Form 10-K

Position

Elizabeth Fetter

President and Chief Executive Officer, Director

Justin R. Spencer

Executive Vice President, Finance and Administration, Chief Financial Officer and Secretary

Philip Bourekas

Executive Vice President, Marketing

10-K 1 d576665d10k.htm FORM 10-K Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2013

¨	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 its 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)		(Zip Code)

Registrant’s telephone number, including area code: (408) 433-0910


Securities registered pursuant to Section 12(b):		Name of each exchange on which registered
Common Stock, $0.0001 Par Value		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 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 (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§29.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 definition of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

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

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant, computed by reference to the closing price at which the Common Stock was sold on December 31, 2012 as reported on The NASDAQ Stock Market LLC, was approximately $234,000,000. This calculation does not reflect a determination that such persons are affiliates of the Registrant for any other purpose.

As of August 28, 2013, there were approximately 41,319,056 shares of Registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant’s 2013 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

SYMMETRICOM, INC.

FORM 10-K

For the Fiscal Year Ended June 30, 2013

INDEX


		Page
PART I
Item 1.	Business		3
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		24
Item 2.	Properties		24
Item 3.	Legal Proceedings		24
Item 4.	Mine Safety Disclosures		24

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		25
Item 6.	Selected Financial Data		27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		39
Item 8.	Consolidated Financial Statements and Supplementary Data		40
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		73
Item 9A.	Controls and Procedures		73
Item 9B.	Other Information		73

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		75
Item 11.	Executive Compensation		75
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		75
Item 13.	Certain Relationships and Related Transactions, and Director Independence		76
Item 14.	Principal Accountant Fees and Services		76

PART IV
Item 15.	Exhibits and Financial Statement Schedules		77
	Signatures		81

PART I

FORWARD-LOOKING INFORMATION

When used in this discussion, the words “expect,” “anticipate,” “estimate,” “believe,” “plan,” “will,” “may,” “intend,” “can,” “project” and similar expressions are intended to identify forward-looking statements. These statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere 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 and government and enterprise markets in general, risks related to the development of our new products and services, our 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 other risks set forth below in 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 on which any such statement is based.

References in this report to “Symmetricom,” the “Company”, “we,” “us,” and “our” mean Symmetricom, Inc. and its subsidiaries, except where it is made clear that the term means only the parent company.

BesTime, ExacTime, PackeTime, Symmetricom, SymmTime, SyncServer, TimeCesium, TimeCreator, TimeHub, TimePieces, TimePictra, TimeProvider, TimeScan, TimeSource, TrueTime are our trademarks. We also refer to trademarks of other corporations and organizations in this document.

Item 1.

Business

Overview

Symmetricom^® is a leading source of highly precise timekeeping and synchronization technologies, instruments and solutions worldwide. We provide timekeeping in GPS satellites, national time references, and national power grids as well as in critical military and civilian networks, including those that enable delivery of next generation data, voice, mobile and video services.

Our product offerings include atomic instruments and components, hydrogen masers, timescale systems, GPS instrumentation, synchronization supply units, standards-based clients and servers, performance measurement and management tools and embedded subsystems and software solutions that generate, distribute and apply precise frequency and time.

Precise timekeeping is an essential component of modern life. Among other applications, it enables GPS navigation, the seamless handoff of cellular calls, the timely receipt of data packets, the management of the electric power grid, military range synchronization, electronic test and measurement, signals intelligence and the ability to detect, investigate and protect against cyber threats.

Symmetricom products are critical in all these applications in markets that include national timekeeping, aerospace, power grid infrastructure, defense, intelligence, enterprise IT, metrology, telecom, cable TV, electronic manufacturing and a broad spectrum of scientific research.

General Information

Symmetricom was incorporated in California in 1956 and reincorporated in Delaware in 2002. Our principal executive offices are located at 2300 Orchard Parkway, San Jose, California 95131-1017, and our telephone number is (408) 433-0910.

Our website is located at www.symmetricom.com. We make available, free of charge on or through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to the Securities and Exchange Commission (“SEC”). Information contained or referenced on our website is not incorporated by reference into and does not form a part of this Form 10-K.

Industry Background

The markets we serve include:

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Communications service providers;

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Network equipment manufacturers (wireless base stations, routers, aggregation systems);

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Silicon suppliers;

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Space/Defense/Avionics;

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Power utility infrastructure;

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IT infrastructure;

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Underwater exploration and navigation, and

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Science and metrology.

Reportable Segments

Symmetricom operates in two reportable segments: Communications, and Government and Enterprise. Net revenue, gross profit, and operating income attributable to each of these reportable segments for each year in the three-year period ended June 30, 2013, is contained in Note 11 of the consolidated financial statements (Part II, Item 8 of this Form 10-K). We do not identify or allocate assets, nor allocate certain of our operating expenses (which includes restructuring and integration charges), interest income, interest expense, or income taxes to these individual reportable segments.

Communications

Our Communications segment includes timing technologies and services for worldwide communications infrastructure. Specific products include primary reference sources; edge clocks and distribution products for synchronization outside the network core; Building Integrated Timing Supply (BITS) and Sync Supply Unit (SSU) for the central office; the PackeTime^® product suite based on technologies such as IEEE 1588 (PTP), Network Time Protocol (NTP) and Synchronous Ethernet (SyncE); Data Over Cable Service Interface Specifications (DOCSIS) timing interface systems; network management and monitoring software; and embedded hardware and software solutions for integration with all elements of the communications ecosystem from silicon to systems such as routers, switches, microwave backhaul and base stations. Symmetricom owns intellectual property, including patents, in advanced control algorithms for various types of deployments.

Network service providers are driven by increased bandwidth demand from end users and a need for reduced operating expenses to evolve their infrastructure toward packet-based technologies. In fiscal 2013, we continued to participate in the deployment and modernization of various synchronization networks around the world. Our products also enabled operators of multiple cable television systems to enhance the performance of their broadband offering.

We continue to build a strong portfolio of precise timing and frequency solutions to address all layers of existing circuit switched network and the growing synchronization requirements of next-generation packet networks. The addition of a broader range of embedded solutions enables network equipment manufacturers and silicon solution developers to provide robust synchronization solutions as part of their own offerings.

In fiscal 2013, we launched several systems and embedded products to meet the evolving needs of Carrier Ethernet, 3G and LTE networks. These include the Edge Master family of products such as our TimeProvider 2700 Grand Master Clock and TimeProvider 2300 Boundary Clock to support packet networks at the network edge. Emerging Small Cell deployments will take advantage of these industry leading synchronization solutions.

In fiscal 2013, we also added a Small Cells category to our SyncWorld Ecosystem Program. This category includes Qualcomm Atheros, Cavium, Broadcom, Mindspeed, Node H, Rakon and Alcatel Lucent. Symmetricom’s SoftClocks were integrated into Small Cell platforms from Contela, CS Corporation, SK Telesys, and Qucell.

We also enhanced the SSU 2000 platform by adding support for GLONASS Satellite Navigation System to meet customer demand in parts of Europe and Asia Pacific.

Symmetricom won two prestigious awards in fiscal 2013. It was awarded Frost & Sullivan’s 2012 Global Technology Innovation Award for its accomplishments in LTE synchronization. Additionally, the company’s TimeProvider^® 5000 IEEE 1588 Grandmaster Clock was selected as the Best Carrier Ethernet Core Product by the IIR Carrier Ethernet Awards—EMEA 2012.

Government and Enterprise

Symmetricom’s Government and Enterprise segment includes timing technology products for aerospace/defense, IT infrastructure, power 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.

Product families include timescale clock sources, network time servers (both NTP and PTP), network time displays, time code generators, bus level timing cards, primary reference standards such as cesium oscillator standards, high stability masers, chip-scale atomic clocks, ruggedized crystal oscillators, and custom time and frequency systems. Customer applications include synchronization of government communication networks, synchronization of computer networks, reference timing for radar, ranging, fire-control and other defense electronic systems, calibration of lab equipment, GNSS (Global Navigation Satellite Systems), and subsystem master timing. To support both a diverse customer and product base, the products and technologies provide strong capabilities that allow for the tailoring of standard product platforms to meet a customer’s unique system requirements.

During fiscal 2013, we saw significant growth in our Quantum™ Chip-Scale Atomic Clock (CSAC) business with diversified shipments to multiple customers in North America, Europe and Asia Pacific.

Fiscal 2013 included the launch of multiple solutions for several different markets. The SGC-1500, our industry-leading smart grid clock for substations, was formally launched and has been applauded for richness of features and compliance to the IEC 61850 standard. A new Test-probe, 3120A, was launched to support customer

requests for a cost-effective testing tool on the manufacturing floor. A new Precise Time Scale System was announced to address the need for an “off-the-shelf” commercial solution. This has been well received in several countries in Latin America and Asia Pacific.

Our SyncWorld Ecosystem Program was expanded to add a category for the Power Utility market segment. Charter members of this new category include Cisco, Siemens/Ruggedcom, Burns & McDonnell, Belden, Moxa and Kyland.

Communications Segment: Markets and Products

Within our Communications business, we serve the wireless, wireline and cable infrastructure markets with systems, sub-systems modules, components, software solutions and GPS accessories.

Synchronization Products

We sell our synchronization products to wireless, wireline and cable service provider markets. Commonly, our products are used to synchronize wireline communications; to provide the precise timing needed for DOCSIS 3.0 broadband services; and to provide synchronization and timing support to wireless network deployments.

The communications network consists of a series of interconnected switching equipment and other components that route information (i.e., voice, video, and data) through the network. For these networks to function efficiently, each network must be synchronized to a traceable time reference, and the individual nodes within the network must operate within precise tolerances. Precision synchronization equipment throughout these networks provides a frequency reference which enables digital switching, routing and transmission systems to operate at a common, synchronized clock rate, thereby aligning time slots, which increases bandwidth utilization while minimizing signal degradation and reducing errors throughout a network.

Our core system products are built on atomic clock, networking timing protocols (NTP and PTP) and GPS technologies and provide for the generation, distribution, and management of communications synchronization infrastructure.

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Primary Reference Sources (PRS)—consists of the GPS-based TimeSource^®, the cesium-based TimeCesium^®, and the packet-based IEEE-1588 TimeProvider^® 1500 solutions.

