. We expect that research and development expenses in the third quarter of fiscal 2012 will increase as compared to the second quarter of fiscal 2012 as we continue to invest in new product development.

First Six Months of Fiscal 2012: Research and development expense in the first six months of fiscal 2012 were comparable to the same period of fiscal 2011.

Selling, General and Administrative:


	Three Months Ended						$ Change		% Change			Six Months Ended						$ Change		% Change
	January 1, 2010			December 26, 2012								January 1, 2012			December 26, 2010
Selling, general and administrative	$	14,864		$	13,596		$	1,268		9.3	%	$	29,674		$	26,395		$	3,279		12.4	%
Percentage of Revenue		25.5	%		32.5	%							25.9	%		27.5	%

Second Quarter of Fiscal 2012: 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 increased in the second quarter of fiscal 2012 compared to the same quarter of fiscal 2011 due to higher spending on employee compensation costs, outside consulting expenses, travel, and sales commission expenses. This increase was partially offset by lower facilities expenses. We expect that selling, general and administrative expenses in the third quarter of fiscal 2012 will be consistent with the second quarter of fiscal 2012.

First Six Months of Fiscal 2012: Selling, general and administrative expenses in the first six months of fiscal 2012 increased compared to the same period for fiscal 2011 due to higher spending on employee compensation costs, outside consulting expenses, travel expenses, and sales commission expenses. This increase was partially offset by lower facilities expenses.

Amortization of intangible assets:


	Three Months Ended						$ Change			% Change			Six Months Ended						$ Change			% Change
	January 1, 2012			December 26, 2010									January 1, 2012			December 26, 2010
Amortization of intangible assets	$	52		$	61		$	(9	)		(14.8	)%	$	104		$	123		$	(19	)		(15.4	)%
Percentage of Revenue		0.1	%		0.1	%								0.1	%		0.1	%

Amortization of intangibles decreased in the second quarter and first six months of fiscal 2012 compared to the corresponding period of fiscal 2011 due to certain assets being fully amortized before or during the first six months of fiscal 2012.

Restructuring charges:


	Three Months Ended						$ Change		% Change			Six Months Ended						$ Change		% Change
	January 1, 2012			December 26, 2010								January 1, 2012			December 26, 2010
Restructuring charges	$	103		$	38		$	65		171.1	%	$	199		$	(843	)	$	1,042		(123.6	)%
Percentage of Revenue		0.2	%		0.1	%							0.2	%		(0.9	)%

Restructuring charges in the second quarter of fiscal 2012 consisted of lease loss charges, partially offset by a reduction in accrual of severance and relocation costs that are not expected to be incurred. Restructuring charges increased in the first six months of fiscal 2012 compared to the same period of fiscal 2011 due to sub-lease in the first six months of fiscal 2011 of a space in our Santa Rosa facility that had previously been recorded as a lease loss.

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


	Three Months Ended						$ Change			% Change			Six Months Ended						$ Change			% Change
	January 1, 2012			December 26, 2010									January 1, 2012			December 26, 2010
Interest income, net of amortization (accretion) of premium (discount) on investments	$	(296	)	$	331		$	(627	)		(189.4	)%	$	(230	)	$	223		$	(453	)		(203.1	)%
Percentage of Revenue		(0.5	)%		0.8	%								(0.2	)%		0.3	%

Interest income, net of amortization (accretion) of premium (discount) on investments decreased $0.6 million in the second quarter of fiscal 2012 compared to the same period of prior year due to higher amortization of premium on investments and a $0.4 million decline in fair value of mutual funds in the second quarter of fiscal 2012.

Interest income, net of amortization (accretion) of premium (discount) on investments decreased $0.5 million in the first six months of fiscal 2012 compared to the same period of fiscal 2011 due to higher amortization of premium on investments in the first six months of fiscal 2012.

Income tax provision:


	Three Months Ended						$ Change		% Change			Six Months Ended						$ Change		% Change
	January 1, 2012			December 26, 2010								January 1, 2012			December 26, 2010
Income tax provision (benefit)	$	902		$	(2,181	)	$	3,083		(141.4	)%	$	2,308		$	(285	)	$	2,593		(909.8	)%
Percentage of Revenue		1.5	%		(5.2	)%							2.0	%		(0.3	)%

Second Quarter of Fiscal 2012: Our income tax provision was $0.9 million in the second quarter of fiscal 2012, compared to a benefit of $2.2 million in the corresponding quarter of fiscal 2011. Our effective tax rate in the second quarter of fiscal 2012 was 27.0%, compared to an effective tax rate of 38.5% in the corresponding period of fiscal 2011. The effective tax rate for the second quarter of fiscal 2012 benefited from the reversal of a reserve on uncertain tax position due to expiration of the statute of limitation.

