-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MqaeyxO65KdepRMEX4EhNH9ptlGfsJW3ur5jFbZyplSheXq1+tnyEMbJLqQp1QDA kSdGZjMmQ5t2S+PS+uiVLg== 0000808220-98-000001.txt : 19980210 0000808220-98-000001.hdr.sgml : 19980210 ACCESSION NUMBER: 0000808220-98-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980209 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SSE TELECOM INC CENTRAL INDEX KEY: 0000808220 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 521466297 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16473 FILM NUMBER: 98526199 BUSINESS ADDRESS: STREET 1: SUITE 710 8230 LEESBURG PIKE CITY: VIENNA STATE: VA ZIP: 22182 BUSINESS PHONE: 7034424503 MAIL ADDRESS: STREET 1: SUITE 710 8230 LEESBURG PIKE CITY: VIENNA STATE: VA ZIP: 22182 10-Q 1 __________________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________________________________________________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 27, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 0-16473 SSE TELECOM, INC. (Exact name of registrant as specified in its charter) Delaware 52-1466297 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8230 Leesburg Pike, Suite 710 Vienna, Virginia 22182 (Address of principal executive office) Registrant's telephone number, including area code: (703) 442-4503 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 ____ As of January 23, 1998, the following number of shares of each of the issuer's classes of common stock were outstanding: Common Stock 5,730,919 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements Page Condensed Consolidated Statements of Operations for the three months ended December 27, 1997 and December 28, 1996 (unaudited) 3 Condensed Consolidated Balance Sheets as of December 27, 1997 (unaudited) and September 27, 1997 4 Condensed Consolidated Statements of Cash Flows for the three months ended December 27, 1997 and December 28, 1996 (unaudited) 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11-13 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SSE Telecom, Inc. Condensed Consolidated Statements of Operations (Unaudited) For The Three Months Ended December 27, 1997 and December 28, 1996 (dollars and shares in thousands, except per share data) December 27, 1997 December 28, 1996 Revenue $12,337 $12,295 Cost of revenue 9,105 9,006 Gross margin 3,232 3,289 Expense Research and development 1,414 1,222 Marketing, general and administrative 1,739 1,872 Operating income 79 195 Net interest expense 181 128 Gain on sale of investment, net (2,888) (2,642) Other expense 39 -- Income before income taxes 2,747 2,709 Provision for income taxes 961 948 Net income $1,786 $1,761 Basic income per share $0.30 $0.30 Diluted earnings per share $0.29 $0.28 Shares used in computing basic income per share 5,955 5,877 Shares used in computing diluted earnings per share 6,185 6,320 The Notes to Condensed Consolidated Financial Statements are an integral part of these statements. SSE Telecom, Inc. Condensed Consolidated Balance Sheets (dollars in thousands) December 27, 1997 September 27, 1997 (unaudited) (audited) ASSETS Current Assets: Cash and cash equivalents $ 2,422 $ 408 Accounts receivable, net 11,012 11,061 Inventories 14,536 12,888 Deferred tax assets 3,067 3,067 Other current assets 965 1,123 Total current assets 32,002 28,547 Property, plant and equipment 12,628 12,404 Less accumulated depreciation 8,340 8,063 Property, plant and equipment, net 4,288 4,341 Long-term investments 8,580 14,519 Other assets 121 150 TOTAL ASSETS $44,991 $ 47,557 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,959 $ 6,070 Accrued salaries and employee benefits 1,081 1,503 Short-term debt 4,787 4,750 Other accrued liabilities 2,826 2,500 Total current liabilities 17,653 14,823 Deferred tax liabilities 2,414 4,461 Long-term debt 3,396 4,730 Stockholders' equity Common stock and paid in capital 12,548 12,546 Treasury stock (1,782) (1,782) Retained earnings 6,620 4,835 Net unrealized gain on available for sale investments 4,142 7,944 Total stockholders' equity 21,528 23,543 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $44,991 $ 47,557 The Notes to Condensed Consolidated Financial Statements are an integral part of these statements. SSE Telecom, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) For the three months ended December 27, 1997, and December 28, 1996 (dollars in thousands) December 27, 1997 December 28, 1996 Cash provided by (used for) operating activities: Net income $ 1,786 $ 1,761 Adjustments to reconcile net income to net cash provided by (used for): Depreciation and amortization 297 171 Net gain on sale of Echostar stock (2,888) (2,642) Deferred interest expense 58 48 Changes in operating assets and liabilities: Accounts receivable 49 (1,185) Inventories (1,648) 930 Other current assets 158 478 Accounts payable 2,888 (1,849) Other accrued liabilities 80 (262) Total adjustments (1,006) (4,311) Net cash provided (used) by operating activities 780 (2,550) Cash provided (used) by investing activities: Purchases of equipment (224) (616) Proceeds from sale of Echostar stock 