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Building Integrated Timing Supplies (BITS) or Synchronization Supply Units (SSUs)—consists of the carrier class SSU 2000 and TimeHub^®, both intelligent sync distribution systems, and carrier class Network Time Protocol (NTP) & IEEE 1588 (PTP) plug-in server cards supporting critical applications for next generation networks. Other key products include the TimeProvider^® 5000 PTP Grandmaster, the TimeProvider 2700 – industry’s first Grandmaster for the edge, the TimeProvider 2300 Boundary Clock, the TimeProvider 1000, the industry’s first node clock (hybrid SSU & PRS), TimeCreator^®, the first DOCSIS Timing Interface (DTI) server qualified by CableLabs, and other products currently under development to address emerging needs in the wireless, wireline and cable markets.

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IEEE 1588 Clients—consists of the TimeProvider 500, designed to deliver frequency synchronization in the metropolitan area network or access network.

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Element Management Systems—consists of TimePictra, the carrier class HP-UX based system, TimeScan, the PC-based system, and TimeCraft, the advanced GUI management tool.

Embedded Solutions

Our embedded solutions consists of sub-systems (module), components, software solutions, and GPS accessories that enable cellular, broadcast and cable service providers to achieve precise timing and synchronization for seamless deployment of services offerings to their end users. Symmetricom solutions are deployed in wireless base stations, switches, routers, microwave backhaul, digital video broadcast and instrumentation equipment.

Specific embedded solutions we provide include:

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Sub-system cards or modules customized for each manufacturer, using a combination of GPS, quartz oscillators, rubidium atomic oscillators, input/output signals and control algorithms. Some of the control algorithms are contained in our BesTime^® technology. Symmetricom’s modules are designed to be integrated into existing communications and transmission equipment such as cellular base stations (GSM, CDMA, TD-SCDMA, W-CDMA, 4G / LTE and Femto), broadcast (DVB, DVB-H, DAB, DTV), and satellite communications equipment.

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Components such as Rubidium atomic oscillators with various performance levels to ensure network holdover when a network timing reference is lost to guarantee quality of service (QoS).

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Software Solutions such as the 1588 soft client software which can be embedded into various generations of base stations, routers, switches, microwave backhaul and Small Cells to provide time and frequency capabilities, and interconnects with 1588 grand masters. The IEEE 1588-2088 packet-based protocol (PTP 1588) enables next generation services when operators transition from legacy TDM to IP-based infrastructure.

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GPS accessory components including antenna receivers, timing antennas, splitters, amplifiers, and lightning protectors.

Services

We also provide lifecycle services for Symmetricom product lines. Service offerings fall into five main categories:

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Engineering and installation—Engineering and installation services help customers implement new Symmetricom product purchases.

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Operations and support programs—Operations and support programs, such as Sync Office Audits, assist customers in maintenance of their sync networks, help ensure power and alarm diversity to avoid service outages and identify system capacity.

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Maintenance—Offerings are designed to help customers with ongoing support of their Symmetricom products. These include 24 x 7 technical support, traditional return-to-factory repair services, and on-site repair labor.

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Training, certification programs and professional development courses—Courses enable customer personnel to successfully utilize and maintain our products. These programs are also available under license for customers who maintain their own training centers.

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Consulting and other professional services—Consulting services assist customers in planning new sync communications networks and developing growth or disaster recovery plans for existing sync networks.

Government and Enterprise Segment: Markets and Products

The aerospace, defense, metrology, power grid, timekeeping, and IT infrastructure markets require precision time and frequency instruments and reference standards. Time and frequency solutions include GPS and time code instrumentation products, bus level timing cards, and precision frequency references (atomic standards). IP network timing products include dedicated network time servers and management and monitoring software that synchronizes the timing on enterprise networks. Space, defense, and avionics applications include highly reliable and ruggedized components and systems designed to address specific customer requirements.

We offer a wide variety of precision time and frequency products sold primarily to the aerospace and defense, smart grid, metrology and IT infrastructure sectors. These products can generally be divided into the following broad categories:

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Precision frequency references—Precision frequency references form the basis of absolute time and frequency in many systems and applications. Our products include active hydrogen masers, cesium frequency standards, rubidium frequency standards, and quartz frequency standards. Our primary reference source instruments provide stand-alone dependability, ease of use, and ease of installation that make them suitable for the critical time or frequency systems found in telecommunications timing, calibration and metrology laboratories, satellite tracking stations and space-based master time standards.

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The Quantum™ Chip Scale Atomic Clock—We manufacture the SA.45s Chip Scale Atomic Clock (CSAC) which provides the accuracy and stability of atomic clock technology while achieving dramatic reductions in size, weight and power consumption. It is used in applications, especially those in GPS-denied environments that call for precise synchronization, accurate time keeping and maximum portability. It is only 16cc in volume, weighs only 35 grams, requires only 115mW of power and provides time accuracy two orders of magnitude better than quartz-based solutions.

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Bus level timing—We manufacture a broad line of precision timing products in the form of plug-in cards for computers. These cards provide precise timing capabilities to computers equipped with common bus components. We also offer software development tools to speed the integration of these cards into software applications. Bus cards are used across a range of embedded applications, and our newest offerings are used with servers in high-performance computing applications such as high-frequency trading.

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Enterprise network time servers—We manufacture several products for enterprise network time distribution. These bring entire networks of computers into precise time synchronization.

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Smart Grid Clock—We manufacture a purpose built clock for the power utility substation. This product, SGC-1500, supports legacy interfaces such as IRIG-B, as well as packet protocols such as NTP and PTP. It is hardened to IEC-61850 specifications and support 1 microsecond accuracy across the substation network.

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GPS and time code instrumentation products—We manufacture a wide variety of general purpose and secure GPS receivers, time code generation, translation, measurement, and distribution products. A time code is a data format for recording and processing time measurements. These instruments service a variety of end markets, including defense and smart grid applications.

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Space, defense and avionics—We provide ruggedized and militarized quartz and atomic clock platforms for the most demanding military applications. Our designs are vibration isolated with low sensitivity to acceleration. For space applications such as GPS, where there is a high degree of exposure to radiation, our products are protected by radiation-hardened designs.

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Test and measurement equipment—We provide a line of time and frequency test solutions including a family of Phase Noise and Allan Deviation test sets designed to measure critical performance specifications of precision time and frequency signals and sources.

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Custom time and frequency systems—We design and build custom time and frequency systems to address critical applications in aerospace/defense and government markets. For example, we provide time scale systems for national time keeping and two way time transfer systems for GPS autonomy to our customers.

Sales Operations

We sell our products directly to customers, through domestic and international distributors, through systems integrators, and manufacturer sales representatives. In the United States, our Communications segment’s products are primarily sold through our sales force and manufacturer sales’ representatives to network service

operators and network equipment manufacturers. Our Government and Enterprise segment’s instrumentation products are primarily sold through manufacturer sales representatives and our enterprise products are primarily sold through telesales. Internationally, we market and sell our products through our internal sales force, independent sales representatives, distributors, and systems integrators.

Licenses, Patents, Trademarks and Copyrights

We use a combination of trademark rights, copyrights and patent rights, as well as associated registrations, contractual restrictions, and internal security to establish and protect our proprietary rights. As of June 30, 2013, we had 61 active United States patents. The active patents issued will expire between July 2014 and September 2030. We believe that our patents have value, but we rely primarily on innovation, technological expertise, and marketing competence to maintain our competitive advantage. The telecommunications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. We intend to continue our efforts to obtain patents whenever possible, but there can be no assurance that patents will be issued or that any existing patents or patents that are obtained will not be challenged, invalidated or circumvented, or that the rights granted will provide any commercial benefit to us. Additionally, if any of our processes or designs are identified as infringing upon patents held by others, there can be no assurance that a license will be available, or that the terms of obtaining any such license will be acceptable to us. In addition, the laws of certain countries in which our products may be developed, manufactured or sold may not protect our products and intellectual property rights to the same extent as the laws of the United States. In addition, we use technology licensed from others.

We generally enter into confidentiality agreements with our employees, consultants, and third parties in connection with our technology. These confidentiality agreements generally seek to control access to, and distribution of, our technology, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to obtain and use our proprietary information without authorization or to develop similar technology independently.

In addition, we use trademarks to help identify and market our products and services. We have a number of trademark registrations and pending applications both in the United States and around the world. We rely on these trademark registrations and applications as one of the tools to protect our rights in our trademarks and brands. We also rely on our common law trademark rights in those countries that recognize such rights, such as the United States. We can provide no assurance, however, that any of our trademark applications will be successful, or that our existing registrations will not be challenged or invalidated. Likewise, we can provide no assurance that our registrations, applications or common law rights will enable us to stop others from infringing upon our trademarks, or enable us to successfully defend against claims of trademark infringement. Furthermore, effective trademark protection may not be available in every country in which our products and services are distributed.

We also have copyrights on our software products, product documentation, marketing materials, and other documentation and materials. We rely on these copyrights to protect our rights in our copyrighted materials. We can provide no assurance, however, that our copyrighted materials will not be infringed. In addition, effective copyright protection may not be available in every country in which our products are distributed.

Manufacturing

Our manufacturing process primarily consists of assembly, test, configuration and logistics at our manufacturing sites in Beverly, Massachusetts and Tuscaloosa, Alabama. In addition, custom and semi-custom instrumentation products are developed, assembled, and tested in Boulder, Colorado. The Boulder, Colorado facility is registered to ISO9001:2008, while our Beverly, Massachusetts and San Jose, California (engineering processes) facilities meet the TL 9000 quality system standard (an advanced telecommunications standard for manufacturing and engineering). Our Beverly, Massachusetts facility is also registered to AS9100 which certifies the design, development, and production of high precision time and frequency references for commercial military and space markets.

We also use various contract manufacturers to build our printed circuit board assemblies and a number of completed products. In fiscal 2010, we contracted with Sanmina-SCI to produce sub-assemblies as part of our outsourced manufacturing strategy. Sanmina-SCI produces our sub-assemblies primarily in Derry, New Hampshire.

Seasonality

Our business tends to generate stronger revenues in the second half of the fiscal year.

Backlog

Our backlog consists of firm orders that have yet to be shipped to the customer. Our total backlog was $45.3 million as of June 30, 2013, compared with $45.4 million as of July 1, 2012. 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 may also be affected by the cancellation or delay of customer orders, the overall condition of the telecommunications industry, U.S. government spending on defense programs, overall worldwide economic conditions and the cyclical nature of customer demand in each of our markets.

Key Customers and Export Sales

During fiscal 2013, no single customer accounted for more than 10% of our net revenue. Our export sales outside the United States accounted for 37%, 38% and 35% of our net revenue in fiscal 2013, 2012, and 2011 respectively. For additional information regarding our export sales, see Note 11 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K and Item 1A-Risk Factors- “Significant sales of our products to customers outside the United States subject us to business, economic and political risks”.

