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Symmetricom Inc. Reports Operating Results (10-K)

September 10, 2010 | About:

Symmetricom Inc. (SYMM) filed Annual Report for the period ended 2010-06-27.

Symmetricom Inc. has a market cap of $223.3 million; its shares were traded at around $5.09 with a P/E ratio of 15.5 and P/S ratio of 1. SYMM is in the portfolios of David Einhorn of Greenlight Capital Inc, Jim Simons of Renaissance Technologies LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

150 positions will be eliminated or about 20% of our total workforce. We expect to incur restructuring charges of approximately $15.0 million in connection with the plan. Total restructuring charges are expected to include approximately $7.0 million in one-time termination benefits, approximately $5.7 million in facility shutdown charges and approximately $2.3 million in transfer and other restructuring related charges. As part of this restructuring, we incurred $3.4 million restructuring charges as of June 27, 2010. Total cash expenditures associated with the restructuring plan are expected to be approximately $13.5 million. Total non-cash charges associated with the restructuring plan are expected to be approximately $1.5 million, and mainly relate to additional depreciation charges for assets with shorter economic lives. We plan to build approximately $5.0 million in buffer inventory to support the transition. Upon completion, we expect the restructuring and other actions to reduce annual costs by approximately $6.0 million.

During the third quarter of fiscal 2010, we completed the sale of our video QoE business to Cheetah Technologies, L.P. (Cheetah). Cheetah acquired the assets related to the QoE product line and hired the remaining QoE employees. The total purchase price was $2.3 million, including $0.4 million held in escrow as of March 28, 2010. The escrowed funds are subject to forfeiture to satisfy indemnification and other obligations, if any, to Cheetah. The period of escrow for the $0.4 million will expire on July 1, 2011. As a result of this transaction, we recognized a gain on sale of discontinued operations of $0.9 million, net of income taxes, in fiscal 2010. This gain reflects $1.9 million in cash received in the third quarter of fiscal 2010, less transaction costs, the net carrying value of assets and liabilities transferred, and other related costs, resulting in a $1.4 million gain on sales of discontinued operations, before income taxes. During fiscal year 2010, we also recognized a loss of $1.5 million on the operating results of QoE during this period. In addition, QoE will no longer be shown as a reportable segment within continuing operations and all comparative information from prior periods has been updated to reflect this change.

During the fourth quarter of fiscal 2010, we agreed to purchase approximately $56.9 million aggregate principal amount of our contingent convertible subordinated notes (Notes) in privately negotiated transactions, for a purchase price of $57.7 million, representing the par value principal amount of the Notes plus accrued and unpaid interest. This repurchase represented the repayment of all outstanding convertible notes prior to June 27, 2010. The purchased Notes will be retired and cancelled by the Company.

We determined that the initial liability component of the Notes was valued at $77.0 million, with the equity component representing the residual amount of the Notes proceeds. As a result, for fiscal 2005, we retrospectively recorded $43.0 million as a component of equity and a corresponding debt discount as of the date of issuance, and a deferred tax liability of $15.9 million.

In addition, we allocated $0.9 million, net of tax, of the total issuance costs of $4.0 million to the equity component of the Notes and the remaining $2.6 million of the issuance costs remained classified as long-term other assets. The issuance costs were allocated pro rata based on the relative carrying amounts of the liability and equity components. The debt discount and the issuance costs allocated to the liability component are amortized using the effective interest method as additional interest expense over a seven-year period ending June 2012 at which point the Notes may be redeemed by the holders or by us. The equity component of the issuance costs of $1.4 million is included in common stock as additional paid-in-capital.

Upon adoption, interest expense increased on our Notes by adding a non-cash component to amortize a debt discount calculated based on the difference between the cash coupon rate (3.25% per year) of the Notes and the effective interest rate on the debt borrowing (10.69% per year). For the year ended June 27, 2010, the total interest expense relating to our Notes was $4.7 million, including $1.9 million related to the contractual interest coupon and $2.8 million related to amortization of the discount on the liability component. For the year ended June 28, 2009, the total interest expense relating to our Notes was $5.3 million, including $2.2 million related to the contractual interest coupon and $3.1 million related to amortization of the discount on the liability component.

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