3,162 2,835 Purchase of Media4 debenture (175) -- Net cash provided by investing activities 2,763 2,219 Cash provided by financing activities: Net (payment)/borrowings under operating lines of credit (30) 1,781 Net borrowings under equipment note -- 240 Net payments on convertible notes payable (1,335) (1,175) Treasury stock purchases -- (874) Payments of deferred interest (164) -- Other -- 29 Net cash (used) provided by financing activities (1,529) 1 Net increase (decrease) in cash and cash equivalents 2,014 (330) Cash and cash equivalents beginning of period 408 1,241 Cash and cash equivalents end of period $ 2,422 $ 911 The Notes to Condensed Consolidated Financial Statements are an integral part of these statements. SSE TELECOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The financial information at December 27, 1997, and for the three month periods ended December 27, 1997 and December 28, 1996, is unaudited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows for the interim periods have been made. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's September 27, 1997 Form 10-K. The results of operations for the three months ended December 27, 1997, are not necessarily indicative of the operating results for the full year. 2. CONSOLIDATION AND OTHER CHARGES The Company completed the consolidation of its manufacturing operation and transfer of its satellite modem manufacturing operation from its facility in Scottsdale, Arizona to the Company's Fremont, California facility during the three month period ended December 27, 1997. All of the $850,000 restructuring charges accrued in the third quarter of fiscal 1997 have been utilized. 3. CONTINGENT LIABILITIES A special warranty expense of $1.8 million before tax was recognized as of June 1997. This charge, of which $1.14 million remains accrued as of December 27, 1997, reflects costs estimated to be incurred for retrofitting certain of the Company's satellite transceiver products. The Company has made progress on the program and has retrofitted a number of units within its installed base. The Company presently anticipates the retrofit program to continue for about 6 more months. The warranty cost accrued is an estimate, actual results could differ materially. 4. INVENTORIES Inventories consist of manufacturing raw materials, work-in process and finished goods. Inventories are valued at the lower of cost or market. Cost is based on the average cost method, which approximates actual cost on the first-in, first-out ("FIFO") basis. At December 27, 1997 and September 27, 1997, inventories consisted of: (in thousands) December 27, 1997 September 27, 1997 (unaudited) Manufacturing raw materials $5,741 $5,000 Work-in-process 6,010 5,703 Finished goods 2,785 2,185 Total $14,536 $12,888 5. LONG TERM DEBT At December 27, 1997, the Company had an outstanding principal balance of $2.74 million on its 6 1/2% convertible subordinated debentures due March 1, 2001, payable to Echostar Communication Corporation. During the first three months of fiscal 1998 the Company repaid $1.3 million of the debenture principle and $164,000 of debenture interest. 6. EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all prior periods have been presented, and where necessary, restated to conform to the Statement 128 requirements. The following table sets forth the computation of basic and diluted earnings per shares: (dollars and shares in thousands, except per share) December 27, 1997 December 28, 1996 Numerator: Net income $ 1,786 $ 1,761 Numerator for basic earnings per share 1,786 1,761 Effect of dilutive securities: Interest expense, net of taxes on 6 1/2% convertible debentures 38 43 Numerator for diluted earnings per share $ 1,824 $ 1,804 Denominator: Denominator for basic earnings per share-weighted average shares 5,955 5,877 Effect of dilutive securities: Employee stock options 2 68 Warrants 4 6 1/2% convertible debentures 228 371 Dilutive potential common shares 230 443 Denominator for diluted earnings per share-adjusted weighted average shares and assumed conversions 6,185 6,320 Basic earnings per share $0.30 $0.30 Diluted earnings per share $0.29 $0.29 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Information contained in this Form 10-Q that is not historical fact, including any statements about expectations for the fiscal year and beyond, involve certain risks and uncertainties. This Form 10-Q contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, many of which can be identified by the use of forward-looking terminology such as "may", "will", "believe", "expect", "anticipate", "estimate", "plan", "intend", or "continue" or the negative with respect to such forward-looking statements that could cause actual results to differ materially from those contemplated in such forward-looking statements. Numerous factors, such as economic and competitive conditions, incoming order levels, timing of product shipments, product margins, new product development, and reliance on key vendors and consumers and international sales could cause actual results to differ from those descrscribed