Sales and purchase obligations denominated in foreign currencies have not been significant. We do not currently engage in currency hedging activities or derivative arrangements but may do so in the future to the extent that foreign currency transactions become more significant.

Competition

Competition in the communications industry is intense. Some of our competitors or potential competitors are well established and have significant financial, manufacturing, technical and marketing resources. Competitors of our synchronization products include Frequency Electronics, Inc., Huawei Technologies Co. Ltd., Oscilloquartz SA, and Juniper Networks (through its acquisition of Brilliant Telecommunications). Competitors of our embedded components and software products include Frequency Electronics, Inc., Trimble Navigation, Ltd., MicroSemi Inc., and Semtech Corporation.

Competitors of our Government and Enterprise products include Brandywine Communications, EndRun Technologies, Frequency Electronics, Inc., Meinberg, Orolia and Trak Systems, Inc. (a Veritas Corporation subsidiary).

Research and Development

Our development efforts include designing and developing hardware and software products, and providing enhanced functionality to our existing products. We also do primary research in fundamental time and frequency components and systems paid for by the U.S. government. In addition to our research and development programs listed below, we utilize domestic and international contractors to assist us in our research and development activities. Our product development programs include:

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Communications synchronization

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Network management software

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Network time servers

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Ruggedized time and frequency component for space, defense and avionic applications

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Precision time and frequency references

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Primary frequency references

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GPS-based time and frequency instruments and bus cards

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Time and frequency distribution products

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Phase noise test sets

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Timescale systems

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Time and frequency reference systems

In fiscal 2013, we enhanced our Communications portfolio by expanding our IEEE 1588 (PTP) offering to extend on PTP grandmaster products with a smaller footprint chassis that targets clusters of LTE base stations. We also released a PTP grandmaster that complies with the SmartGrid requirements for the power market. We have expanded our Phase Noise test sets offering in the Test and Measurement market through the acquisition of some technologies. We also expanded our Atomic Clock components with the release of the SA45s small footprint CSAC (Cesium based Chip Scale Atomic Clock) that targets several vertical SWAP (Size, Weight and Power) markets such as underwater sensors for seismic research or gas and oil exploration, unmanned aerial vehicles (UAV) and dismounted IED jammers.

In fiscal 2013, 2012 and 2011, overall research and development expenditure was $32.4, $28.0 and $27.0 million, respectively. We expensed all research and development expenditures as they were incurred. We expect to continue to support research and development efforts in order to enhance existing products and to design and develop new technologies and products.

Our primary product development centers are in San Jose, California; Boulder, Colorado; and Beverly, Massachusetts. During FY 2013, the Company closed its product development center in Beijing, China in an effort to bring all development activities closer to the Company’s manufacturing facilities.

Government Regulation

The telecommunications industry is subject to domestic and foreign regulatory policies regarding pricing, taxation and tariffs, which may adversely impact the demand for our products. These policies are continuously reviewed and subject to change by the various governmental agencies. We are also subject to government regulations and standards for our products, as well as import and export regulations. We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. government contracts. Government contract laws and regulations affect how we do business and, in some instances, impose added costs on our business. A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts or debarment from bidding on contracts. See Item 1A, Risk Factors—“As a U.S. government contractor, we are subject to a number of rules and regulations” for more information.

Environmental Regulation

Our operations are subject to numerous foreign, federal, state and local environmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals and materials used in our manufacturing processes and products. Failure to comply with such regulations could result in a suspension

or cessation of our operations, or could subject us to significant future liabilities. See Note 8 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K and Item 1A, Risk Factors—“Our sales and operating results may be adversely affected as a result of our required compliance with the adopted European Union Directives on Waste Electrical and Electronic Equipment and the Restriction of the Use of Hazardous Substances in electrical and electronic equipment, as well as other standards around the world.”

Sources and Availability of Raw Materials

We endeavor to use standard parts and components, which are generally available from multiple sources. We make significant purchases of parts and components from third-party suppliers. Certain parts used in our manufacturing process are single sourced and may have extended lead times.

Employees

At June 30, 2013, we had approximately 544 employees. We believe that our employee relations are good.

Executive Officers of Symmetricom

Following is a list of our executive officers as of August 31, 2013 and brief summaries of their business experience during at least the last five years. All officers, including executive officers, are appointed annually by the Board of Directors at its meeting following the annual meeting of stockholders. We are not aware of any officer who was appointed to the office pursuant to any arrangement or understanding with another person.

Ms. Fetter was appointed Chief Executive Officer at Symmetricom in April 2013. She has served on the Company’s Board of Directors since 2002. From April 2011 through July 2012, Ms. Fetter was President and Chief Executive Officer and a member of the Board of Directors of NxGen Modular LLC, a provider of modular datacenters and mechanical and electrical assemblies. From October 2001 through November 2004, Ms. Fetter was President, Chief Executive Officer, and a member of the Board of Directors of QRS Corporation. Ms. Fetter served as President, Chief Executive Officer and a director of NorthPoint Communications Group, Inc., a network services company, from 1999 to 2001. She previously was Vice President and General Manager of the Consumer Services Group at U.S. West, Inc. and held various senior executive positions at Pacific Bell. She served on the Board of Directors of Quantum Corporation, a data storage company, from 2005 through 2013, and recently retired as Chairman of the Board of Trustees of Alliant International University.

Mr. Spencer has served as Chief Financial Officer of Symmetricom since September 2008. Prior to joining Symmetricom, Mr. Spencer served as Chief Financial Officer at Covad Communications, a provider of broadband integrated voice and data communications, from June 2007 until April 2008. From November 2002 until May 2007, Mr. Spencer served in various positions at Covad including Interim Chief Financial Officer, Vice President of Finance, and corporate development and product management roles.

Mr. Bourekas joined Symmetricom as Executive Vice President, Marketing, in November 2009. Prior to joining Symmetricom, Mr. Bourekas served in a variety of roles at Integrated Device Technology, Inc., a developer of mixed signal semiconductor solutions for digital media, from August 1988 to April 2009, including as VP of Worldwide Marketing, VP and GM of the Audio Products Division, and VP of Strategic Marketing for Computing and Consumer Products.

Item 1A.

Risk Factors

Our quarterly and annual operating results have fluctuated in the past and will likely continue to fluctuate in the future, which could cause our stock price to be volatile and result in losses to our investors

We believe that period-to-period comparisons of our operating results may not be a good indication of our future performance. Our quarterly and annual operating results have fluctuated in the past and will likely continue to fluctuate in the future. Some of the factors that could cause our future operating results to fluctuate include:

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adverse changes in economic conditions, particularly within the telecommunications equipment industry, which may result in revenue declines;

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our dependence upon obtaining orders during a quarter and shipping those orders in the same quarter to achieve our revenue objectives;

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our ability to manage increased competition and competitive pricing pressures;

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our ability to accurately anticipate the volume and timing of customer orders or customer cancellations;

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the gain or loss of significant customers;

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our ability to manage our outsourced manufacturing strategy, including with respect to product supply;

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changes in our products or mix of sales to customers;

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the possibility that, despite our having been approved as a supplier in requests for proposals from several major Communications business unit customers, these proposals will not result in any purchases;

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the timing of customer purchases for special projects may be impacted due to spending delays, availability of resources for installation, and delays in new product availability;

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market acceptance of new or enhanced versions of our products and our competitors’ products;

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our ability to manage the long sales cycle associated with our products;

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customer delays in upgrading their old equipment with our new products;

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our ability to obtain sufficient supplies of sole or limited source components at commercially reasonable prices;

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our ability to introduce new products in new and existing markets on a timely and cost-effective basis;

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customer delays in qualification of new products;

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fluctuations in government spending for defense or infrastructure;

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increased industry consolidation among our customers, which may lead to decreased demand for, and downward pricing pressure on the prices of, our products;

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our ability to manage cyclical conditions in the telecommunications industry;

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reduced rates of growth of telecommunications services;

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our ability to manage the level and value of our inventories in relation to sales volume;

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our ability to manage fluctuations in the average selling prices of our products;

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our ability to retain key employees, which could affect our ability to sell, develop and deliver our products;

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our ability to manage fluctuations in manufacturing yields of chip-scale atomic clocks, rubidium oscillators or cesium tubes;

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our ability to timely implement changes developed as a result of our process improvement projects without negatively impacting operations;

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customer labor strikes, which could result in reduced sales volume;

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our ability to collect receivables from our customers;

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deferring revenue for orders shipped in a period, especially for new markets;

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our ability to establish in a timely fashion subsidiaries in new geographic regions, which our customers or potential customers may require to do business with us in those regions;

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foreign currency fluctuations;

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our ability to manage complex transactions with customers in new geographic regions;

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restructuring and integration-related charges; and

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intangible assets impairment charges related to acquisitions and related long-term assets.

A significant portion of our operating and manufacturing expenses are relatively fixed in nature, and planned expenditures are based in part on anticipated orders. If we are unable to adjust spending in a timely manner to compensate for any unexpected future sales shortfall, our operating results will be negatively impacted. Our operations entail a high level of fixed costs and require an adequate volume of production and sales to achieve and maintain reasonable gross profit margins and net earnings. Significant decreases in demand for our products or reduction in our average selling prices, or any material delay in customer orders may negatively harm our business, financial condition and operating results.

Our future results depend in large part on growth in the markets for our products. The growth in each of these markets may depend on changes in general economic and regulatory conditions, conditions related to the markets in which we compete, changes in regulatory conditions, legislation, export rules or conditions, interest rates and fluctuations in the business cycle for any particular market segment. If our quarterly or annual operating results do not meet the expectations of securities analysts and investors, the trading price of our common stock could decline significantly.

Our recently announced management changes and restructuring plan could adversely impact our business, financial condition and operating results

In April 2013, we announced that Elizabeth A. Fetter, a member of our Board of Directors, had been appointed as our new Chief Executive Officer, replacing David G. Côté. In May 2013, we announced a reorganization of our management structure, in which several other members of our management team left the company. In June 2013, we announced a restructuring plan pursuant to which we plan to reduce our workforce by approximately 12% by December 2013. These changes in organizational structure and personnel departures could disrupt our operations, affect employee morale, lead to attrition beyond planned reductions and affect our ability to attract new highly skilled employees. If we experience these or other adverse consequences of our management changes and restructuring plan, or if we are otherwise unable to realize the expected benefits of our restructuring plan, our business, financial condition and operating results could be harmed.