First Six Months of Fiscal 2012: Our income tax provision was $2.3 million in the first six months of fiscal 2012, compared to a benefit of $0.3 million in the corresponding period of fiscal 2011. Our effective tax rate in the first six months of fiscal 2012 was 30.8%, compared to an effective tax rate of 42.7% in the corresponding period of fiscal 2011. The effective tax rate for the first six months of fiscal 2012 benefited from the utilization of a capital loss and from the reversal of a reserve on uncertain tax position due to expiration of the statute of limitation. Also, in the first six months of fiscal 2011, the effective tax rate was impacted by a net loss position.

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 second quarter of fiscal 2012 with the end of fiscal 2011 is 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 $59.6 million as of January 1, 2012, compared to $60.3 million as of July 3, 2011. Our backlog, which is shippable within the next six months, was $40.5 million as of January 1, 2012, compared to $38.6 million as of July 3, 2011.

Contract Revenue:

As of January 1, 2012, we had approximately $19.3 million in contract revenue to be performed and recognized within the next 36 months, whereas as of July 3, 2011, we had approximately $16.1 million in contract revenue that was to be performed and recognized within 36 months following July 3, 2011. 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:


	January 1, 2012		July 3, 2011		Change
Cash and cash equivalents	$	22,794	$	20,318	$	2,476
Short-term investments		35,352		43,340		(7,988	)

Total	$	58,146	$	63,658	$	(5,512	)

As of January 1, 2012, our principal sources of liquidity consisted of cash, cash equivalents and short-term investments of $58.1 million and accounts receivable of $36.5 million.

As of January 1, 2012, working capital was $140.6 million compared to $134.7 million as of July 3, 2011. Cash, cash equivalents and short-term investments as of January 1, 2012 decreased to $58.1 million from $63.7 million as of July 3, 2011.

Our days sales outstanding in accounts receivable was 57 days as of January 1, 2012, compared to 65 days as of July 3, 2011.

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 six months of fiscal 2012 was $2.3 million. Net cash provided by operating activities consisted of net income of $5.2 million and non-cash charges of $9.9 million. The non-cash charges consisted of $2.9 million in depreciation and amortization, $2.8 million in stock-based compensation, $2.0 million in provision for excess and obsolete inventory and $2.0 million in deferred income taxes. Cash provided in the first six months of fiscal 2012 was partially offset by $12.8 million of net changes in assets and liabilities. Those net changes consisted primarily of a $7.6 million decrease in accounts payable, $3.3 million increase in prepaid and other assets, $3.2 million decrease in other accrued liabilities, $1.9 million increase in inventories, partially offset by a decrease in accounts receivable of $4.0 million.

Cash flows from investing activities

Net cash provided by investing activities was $5.4 million in the first six months of fiscal 2012, which represented sales/maturities of short-term investments of $22.7 million and $0.2 million from income on release of funds that were held in escrow to satisfy indemnification obligations to the buyer of our QoE business, partially offset by the purchase of short-term investments and property, plant and equipment of $15.6 million and $1.9 million, respectively.

Cash flows from financing activities

Net cash used for financing activities was $5.0 million in the first six months of fiscal 2012, which represented the repurchase of common stock of $6.1 million, partially offset by cash generated from the issuance of common stock under our ESPP and exercise of common stock options of $1.1 million.

Contingencies

See Item 1 of Part I, Financial Statements — Note 11 — Litigation and Contingencies.

Recently Issued Accounting Pronouncements

See Item 1 of Part I, Financial Statements—Note 1—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 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 July 3, 2011. Our exposure to market risk has not changed materially since July 3, 2011.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the fiscal quarter covered by this report.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended January 1, 2012 that have affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

See Item 1 of Part I, Financial Statements — Note 11 — Litigation and 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 July 3, 2011. 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

Not applicable.

The following table provides monthly detail regarding our share repurchases during the three months ended January 1, 2012:


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
October 3, 2011 through October 30, 2011		—	$	—		—		1,221,368
October 31, 2011 through November 27, 2011		331,786		5.09		318,945		4,969,300
November 28, 2011 through January 1, 2012		460,300		5.21		460,300		4,509,000

Total		792,086	$	5.16		779,245

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

Not applicable.

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.

101		Interactive Data File.

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: February 8, 2012	By:	/S/ DAVID G. CÔTÉ
		David G. Côté
		Chief Executive Officer (Principal Executive Officer) and Director

Date: February 8, 2012	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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