in these statements and current and prospective investors and stockholders should carefully consider these factors in evaluating the forward-looking statements. Overview The Company made strides in maximizing economies of scale by completion of the consolidation of its manufacturing operation and transfer of its satellite modem manufacturing operation from its facility in Scottsdale, Arizona to the Company's Fremont, California facility. All manufacturing and customer support has now been centralized in Fremont, California. The Company maintains a modem engineering and R&D facility in Phoenix, Arizona. The Company continues its program of retrofitting certain transceivers under the special warranty program begun in June of 1997. This program, of which a $1.14 million accrual remains as of December 27, 1997, reflects costs estimated to be incurred for retrofitting certain of the Company's satellite transceiver products. The problem stems from the identification by one of the Company's vendors that a component sold to the Company and used in many of the transceivers produced in fiscal year 1997 was found to be defective in certain cases. The cost accrued is an estimate, actual results could differ materially. Results of Operations for the three months period ended December 27, 1997 and December 28, 1996 Revenue: Sales were $12.3 million for the first quarter of fiscal 1998 and for the same period in fiscal 1997. The Company successfully transferred the modem production to the Fremont facility and began shipping the newly released SM3000 satellite modem during the three month period ended December 27, 1997. The Company continued to see a shift in revenue to its STAR transceiver product line and continued shipments to support MCI's FAATSAT program with the Federal Aviation Administration . Gross Margin: Gross margin was $3.2 million or 26% of sales in the first quarter of fiscal 1998, compared to $3.3 million or 27% of sales for the first quarter of 1997. The relative stability of gross margin percentage was primarily due the to two offsetting factors: (1) decreased satellite modem orders in the first quarter of fiscal 1998, which typically have higher margins, and (2) improvements in manufacturability of the STAR line of transceivers. The cost reduction from consolidation of the manufacturing operations was not fully recognized in the first quarter as the modem production was moved at the end of October 1997. The Company estimates further modest improvements in gross margin percentage from this consolidation and improvements in the manufacturability of the STAR line of transceivers during the remainder of fiscal year 1998, depending upon overall shipment levels. Research and Development: Research and development expenses grew by 17% to $1.4 million or 11% of sales for the first quarter of fiscal 1998 from $1.2 million or 10% of sales for the first quarter of fiscal 1997. The increase reflects the continuing support and enhancement of manufacturability of the STAR transceiver product line, the continued development of next generation of modem products and continued development of Starlink, an integrated transceiver/modem. Marketing, General and Administrative: Marketing, general and administrative expenses were $1.7 million or 14% of sales in the first quarter of fiscal 1998 as compared to $1.9 million or 15% of sales for the same period in fiscal 1997. Amortization of Intangible Assets. Amortization expense associated with intangible assets were $20,000 and $35,000 for the three months ended December 27,1997 and December 28, 1996, respectively. Net Interest Expense. Net interest expense was $181,000 in the first quarter of fiscal 1998. During the same period of last fiscal year, net interest expense was $128,000. The increase in interest expense reflects the increase in the amount outstanding under short term debt offset partially by decreased expense associated with 6.5% subordinated debenture held by Echostar Communication Corporation. The debenture principal was reduced from $4.1 million at September 27, 1997 to $2.7 million at December 27, 1997. Net (Gain) on Sale of Investments. During the first three months of fiscal 1998 the Company realized a gain of $2.9 million on sales of 147,975 shares of Echostar Communication Corporation (NASDAQ: DISH) common stock at an average selling price of $21.37 per share. The proceeds generated from these sales were used for repayment of convertible debentures payable to Echostar, to fund operating expenditures, and to increase cash available. As of December 27, 1997 the Company holds a total of 477,805 shares of Echostar common stock. Provision for Income Taxes. The effective tax benefit rate was 35% for the first quarter of fiscal year 1998 and for the first quarter of fiscal year 1997, respectively. Backlog. The Company's total backlog was $6.7 million at the end of the first quarter of fiscal year 1998, as compared to backlog of $11.0 million at the end of fiscal year 1997. The strong shipments during the quarter decreased the Company's backlog. The Company has experienced some reduction