A decline in demand for Symmetricom’s mature products and technologies has adversely affected, and may continue to adversely affect, our revenue and profitability

A material amount of Symmetricom’s revenue is derived from products and technologies that are sold in relatively mature markets, such as the wireline and cable markets within our Communications business. We have experienced declining market demand for these products as our customers shift spending to newer technologies such as wireless infrastructure. We do not currently expect market demand for these and other mature products and technologies to increase. Accordingly, we expect our revenue from these products and technologies to be stagnant or to decline over time. However, the extent to which market demand for these mature products and

technologies will affect our business cannot be predicted with certainty. Continuing decreases in market demand for these products and technologies, particularly if we are unable to offset these decreases with other sources of revenue, could materially adversely affect our revenue and profitability.

A substantial portion of our quarterly revenue is attributable to shipments made in the latter part of each respective quarter

Typically, approximately 50% or more of our quarterly shipments occur in the last month of the quarter. In addition, a substantial portion of these quarterly shipments are ordered by our customers and shipped within the same quarter. If these orders or shipments are either delayed or the orders are not received, material fluctuations in our quarterly revenues and operating results will occur, and could cause our quarterly profitability to fall significantly short of our predictions.

We depend on a contract manufacturer to produce a significant portion of our products

In fiscal 2010, we contracted with Sanmina-SCI to produce sub-assemblies as part of our outsourced manufacturing strategy. In a significant expansion of this agreement, we announced in the fourth quarter of fiscal 2010 that we were transitioning all manufacturing at our Puerto Rico facility, which was our largest manufacturing facility, to Sanmina-SCI. We completed this transition in the third quarter of fiscal 2011.

Our reliance on one primary contract manufacturer to produce a significant portion of our products exposes us to the following potential risks in addition to others, each of which could have an adverse effect on our business and operating results:

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less control over product quality, which could lead to product reliability problems and/or lower sales;

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product shortages as a result of manufacturing or capacity issues at Sanmina-SCI or our failure to make adequate forecasts;

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increased costs; and/or

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product shipment delays.

Sanmina also provides logistics warehouse services for receiving and distributing our products from the same facility where the principal portion of our products are manufactured. We depend on the orderly operation of the receiving and distribution processes at the warehouse. Although we currently believe that receiving and distribution processes at the Sanmina logistics warehouse are efficient, unforeseen disruptions in operations, for example due to fires, hurricanes, earthquakes or other catastrophic events, labor shortages or disagreements, or shipping problems, may result in delays in the delivery of our products, which could adversely affect our business and operating results.

In addition, we cannot assure you that Sanmina-SCI will continue to be willing and able to meet our requirements for our outsourced operations according to existing terms or at all, which could have an adverse effect on our business and operating results.

The telecommunications and government markets are highly competitive, and if we are unable to compete successfully in our markets, our revenue could decline

Competition in the telecommunications industry, in general, and in the markets we serve, is intense and likely to increase substantially. We face competition in all of our markets. Competitors with our synchronization products include Frequency Electronics, Inc., Huawei Technologies Co. Ltd., Oscilloquartz SA and Juniper Networks (through its acquisition of Brilliant Telecommunications). Competitors with our embedded components products include Frequency Electronics, Inc., Trimble Navigation, Ltd., MicroSemi, Inc., and Semtech Corporation. Competitors with our Government and Enterprise business unit products include Brandywine Communications, EndRun Technologies, Frequency Electronics, Inc., Meinberg, and Orolia and

Trak Systems, Inc. (a Veritas Corporation subsidiary). In addition, the Telecommunications Act of 1996 permits incumbent local exchange carriers (ILECs) to manufacture telecommunications equipment, and they may enter the market resulting in increased competition. Our ability to compete successfully in the future will depend on many factors including:

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the cost-effectiveness, quality, price, service and market acceptance of our products;

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our response to the entry of new competitors into our markets or the introduction of new products by our competitors;

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the average selling prices for our products;

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increased industry consolidation among our customers, which may lead to decreased demand for, and downward pricing pressure on the prices of, our products;

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our ability to keep pace with changing technology and customer requirements;

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our continued improvement of existing products;

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the timely development or acquisition of new or enhanced products;

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the timing of new product introductions by our competitors or us; and

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changes in worldwide market and economic conditions.

Some of our competitors or potential competitors are well established and have significant financial, manufacturing, technical and marketing resources. These competitors may be able to respond more quickly to new and emerging technologies and changes in customer requirements, to devote greater resources to the development, promotion and sale of products, or to deliver competitive products at lower prices. We expect to continue to experience pricing pressures from our competitors in all of our markets. If we are unable to compete by delivering new products or by delivering competitive products at lower prices, we could lose market share and our revenue could decline.

We have relied and may continue to rely on a limited number of customers for a significant portion of our net revenue, and our net revenue could decline due to lower orders, the delay of orders or cancellation of existing orders by these customers

During fiscal 2013, 2012 and 2011, no single customer accounted for more than 10% of our net revenue. Nevertheless, we expect that we will continue to depend on a relatively small number of customers for a substantial portion of our net revenue for the foreseeable future. The timing and level of sales to our largest customers have fluctuated significantly in the past, and we expect them to continue to fluctuate significantly in the future. The loss of one or more of our significant customers, or a significant reduction or delay in sales to any customer, may harm our business and operating results. Major customers also have significant leverage and may attempt to change the terms, including pricing, upon which we do business, which could also harm our business and operating results.

We have direct or indirect sales pursuant to contracts with U.S. government agencies, which can be terminated at the convenience of the government, and our revenue would decline if the government terminated these contracts

Approximately 25% to 30% of our net revenue has been generated from sales to U.S. government agencies either directly or indirectly through subcontracts. Government-related contracts and subcontracts are subject to standard provisions for termination at the convenience of the government. In such event, however, we are generally entitled to reimbursement of costs incurred on the basis of work completed plus other amounts specified in each individual contract. These contracts and subcontracts are either fixed-price or cost reimbursable contracts. Fixed-price contracts provide fixed compensation for specified work. Under cost reimbursable contracts, we agree to perform specified work in return for reimbursement of costs (to the extent allowable under government regulations) and a specified fee. In general, while the risk of loss is greater under fixed-price

contracts than under cost reimbursable contracts, the potential for profit under fixed-price contracts is greater than under cost reimbursable contracts. If any counter-parties to our U.S. government agency contracts and subcontracts terminate their agreements, our revenue would decline.

We depend on U.S. government agency contracts. A decline or reprioritization of funding in the U.S. defense budget, that of other customers, or delays in the budget process could adversely affect our business, financial condition and operating results

We derive and expect to continue to derive a significant portion of our net revenue from work performed under U.S. government contracts. These contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds on a fiscal-year basis (September), even though contract performance may extend over many years. Delays in approvals of the annual defense budget or supplemental funding bills may adversely impact our government sales. The programs in which we participate must compete with other programs and policy imperatives for consideration during the budget and appropriation process. Concerns about increased deficit spending, along with continued economic challenges, continue to place pressure on U.S. and international customer budgets. While we believe that our programs are well aligned with national defense and other priorities, shifts in domestic and international spending and tax policy, changes in security, defense, and intelligence priorities, the affordability of our products and services, general economic conditions and developments, and other factors may affect a decision to fund or the level of funding for existing or proposed programs.

In August 2011, Congress enacted the Budget Control Act of 2011 (the “BCA”), which requires spending caps and certain reductions in security spending over a ten-year period through 2021. Budget cuts (or sequestration) began to be implemented on March 1, 2013, and without additional congressional action, further sequestration as set forth in the BCA may be implemented. The impact of sequestration is yet to be fully determined. Sequestration could result in significant additional reductions to defense spending over the next decade, which would have a material adverse effect on our business, financial condition and operating results.

If we are unable to develop new products, or we are delayed in production startup, our sales could decline

The markets for our products are characterized by:

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rapidly changing technology;

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evolving industry standards; and

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changes in end-user requirements.

Technological advancements could render our products obsolete and unmarketable. Our success will depend on our ability to respond to changing technologies and customer requirements, and our ability to develop and introduce new and enhanced products in a cost-effective and timely manner. The development of new or enhanced products is a complex and uncertain process requiring the accurate anticipation of technological and market trends. We may experience design, manufacturing, marketing, and other difficulties that could delay or prevent the development, introduction or marketing of our new products and enhancements.

The introduction of new or enhanced products also requires that we manage a smooth transition from older products to new products. Delays in new product development or delays in production startup could reduce our sales.

Our customers may be subject to governmental regulations, which, if changed, could negatively impact our business and operating results

Federal and state regulatory agencies, including the United States Federal Communications Commission and the various state public utility commissions and public service commissions, regulate most of our domestic telecommunications customers. Similar government oversight also exists in the international market. While we

are not directly affected by this legislation, such regulation of our customers may negatively impact our business. For instance, the sale of our products may be affected by the imposition upon certain of our customers of common carrier tariffs and the taxation of telecommunications services. These regulations are continuously reviewed and changed by the various governmental agencies. Changes in current or future laws or regulations, in the United States or elsewhere, could negatively impact our business and operating results.

We perform some manufacturing offshore to lower costs; these efforts may impact our ability to deliver products to our customers on a timely basis

We depend upon manufacturing activities outside of the United States, and are exposed to various legal, business, political and economic risks associated with these international operations. Over the past few years, we have outsourced a portion of our manufacturing to a contract manufacturer at a facility in Southern China. While these activities have allowed us to reduce costs, they have and will continue to expose us to risks inherent in doing business in the People’s Republic of China. We cannot assure you that labor disruption, currency fluctuations, misappropriation of our intellectual property or other risks will not occur, any of which could materially adversely impact our ability to deliver products to our customers and our business, financial condition and operating results.

We purchase certain key components from single or limited sources and could lose sales if these sources fail to fulfill our needs

We have limited or single source suppliers for a number of our components. If single source components were to become unavailable on satisfactory terms, we would be required to purchase comparable components from other sources. If for any reason we could not obtain comparable replacement components from other sources in a timely manner, our business, operating results and financial condition could be harmed. In addition, some of our suppliers require long lead times to deliver requested quantities of components. If we are unable to obtain sufficient quantities of components, we could experience delays or reductions in product shipments, which could also have a material adverse effect on our business, results of operations and financial condition. Due to rapid changes in technology, on occasion, one or more of the components used in our products could become unavailable, resulting in unanticipated redesign and related delays in shipments.

As a U.S. government contractor, we are subject to a number of rules and regulations

We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. government contracts. Government contract laws and regulations affect how we do business and, in some instances, impose added costs on our business. A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts or debarment from bidding on contracts. In order to administer certain U.S. government contracts we are required to have employees with Top Secret Security Clearance. Because we have a limited number of employees with such clearance, the loss of these employees could adversely affect our ability to administer these contracts. We must also have auditors from our independent registered public accounting firm with proper security clearance levels to perform an annual audit of revenue for these transactions.

We may pursue acquisitions and investments that could harm our operating results and may disrupt our business

We have engaged in acquisitions in the past, and we may pursue other acquisition and investment opportunities that could provide additional product or service offerings, technologies or additional industry expertise. Acquisitions involve risks, which include the following:

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we may be exposed to unknown liabilities of the acquired business;

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we may not realize the revenue, cost savings or profits that we expect the acquired business to generate and incur significant write-offs;

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we may encounter unanticipated acquisition or integration costs that could cause our quarterly or annual operating results to fluctuate;

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our management’s attention may be diverted from our core business; and

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we may not be successful in entering new markets in which we have no or limited experience.

If we fail to successfully integrate acquisitions or to achieve any anticipated benefits of an acquisition, our operations and business could be harmed.

Significant sales of our products to customers outside of the United States subjects us to business, economic and political risks

Our export sales to Europe, Asia, Canada, and Latin America continue to account for a significant portion of our net revenue. We anticipate that sales to customers located outside of the United States will continue to be a significant part of our net revenue for the foreseeable future. Because of our significant sales to customers outside of the United States, we are subject to risks, including:

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foreign currency fluctuations;

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the effects of terrorist activity and armed conflict, which may disrupt general economic activity and result in revenue shortfalls;

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export restrictions;

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longer payment cycles;

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unexpected changes in regulatory requirements or tariffs;

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protectionist laws and business practices that favor local competition;

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dependence on local vendors;

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reduced or limited protection of intellectual property rights; and

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political and economic instability.

To date, very few of our international revenue and cost obligations have been denominated in foreign currencies. As a result, an increase in the value of the United States dollar relative to foreign currencies could make our products more expensive, and thus, less competitive in foreign markets. A portion of our international revenues may be denominated in foreign currencies in the future, including the Euro, which will subject us to risks associated with fluctuations in these foreign currencies. We do not currently engage in foreign currency hedging activities or derivative arrangements, but may do so in the future to the extent that such obligations become more significant.

In many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act. Although we implement policies and procedures designed to facilitate compliance with these laws, our employees, contractors and agents, as well as those companies to which we outsource certain of our business operations, may take actions in violation of our policies. Any such violation, even if prohibited by our policies, could have a material adverse effect on our business.

If we have significant inventories that become obsolete or cannot be sold at acceptable prices, our results may be negatively impacted

Although we believe that we currently have made adequate adjustments for inventory that has declined in value, become obsolete, or is in excess of anticipated demand, there can be no assurance that such adjustments will be adequate. If significant inventories of our products become obsolete, or are otherwise not able to be sold at favorable prices, our operating results could be materially affected.

Our products are complex and may contain errors, design flaws or present start-up manufacturing difficulties, which could be costly and difficult to correct

Our products are complex and often use state-of-the-art components and manufacturing processes and techniques. When we release new products, or new versions of existing products, they may contain undetected or unresolved errors or defects or may be difficult to manufacture at economically acceptable costs. Despite testing, errors, defects or other manufacturing difficulties may be found in new products or upgrades after the commencement of commercial shipments. Undetected errors, design flaws and other manufacturing difficulties have occurred in the past and could occur in the future. These errors or other manufacturing difficulties could result in delays, higher manufacturing costs, loss of market acceptance and sales, diversion of development resources to correct errors and manufacturing processes, damage to our reputation, legal action by our customers, failure to attract new customers, and increased service and warranty costs. The occurrence of any of these factors could cause our net revenue to decline.

We are subject to environmental regulations that could result in costly environmental liability

Our operations are subject to numerous international, federal, state and local environmental regulations related to the storage, use, labeling, discharge, disposal and human exposure to toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. While we have not experienced any significant effects on our operations from environmental regulations, changes in these regulations may require additional capital expenditures or restrict our ability to expand our operations. Failure to comply with such regulations could result in suspension or cessation of our operations or could subject us to significant liabilities. We could also be subject to fines and civil or criminal sanctions, third-party property damage or personal injury claims, or could be required to incur substantial investigation or remediation costs, if we were to violate or become liable under environmental laws. Liability under environmental laws can be joint and several and without regard to comparative fault. Although we periodically review our facilities and internal operations for compliance with applicable environmental regulations, these reviews are necessarily limited in scope and frequency and may not reveal all potential instances of noncompliance, possible injury or possible contamination. We cannot assure you that violations of environmental laws or regulations will not occur in the future as a result of the inability to obtain permits, human error, equipment failure or other causes. The liabilities arising from any noncompliance with environmental regulations, or liability resulting from accidental contamination or injury from toxic or hazardous chemicals could result in liability that exceeds our resources. The risk of liabilities increases as we acquire other companies, such as Datum, which use, or have used, hazardous substances at various current or former facilities.

A manufacturing facility previously operated by Datum in Austin, Texas is undergoing remediation for known subsurface contamination at that facility and adjoining properties. We believe that we will incur monitoring costs for years to come in connection with this subsurface contamination. Further, we have received a demand from adjoining landowner and may be subject to claims from other adjoining landowners, in addition to claims for remediation, and the amount of these costs and the extent of our exposure to these demands and claims cannot be determined at this time.

The determination of the existence and cost of any additional contamination could involve costly and time-consuming negotiations and litigation. Remediation activities and subsurface contamination may require us to incur additional unreimbursed costs and could harm on-site operations and the future use and value of the property. The remediation efforts, the property owner’s claims and any related governmental action may expose us to material liability and could significantly harm our business.

Our sales and operating results may be adversely affected as a result of our required compliance with the adopted European Union Directives on Waste Electrical and Electronic Equipment, and the Restriction of the Use of Hazardous Substances in electrical and electronic equipment, as well as other standards around the world

In January 2003, the European Union enacted Directive 2002/96/EC on the Waste Electrical and Electronic Equipment Directive, known as the WEEE Directive. The WEEE Directive requires producers of certain

categories of electrical and electronic equipment to be financially responsible for the future disposal costs of this equipment. Some of our products fall within the scope of this Directive, and, as such, we have been incurring some financial responsibility for the collection, recycling, treatment and disposal of both new product sold, and product already sold prior to the WEEE Directive’s enforcement date, to customers within the European Union. During 2012, this Directive was “recast” by the European Commission with the objectives of assuring both that a greater proportion of “electrical and electronic equipment” or “EEE” is recycled and that new EEE is “sustainable” by limiting its content of hazardous substances and through other measures, such as restrictions on reuse. Under the recast Directive, EU member states will have a transition period from August 2012 to August 2018 to apply its expanded scope to products covered under the prior version of the Directive, and thereafter, the recast Directive will extend to numerous additional EEE. Substantial uncertainty surrounds the timing and measures member states will use to implement the recast Directive, particularly its sustainability objective, but we expect to incur additional financial responsibility for the collection, recycling, treatment and disposal of both new product sold, and product already sold prior to the recast Directive’s implementation date; it is also possible that we may need to change our manufacturing processes, redesign or reformulate some of our products, and change some components in order to continue to offer them for sale in the EU.

In January of 2003, the European Union also enacted Directive 2002/95/EC on the Restriction of the use of Hazardous Substances in certain categories of electrical and electronic equipment, known as the RoHS Directive. This Directive bans the placing on the EU market of new electrical and electronic equipment containing more than specified levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyl (PBB) and polybrominated diphenyl ether (PBDE) flame retardants. During 2011, this Directive was “recast” by the European Commission, and during 2013, many EU member states are expected to finalize their laws and regulations to implement the recast Directive. The recast Directive covers the same substances, but has an expanded scope to cover medical devices and industrial monitoring devices as of 2017 and all other previously uncovered electronics and electrical equipment by 2019. As a result of the recast Directive’s expanded scope, we may need to change our manufacturing processes, redesign or reformulate some of our products, and change some components to eliminate these substances in our products, in order to be able to continue to offer them for sale within the European Union.

As noted above, individual European Union member states are required to transpose Directives into national legislation. As member states enact new laws and regulations to implement the recast WEEE and RoHS Directives, we continue to review the applicability and impact of both Directives on the sale of our products within the European Union. If we fail to comply with these laws, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil or criminal penalties. We may incur increased manufacturing costs, and some products may be subject to production delays to comply with future legislation which implements these Directives, but we cannot currently estimate the extent of such increased costs or production delays, if any. However, to the extent that any such cost increases or delays are substantial, our operating results could be materially adversely affected. Also, we are aware that lead times for new, compliant components are longer and that older, non-compliant components are being discontinued at a fast pace. In addition, we are aware of similar legislation that may be enacted in other countries and possible new federal and state legislation in the United States, the cumulative impact of which could significantly increase our operating costs and adversely affect our operating results.

If we fail to protect our intellectual property, our competitive position could be weakened and our revenues may decline

We believe our success will depend in a large part on our ability to protect trade secrets, obtain or license patents, and operate without infringing on the rights of others. We rely on a combination of trademark, copyright and patent registration, contractual restrictions and internal security to establish and protect our proprietary rights. These measures may not provide sufficient protection for our trade secrets or other proprietary information. In addition, although we have security measures in place, if our intellectual property is misappropriated through cyber attack or intrusion or theft, we could suffer monetary and other losses and reputational harm, which could harm our business and operating results.

We have United States and international patents and patent applications pending that cover certain technology used by our operations. However, while we believe that our patents have value, we rely primarily on innovation, technological expertise and marketing competence to maintain our competitive position. While we intend to continue our efforts to obtain patents whenever possible, there can be no assurance that patents will be issued, or that new or existing patents will not be challenged, invalidated or circumvented, or that the rights granted will provide us with any commercial benefit.

Third parties may assert intellectual property infringement claims, which would be costly to defend and may result in our loss of significant rights

The technology industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. We are subject to the risk of adverse claims and litigation alleging infringement of the intellectual property rights of others. From time to time we have received claims asserting that we have infringed the proprietary rights of others. We cannot assure you that third parties will not assert infringement claims against us in the future, or that any such claims will not result in costly litigation or require us to obtain a license for such intellectual property rights regardless of the merit of such claims. No assurance can be given that any necessary licenses will be available or that, if available, such licenses can be obtained on commercially reasonable terms. In the event any necessary licenses are not available, we may not be able to sell or distribute our products, which may have a material adverse effect on our business.