in export orders, especially to the Asian market, as that part of the world struggles with economic uncertainty. The Company continues to monitor that market and is actively pursing opportunities in the Asian market. Management expects substantially all backlog to be delivered in fiscal 1998. Timing differences from quarter to quarter as to the receipt of large orders and changes in factory production make meaningful quarter to quarter comparison of backlog difficult. LIQUIDITY AND CAPITAL RESOURCES At December 27, 1997, the Company had working capital of $14.3 million, including $2.4 million in cash and cash equivalents, compared with working capital of $13.4 million, including cash and cash equivalents of $408,000 at September 27, 1997. Net cash provided by operating activities was $712,000 during the first three months of fiscal 1998 as compared to net cash used of $2.6 million in the similar period of fiscal 1997. Cash was provided from net income and increases in operating liabilities offset by increases in operating assets. The Company's investing activities provided $2.8 million during the first three months of fiscal 1998 as compared to cash provided of $2.2 million during the same period in fiscal year 1997. During the first three months of fiscal 1998 $3.2 million was realized from the sale of Echostar shares which offset capital expenditures of $224,000. The Company increased its holding of Media4's debentures by purchasing a 7% $175,000 convertible debenture of Media4's from Alcatel Telspace at face value. The Company continues to maintain its investment in Media4 on a cost basis of $1,316K, at December 27, 1997. The Company's financing activities used $1.5 million during the first three months of fiscal 1998 as compared to net cash provided of $1,000 during the first three months of fiscal year 1997. The Company reduced convertible debentures by $1.3 million and made payments in debenture interest of $164,000. At December 27, 1997, the Company's principal sources of liquidity consisted of $2.4 million in cash and a bank line of credit. At December 27, 1997, $4.1 million was outstanding on a $5.0 million operating line of credit. In addition the Company had a term loan with a principal balance of $806,000. The line of credit and term loan require the Company to be in compliance with certain financial covenants. As of December 27, 1997 the Company was in compliance with all covenants. In addition, the Company $447,00 outstanding under capital lease financing with a limit of up to $700,000 for capital equipment. A principal source of capital, the value of the Company's holding of Echostar common stock, is subject to the volatility of the stock price. On September 27, 1997 the Company held 625,780 shares of Echostar stock with a value of $13 million and an unrealized gain of $8 million, net of tax. On December 27, 1997 the Company held 477,805 shares of Echostar stock with a value of $7 million and an unrealized gain of $4 million, net of tax. The Company's capital requirements could change in the event of factors such as lower than anticipated demand for the Company's products, the uncertainty of the cost associated with the special warranty expense or unanticipated limitations on debt financing. The Company believes that its current cash position, funds generated from operations, funds available from its equity holdings in Echostar common stock and its lines of credit will be adequate to meet its requirements for working capital, capital expenditures, debt service and external investment for the forseeable future. Due to certain constraints on the ability to sell Echostar shares and potential volatility of the value of stock, there could be a significant reduction in funding available from the liquidation of Echostar stock. If these events occur, the Company may be required to raise additional capital using other means to meet all of its needs. Impact of Year 2000 The Company is reviewing the material risk associated with the Year 2000 issue on computer hardware and software. Computer systems are at risk where the date using "00" is recognized as the year 1900 rather than the year 2000. The Company is currently assessing its exposure and will have a plan in place by Q4 of FY '98. While the Company doesn't anticipate costs for the Year 2000 issue to be material final results of this review could be significantly different. PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits included herein (numbered in accordance with Item 601 of Regulation S-K) Exhibit Number Description Sequential Page Number 27 Financial Data Schedule Page 13 (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: February 9, 1998 SSE TELECOM, INC. By: /s/ Daniel E. Moore Daniel E. Moore, Chief Executive Officer By:/s/ Russ D. Kinsch Russ D. Kinsch, Chief Financial Officer EX-27 2
5 1,000 3-MOS SEP-26-1998 SEP-28-1997 DEC-27-1997 2,422 0 11,637 625 14,536 32,002 12,628 8,340 44,991 17,653 3,396 0 0 60 21,468 44,991 0 12,337 9,105 3,153 (2,849) 0 181 2,747 961 1,786 0 0 0 1,786 0.30 0.29
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