We are subject to other significant domestic and foreign regulations relating to health and safety, packaging, product content and labor regulations

Our business is subject to various other significant international, federal, state and local, health and safety, packaging, product content and labor regulations. These regulations are complex, change frequently and have become more stringent over time. We may be required to incur significant expenses to comply with these regulations or to remedy past violations of these regulations. Any failure by us to comply with applicable government regulations could also result in cessation of our operations or portions of our operations, product recalls or impositions of fines and restrictions on our ability to carry on or expand our operations. In addition, because many of our products are regulated or sold into regulated industries, we must comply with additional regulations in marketing our products. Our products and operations are also often subject to the rules of industrial standards bodies, like the International Standards Organization, as well as regulation of other agencies such as the United States Federal Communications Commission. If we fail to adequately address any of these regulations, our business may suffer.

Our critical business and manufacturing facilities in Beverly, Massachusetts; San Jose, California; Tuscaloosa, Alabama, and Boulder, Colorado, as well as many of our customers, suppliers, contract manufacturers, are located near known hurricane zones, earthquake fault zones, tornado zones, and flood plains, and the occurrence of these events or other catastrophic disasters could cause damage to our facilities and equipment, which could require us, as well as our customers, suppliers, contract manufacturers, to cease, curtail or disrupt operations

Capacity constraints, systems interruptions or failures, cyber attacks or other damage to or interruption of our computer systems could disrupt our business, compromise sensitive, proprietary or confidential information, and harm our business and operating results

Our business goals of performance, reliability and availability require that we have adequate capacity in our computer systems to support our operations. As our operations grow in size and scope, we will need to improve and upgrade our systems and infrastructure to offer internal personnel enhanced services, capacity, features and functionality. Our ability to provide high-quality service depends on the efficient and uninterrupted operation of our computer and communications systems. Our computer systems have experienced system interruptions from time to time and could experience periodic system interruptions or failures in the future.

We also face the ongoing challenge of security breaches and disruptions by computer hackers, foreign governments, cyber terrorists and others, as do most companies. We cannot assure you that our security efforts

and measures will be effective to prevent security breaches or disruptions. A security breach or other significant disruption involving our computer systems could disrupt our operations; result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary or confidential information, including trade secrets; compromise sensitive customer information; require significant management attention and resources to remedy the damages that result; and subject us to claims for damages and/or damage our reputation among our customers and the public generally, any or all of which could harm our business and operating results.

Our systems and operations are also vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication failures, break-ins, sabotage, design defects, vandalism and similar events. Even though we have a formal disaster recovery plan, it may not completely prevent any system failure or security breach that causes an interruption in our business and operations.

We may be impacted by disruptions and liquidity issues in the credit market, which may unfavorably impact our financial condition and results of operations

We invest excess funds in specific instruments and issuers approved for inclusion in our cash and cash equivalents and short-term investment accounts. Our investment criteria are to invest only in top tier quality investments or federally sponsored investments. Top tier quality investments are determined by our investment advisor in conjunction with ratings of those investments provided by outside ratings agencies as well as our investment advisor’s internal credit specialists. Our cash and cash equivalents consists of overnight instruments and instruments that will mature within ninety days from the date of purchase. Our short-term investment portfolio consists of instruments that mature between ninety-one days and three years from date of purchase.

We may be impacted by the following risks, among others, as a result of credit market disruptions and liquidity issues:

•

We may experience temporary or permanent declines in the value of certain instruments which would be reflected in our consolidated financial statements;

•

We may experience rating agency downgrades of instruments we currently own, which may degrade our portfolio quality and cause us to take impairment charges;

•

We may not be able to reasonably value our investments if there is not a liquid resale market for those investments; and

•

We may experience losses on the sale of certain investments if we do not have sufficient operating cash to run our business and are required to sell short-term investments to meet cash flow requirements.

In addition to the above risks, credit market events may also impact our customers, which would subject us to the following risks, among others:

•

We may experience lower revenues if our customers decide to reduce their capital spending plans;

•

Customers may delay payments to us, reducing our operating cash flow; and

•

We may experience an increase in accounts receivable write-offs if customers are unable to pay us.

Public confidence and share value may be adversely impacted by material weaknesses in our internal controls over financial reporting

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal controls over financial reporting and to include a management report assessing the effectiveness of our internal controls over financial reporting in all annual reports. Section 404 also requires our independent registered public accounting firm to attest to the effectiveness of our internal controls over financial reporting.

Several years ago, we had identified material weaknesses that led us to restate our consolidated financial statements. Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements, errors or omissions, and any projections of any evaluation of effectiveness of internal

controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate. We cannot be certain in future periods that other control deficiencies that may constitute one or more “significant deficiencies” (as defined by the relevant auditing standards), or material weaknesses in our internal control over financial reporting, will not be identified. If we fail to maintain the adequacy of our internal controls, including any failure to implement or difficulty in implementing required new or improved controls, our business and results of operations could be harmed, the results of operations we report could be subject to adjustments, we could fail to be able to provide reasonable assurance as to our financial results or the effectiveness of our internal controls or meet our reporting obligations, and there could be a material adverse effect on our stock price.

If we incur net losses or substantially lower profit in the future, we may have to record a valuation allowance against some of our deferred tax assets, which would significantly increase our tax expense and harm our net earnings

Future losses or low profitability may create uncertainty about the realizability of our $34 million net deferred tax assets. At the end of each fiscal quarter, our management reviews the results of operations for that quarter and forecasts for the remainder of the fiscal year and future years to determine if it is more likely than not that a valuation allowance for the deferred tax assets is needed. If we record a valuation allowance against our deferred tax assets, we would record an additional tax expense, which would reduce net income. In addition, uncertainties about the realizability of our deferred tax assets could limit our ability to recognize future deferred tax assets on our balance sheet and correspondingly reduce net earnings.

We may be subject to additional taxes from tax reviews by foreign authorities

Although we believe that we have made adequate reserves for foreign tax provisions, there can be no assurance that such reserves will be adequate until the foreign authorities have reviewed our foreign tax filings

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

The following are our principal facilities as of June 30, 2013:


Location	Primary Use	Owned/Leased	Segments Used by
San Jose, CA	Headquarters, Research and Development	Leased	All

Beverly, MA	Manufacturing	Owned (no encumbrances)/Leased	All

Boulder, CO	Manufacturing	Leased	Government and Enterprise

Tuscaloosa, AL	Manufacturing	Leased	All

We also lease other facilities in the United States, Europe, and Asia to support manufacturing, research and development, sales and customer service. We believe that our current facilities are suitable and adequate to meet our anticipated needs for the foreseeable future, and we periodically evaluate whether additional facilities are necessary.

Item 3.

Legal Proceedings

See Note 8 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for information regarding legal proceedings in which we are involved.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on The NASDAQ Stock Market LLC, under the symbol “SYMM”. We had approximately 857 stockholders of record as of August 28, 2013.

The following table sets forth the high and low per share sale prices reported on The NASDAQ Stock Market LLC for our common stock for the periods indicated.


	High		Low
Year ended June 30, 2013
First Quarter	$	7.03	$	5.83
Second Quarter		6.99		5.57
Third Quarter		5.93		4.46
Fourth Quarter		5.29		4.48

Year ended July 1, 2012
First Quarter	$	6.26	$	4.29
Second Quarter		5.76		3.91
Third Quarter		6.50		5.44
Fourth Quarter		6.05		5.27

Symmetricom has never declared nor paid cash dividends on its capital stock and does not anticipate paying any cash dividends in the foreseeable future.

The information required by this item regarding equity compensation plans is incorporated by reference to the information in Part III Item 12 of this Form 10-K.

Stock Repurchase Program

As of June 30, 2013, the total number of shares available for repurchase under the repurchase program authorized by our Board of Directors was approximately 1.9 million.

During fiscal 2013, we repurchased 870,000 shares of common stock pursuant to our repurchase program for an aggregate price of approximately $5.4 million. Further 277,000 shares were repurchased in fiscal 2013 for an aggregate price of approximately $1.6 million to cover the cost of taxes on vested restricted stock and options exercises.

There were no shares repurchased during the three months ended June 30, 2013.

Comparative Stock Performance

The graph below compares the cumulative total stockholders’ return on our common stock for the last five fiscal years with the total return on the S&P 500 Index and the S&P Information Technology Index over the same period (assuming the investment of $100 in our common stock, the S&P 500 Index and the S&P Information Technology Index, and reinvestment of all dividends).

LOGO

Item 6.

Selected Financial Data

The following selected consolidated financial data for the fiscal years ended June 30, 2013, July 1, 2012, July 3, 2011, June 27, 2010, and June 28, 2009 should be read in conjunction with our consolidated financial statements, the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. The following selected financial data as of July 3, 2011, June 27, 2010, and June 28, 2009 and for the two years in the period ended June 27, 2010 is derived from our consolidated financial statements not included herein. The historical results are not necessarily indicative of the results to be expected for any future period.


	Fiscal Year ended
	June 30, 2013			July 1, 2012		July 3, 2011		June 27, 2010			June 28, 2009
	(In thousands, except per share amounts)
Consolidated Statement of Operations Data:
Net revenue	$	210,990		$	237,716	$	208,146	$	221,316		$	219,746
Operating income (loss) (1),(2),(3)		(5,345	)		16,844		7,131		12,129			(32,713	)
Income (loss) from continuing operations before income taxes (4)		(4,901	)		17,126		8,030		2,043			(43,218	)
Income (loss) from continuing operations (5)		(2,705	)		11,355		1,169		2,546			(43,806	)
Income (loss) from discontinued operations, net of tax (6)		—			—		254		(20	)		(1,951	)
Net income (loss)		(2,705	)		11,355		1,423		2,526			(45,757	)
Basic income (loss) per share from continuing operations		(0.07	)		0.27		0.03		0.06			(1.01	)
Basic income (loss) per share from discontinued operations		—			—		—		—			(0.04	)
Basic net income (loss) per share		(0.07	)		0.27		0.03		0.06			(1.05	)
Diluted income (loss) per share from continuing operations		(0.07	)		0.27		0.03		0.06			(1.01	)
Diluted income (loss) per share from discontinued operations		—			—		—		—			(0.04	)
Diluted net income (loss) per share		(0.07	)		0.27		0.03		0.06			(1.05	)

	June 30, 2013			July 1, 2012		July 3, 2011		June 27, 2010			June 28, 2009
	(In thousands)
Consolidated Balance Sheet Data:
Total assets	$	230,928		$	231,025	$	235,840	$	231,387		$	272,387
Long-term obligations (7),(8)		5,264			5,472		5,212		8,296			51,769
Stockholders’ equity		189,782			187,782		184,154		183,852			179,528

(1)

During fiscal 2013, we recorded $5.7 million related to lease losses and facility related charges, one-time termination benefits, and other restructuring related charges. In addition, we recorded $1.4 million in executive transition costs and $0.7 million in transition of the research and development center in China to US.

(2)	During fiscal 2011 and 2010, we recorded $8.1 million and $10.3 million, respectively, in restructuring charges related to the closure of our manufacturing operations in Puerto Rico, lease losses and facility related charges, one-time termination benefits, and other restructuring related charges.

(3)	During fiscal 2009, we recorded an impairment charge of $48.1 million in goodwill, $9.7 million in restructuring charges related to lease losses and facility related charges and one-time termination benefits.

(4)	During fiscal 2010 and 2009, we recorded $7.0 million and $5.6 million, respectively, in non-cash charges related to repayment of convertible notes.

(5)	During fiscal 2011, we recorded a $4.5 million valuation allowance against California R&D tax credit deferred tax assets.

(6)	Reflects amounts related to gains (losses) on discontinued operations. The Specialty Manufacturing / Other business segment was discontinued in the third quarter of fiscal 2007. Our Quality of Experience Assurance business segment was discontinued and sold in fiscal 2010.

(7)	During fiscal 2010, we repurchased $56.9 million in aggregate principal amount of our outstanding convertible notes, which had a carrying value of $48.7 million.

(8)	During fiscal 2009, we repurchased $63.1 million in aggregate principal amount of our outstanding convertible notes which had a carrying value of $48.6 million.

Item 7.

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 our consolidated financial statements and related notes included elsewhere in this Form 10-K.

Overview

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

Dollar amounts in the tables in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are in thousands. Our fiscal year is the 52 or 53 weeks ending on the Sunday closest to June 30. Fiscal years 2013 and 2012 were 52-week fiscal years, and 2011 was a 53-week fiscal year.

Fiscal Year 2013 Summary

During fiscal 2013, Symmetricom remained focused on driving new opportunities for growth in key areas such as PackeTime, Quantum Chip Scale Atomic Clock (CSAC) and Government Programs. We enhanced our solution portfolio for service providers transitioning to packet-based networks, LTE and LTE-Advanced wireless technologies with the launch of our PackeTime Edgemaster product. Our Quantum CSAC revenue increased in fiscal 2013 on higher order volumes and production levels. CSAC’s significant size, weight, and power advantages over existing technologies continue to drive demand. With a strong backlog in place at the end of the fiscal year and increasing production volumes, we are well positioned for CSAC revenue growth in fiscal 2014. And, our Government Programs portfolio performed well despite the challenging government spending environment. We believe our technology and expertise are well aligned with the new defense priorities, and we plan continued investment in this area as we pursue long-term growth.

However, revenue in other, more mature product areas was adversely impacted by the government spending weakness and broad-based economic weakness, leading to a decline in total company revenue from fiscal 2012. Despite the challenging year, we continued to generate cash, with over $19 million in cash flow from operations and added nearly $9 million to its cash and short-term investment balances.

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 in fiscal 2014. If difficult economic conditions continue or markedly worsen or if there are reductions in government /defense spending or if there are further reductions in wireline modernization 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.

Critical Accounting Estimates

Our 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. We consider the following accounting policies to be critical accounting policies due to their subjective nature and judgments involved in each:

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, our price is fixed or determinable and collectability is reasonably assured. Our standard arrangement for our domestic and international customers includes a signed purchase order or contract and no right of return of delivered products. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities. We assess collectability based on the creditworthiness of the customer and past transaction history. We perform periodic credit evaluations of our customers and do not require collateral from our customers. However, for many of our international customers, we require an irrevocable letter of credit to be issued by the customer before the product is shipped. If we determine that collection of the invoice is not reasonably assured, we recognize revenue at the time that collection becomes reasonably assured, which is generally upon the receipt of cash.

Generally, product revenue is generated from the sale of synchronization and timing equipment with embedded software that is incidental to product functionality. Service revenue is recognized as the services are performed, provided collection of the related receivable is reasonably assured. Our sales to distributors are made under agreements allowing for returns or credits under certain circumstances. Accordingly, we record an estimate of returns from distributors based on a historical average of distributor returns. We record commission expense both when orders are received and shipped, at which times the commission is both earned and payable.

Periodically, we enter into revenue transactions with multiple deliverables. Our multiple element product offerings generally include hardware, software and post-contract support (“PCS”) services, which are considered separate units of accounting. In evaluating the revenue recognition for multiple element arrangements under the accounting guidance, the total arrangement fees are allocated to all the deliverables based on their relative selling prices. The relative selling price is determined using vendor specific objective evidence (“VSOE”) when available. When VSOE cannot be established, we attempt to establish the selling price of deliverables based on relevant third party evidence (“TPE”). TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of our competitors, and offerings may contain a significant level of proprietary technology, customization or differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, we typically are not able to determine TPE.

When we are unable to establish selling price using VSOE or TPE, we use our best estimate of the selling price (“BESP”) for the allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or service was sold on a stand-alone basis. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. We determine BESP for a product or service by considering multiple factors including, but not limited to:

•

the price list established by our management which is typically based on general pricing practices, market conditions, geographies and targeted gross margin of products and services sold; and

•

analysis of pricing history of new arrangements, including multiple element and stand-alone transactions.

Revenue from contracts that require development and manufacture in accordance with customer specifications and have a lengthy development period may be categorized into two types: firm fixed price and cost reimbursable. Revenue is recognized under the fixed price contracts using the percentage of completion method (cost-to-cost basis), principally based upon the costs incurred relative to the total estimated costs at completion on the individual contracts. Any anticipated losses on contracts are charged to operations as soon as they are determinable. Revenue recognized under cost reimbursable contracts is recognized on the basis of direct and indirect costs incurred plus a negotiated profit calculated as a percentage of costs or as a performance based award fee. Revenue from long-term contracts is reviewed periodically, with adjustments recorded in the period in which the revisions are made.

Inventory Valuation

Inventories are valued at the lower of cost or market, cost being determined on a first-in, first-out basis. We assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a periodic basis. Obsolete inventory or inventory in excess of management’s estimated usage is written down to its estimated market value less costs to sell, if less than its cost. Inherent in the estimates of market value are management’s estimates related to current economic trends, future demand and technological obsolescence. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. If the inventory value is written down to its net realizable value, and subsequently there is an increased demand for the inventory at a higher value, the increased value of the inventory is not realized until the inventory is sold.

Warranty

Our standard warranty agreement is one year from shipment. However, our warranty agreements are contract and component specific and can range to twenty years for selected components. We offer extended warranty contracts on products that are less than eight years old. The extended warranty contract is applicable for a maximum of nine years after the expiration of the standard one-year warranty. The revenue from extended warranty contracts is recognized ratably over the period of contract.

We accrue for anticipated warranty costs upon shipment. We estimate future warranty costs based on, historical warranty claim trends, management’s judgment regarding anticipated rates of warranty claims, and associated repair costs. This analysis is updated on a quarterly basis.

Accounting for Income Taxes

We provide for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in the consolidated financial statements in the period that includes the enactment date.

The carrying value of our net deferred tax assets, which are made up of tax deductions, net operating loss carryforwards and tax credits, assumes that we will be able to generate sufficient future income to fully realize these assets. We evaluate the weight of all available evidence in determining whether it is more likely than not that some portion of the deferred tax assets will not be realized. If we do not generate sufficient future income, the realization of these deferred tax assets may be impaired, resulting in an additional income tax expense. A portion of our tax credits are related to stock options and have a valuation allowance because of uncertainty regarding their realization. If these tax credits are realized, the benefit will be credited to common stock. Additionally, for state income tax purposes, we have research and development tax credit carryforwards that have no expiration date but we have full valuation allowance on such credits.

Short-Term Investments

Short-term investments consist of government sponsored enterprise debt securities, mutual funds, certificates of deposits and corporate debt securities. Maturities for the government sponsored enterprise debt securities, certificates of deposits and corporate debt securities are between three and thirty six months. All of our short-term investments, except the mutual funds which are classified as trading securities, are classified as available-for-sale. Available-for-sale securities are carried at fair value with temporary unrealized gains and losses, net of taxes, reported as a component of stockholders’ equity. Unrealized gains and losses related to trading securities are included in interest income in our consolidated statements of operations.

Available-for-sale investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. We consult with our investment manager and consider available quantitative and qualitative evidence in evaluating potential impairment of our investments on a quarterly basis. Other-than-temporary impairment charges exist when the entity has the intent to sell the security or it will more likely than not be required to sell the security before anticipated recovery. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to operations and a new cost basis in the investment is established.

Valuation of Long-Lived Assets Including Intangible Assets Subject to Amortization

The carrying value of long-lived assets is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Intangible assets primarily include purchased technology and trademarks. Factors we consider important that could trigger an impairment review include significant under-performance relative to historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, or significant negative industry or economic trends. If these criteria indicate that the value of the intangible asset may be impaired, we compare the respective book value to the projected undiscounted net cash flows associated with the related asset or group of assets over the asset’s remaining useful life. In the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets. Any such impairment charge could be significant and could have a material adverse effect on our financial statements if and when an impairment charge is recorded. If an impairment charge were recognized, the amortization related to intangible assets would decrease during the remainder of the life of the asset.

Results of Operations

The following table presents the percentage of total revenue for the respective line items in our consolidated statement of operations:


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
Net revenue
Communications		55.0	%		55.7	%		57.2	%
Government and Enterprise		45.0	%		44.3	%		42.8	%

Total net revenue		100.0	%		100.0	%		100.0	%
Cost of products and services		55.0	%		55.5	%		51.9	%
Amortization of purchased technology		0.6	%		0.3	%		0.5	%
Restructuring charges		0.4	%		0.5	%		4.5	%

Gross profit		44.0	%		43.8	%		43.1	%
Operating expenses:
Research and development		15.3	%		11.8	%		13.0	%
Selling, general and administrative		28.7	%		24.8	%		27.2	%
Amortization of intangible assets		0.2	%		0.1	%		0.1	%
Restructuring charges		2.3	%		—	%		(0.6	)%

Operating income (loss)		(2.5	)%		7.1	%		3.4	%
Interest income		0.2	%		0.1	%		0.5	%
Interest expense		—	%		—	%		—	%

Income (loss) from continuing operations before taxes		(2.3	)%		7.2	%		3.9	%
Income tax provision (benefit)		(1.0	)%		2.4	%		3.3	%

Income (loss) from continuing operations		(1.3	)%		4.8	%		0.6	%
Income from discontinued operations, net of tax		—	%		—	%		0.1	%

Net income (loss)		(1.3	)%		4.8	%		0.7	%

Fiscal 2013 compared to Fiscal 2012


	Year ended						$ Change			% Change
	June 30, 2013			July 1, 2012
Net Revenue:
Communications	$	116,047		$	132,345		$	(16,298	)		(12.3	)%
Government and Enterprise		94,943			105,371			(10,428	)		(9.9	)

Total Net Revenue	$	210,990		$	237,716		$	(26,726	)		(11.2	)%
Percentage of Revenue		100.0	%		100.0	%

Net revenue consists of sales of products, services and software licenses. The decrease in Communications revenue is due to lower sales of synchronization products. The decrease in Government and Enterprise segment revenue is due to a decline in our government programs revenue, sales of GPS and time code instrumentation, network time servers, and precision frequency references, driven largely by lower U.S. government spending. These declines were partially offset by higher sales of our new chip scale atomic clock.


	Year ended						$ Change			% Change
	June 30, 2013			July 1, 2012
Gross Profit:
Communications	$	59,881		$	66,564		$	(6,683	)		(10.0	)%
Government and Enterprise		33,962			38,626			(4,664	)		(12.1	)
Corporate related		(943	)		(1,178	)		235			(19.9	)

Total Gross Profit	$	92,900		$	104,012		$	(11,112	)		(10.7	)%
Percentage of Revenue		44.0	%		43.8	%

Gross profit: Gross profit as a percentage of revenue for our Communications segment increased to 52% in fiscal 2013, compared to 50% in fiscal 2012, due to lower manufacturing costs. Gross profit as a percentage of revenue for our Government and Enterprise segment decreased to 36% in fiscal 2013, compared to 37% in fiscal 2012, due to an unfavorable product mix, partially offset by lower manufacturing costs. Corporate related charges decreased $0.2 million due to lower restructuring charges in fiscal 2013.


	Year ended						$ Change			% Change
	June 30, 2013			July 1, 2012
Operating Income:
Communications	$	23,269		$	28,697		$	(5,428	)		(18.9	)%
Government and Enterprise		6,040			11,625			(5,585	)		(48.0	)
Corporate related		(34,654	)		(23,478	)		(11,176	)		(47.6	)

Total operating income	$	(5,345	)	$	16,844		$	(22,189	)		(131.7	)%
Percentage of Revenue		(2.5	)%		7.1	%

Operating income: Operating income for our Communications business decreased, principally due to lower revenue. Operating income for our Government and Enterprise business decreased due to a decline in revenue and an increase in research and development, sales, marketing and administrative expenses. Corporate-related expenses in fiscal 2013 were higher compared to fiscal 2012 due to higher restructuring charges in fiscal 2013 and higher research and development, sales, marketing and administrative expenses.


	Year ended						$ Change		% Change
	June 30, 2013			July 1, 2012
Research and development expense	$	32,384		$	27,960		$	4,424		15.8	%
Percentage of Revenue		15.3	%		11.8	%

Research and development expense consists primarily of salaries and benefits, prototype expenses, fees paid to outside consultants and facility costs. Research and development expense in fiscal 2013 increased compared to fiscal 2012 due to higher prototype and outside consulting expenses related to the development of our new smart grid clock for substations, PackeTime Edgemaster, and other products.


	Year ended						$ Change		% Change
	June 30, 2013			July 1, 2012
Selling, general and administrative	$	60,717		$	58,921		$	1,796		3.0	%
Percentage of Revenue		28.7	%		24.8	%

Selling, general and administrative expense consists primarily of salaries, benefits, sales commissions and travel-related expenses for our sales and services, marketing, finance, human resources, and information technology. In fiscal 2013, compared to fiscal 2012, there were higher employee compensation costs due in part to executive management transitions, legal and consulting costs related to transition of the research and development center in China to US and bad debt expenses, partially offset by lower sales commissions.


	Year ended						$ Change		% Change
	June 30, 2013			July 1, 2012
Amortization of intangible assets	$	346		$	242		$	104		43.0	%
Percentage of Revenue		0.2	%		0.1	%

Amortization of intangible assets increased in fiscal 2013 compared to fiscal 2012 due to higher amortization of intangible assets arising from assets acquired in fiscal 2012 and 2013, partially offset by certain assets being fully amortized before or during fiscal 2013.


	Year ended						$ Change		% Change
	June 30, 2013			July 1, 2012
Restructuring charges	$	4,798		$	45		$	4,753		10,562.2	%
Percentage of Revenue		2.3	%		0.0	%

Restructuring charges in fiscal 2013 consisted of severance, lease loss charges and other exit costs. In fiscal 2012, restructuring charges consisted of severance and other charges partially offset by a decrease in our lease loss liability.


	Year ended						$ Change		% Change
	June 30, 2013			July 1, 2012
Interest income	$	444		$	282		$	162		57.4	%
Percentage of Revenue		0.2	%		0.1	%

Interest income was higher in fiscal 2013 than the prior year due to an increase in the fair value of our deferred compensation plan assets.


	Year ended						$ Change			% Change
	June 30, 2013			July 1, 2012
Income tax provision	$	(2,196	)	$	5,771		$	(7,967	)		(138.1	)%
Percentage of Revenue		(1.0	)%		2.4	%

Income tax provision: Our effective tax rate in fiscal 2013 was 44.8% on a loss from continuing operations before income taxes of $4.9 million, compared to an effective tax rate of 33.7% on income from continuing operations before income taxes of $17.1 million in fiscal 2012. The tax rate in fiscal 2013 was impacted by the retroactive extension of R&D tax credit enacted in January 2013. The tax rate in fiscal 2012 benefited from the release of reserves on an uncertain tax position that was no longer necessary.

Fiscal 2012 compared to Fiscal 2011


	Year ended						$ Change		% Change
	July 1, 2012			July 3, 2011
Net Revenue:
Communications	$	132,345		$	119,104		$	13,241		11.1	%
Government and Enterprise		105,371			89,042			16,329		18.3

Total Net Revenue	$	237,716		$	208,146		$	29,570		14.2	%
Percentage of Revenue		100.0	%		100.0	%

Net revenue consists of sales of products, services and software licenses. In fiscal 2012, net revenue increased $29.6 million, or 14.2%, compared to fiscal 2011. The increase in Communications revenue was due in part 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 fiscal 2012, Communications revenue increased due to higher sales of DTI and PackeTime^® products, and higher installation revenues, offset by lower sales of traditional sync, and embedded solutions products. The increase in Government and Enterprise segment revenue is due to an increase in our government programs business and, enterprise products, partially offset by lower sales of clocks and instruments.


	Year ended						$ Change			% Change
	July 1, 2012			July 3, 2011
Gross Profit:
Communications	$	66,564		$	58,992		$	7,572			12.8	%
Government and Enterprise		38,626			40,091			(1,465	)		(3.7	)
Corporate related		(1,178	)		(9,351	)		8,173			(87.4	)

Total Gross Profit	$	104,012		$	89,732		$	14,280			15.9	%
Percentage of Revenue		43.8	%		43.1	%

Gross profit: Gross profit in fiscal 2012 increased by $14.3 million, or 15.9%, compared to fiscal 2011. Gross profit as a percentage of revenue in fiscal 2012 increased to 43.8% compared to 43.1% in fiscal 2011 due primarily to a decrease in corporate-related restructuring charges.

Gross profit for our Communications segment increased by 12.8% in fiscal 2012 compared to fiscal 2011, while the revenue in this segment increased 11.1% compared to the prior year due to product mix shift to higher margin products, partially offset by an increase in installation revenue, which typically has lower margins. Gross profit for our Government and Enterprise segment decreased by 3.7% in fiscal 2012 compared to fiscal 2011 whereas revenue increased 18.3% compared to the same period in the prior year, due to a product mix shift to lower margin products (government programs business and CSAC) and higher manufacturing costs.

Corporate related charges decreased $8.2 million, or 87.4%, in fiscal 2012, due to higher restructuring charges in fiscal 2011 from activities associated with the phased closure of our Puerto Rico manufacturing facility, which was completed in fiscal 2011.


	Year ended						$ Change			% Change
	July 1, 2012			July 3, 2011
Operating Income:
Communications	$	28,697		$	22,690		$	6,007			26.5	%
Government and Enterprise		11,625			15,840			(4,215	)		(26.6	)
Corporate related		(23,478	)		(31,399	)		7,921			25.2

Total operating income	$	16,844		$	7,131		$	9,713			136.2	%
Percentage of Revenue		7.1	%		3.4	%

Operating income: Operating income for our Communications business increased due to the increase in revenue. Operating income for our Government and Enterprise business decreased due to lower gross profit and an increase in research and development, sales, marketing and administrative expenses. Corporate-related expenses in fiscal 2012 were lower than fiscal 2011 due to higher restructuring charges in fiscal 2011 from activities associated with the phased closure of our Puerto Rico manufacturing facility, which was completed in fiscal 2011.


	Year ended						$ Change		% Change
	July 1, 2012			July 3, 2011
Research and development expense	$	27,960		$	27,045		$	915		3.4	%
Percentage of Revenue		11.8	%		13.0	%

Research and development expense consists primarily of salaries and benefits, prototype expenses and fees paid to outside consultants and facility costs. Research and development expense in fiscal 2012 increased compared to fiscal 2011 due to higher employee compensation and related costs and increase in outside consultants costs, partially offset by lower prototype expense and research project expenses.


	Year ended						$ Change		% Change
	July 1, 2012			July 3, 2011
Selling, general and administrative	$	58,921		$	56,607		$	2,314		4.1	%
Percentage of Revenue		24.8	%		27.2	%

Selling, general and administrative expense consists primarily of salaries, benefits, sales commissions and travel-related expenses for our sales and services, marketing, finance, human resources, information technology and facilities departments. In fiscal 2012, compared to fiscal 2011, there were higher employee compensation and related costs, commissions, travel costs, and consulting and outside services costs.


	Year ended						$ Change			% Change
	July 1, 2012			July 3, 2011
Amortization of intangible assets	$	242		$	243		$	(1	)		(0.4	)%
Percentage of Revenue		0.1	%		0.1	%

Amortization of intangible assets remained flat in fiscal 2012 compared to fiscal 2011 due to certain assets becoming fully amortized during fiscal 2012, offset by amortization of intangible assets acquired during fiscal 2012.


	Year ended						$ Change		% Change
	July 1, 2012			July 3, 2011
Restructuring charges	$	45		$	(1,294	)	$	1,339		(103.5	)%
Percentage of Revenue		0.0	%		(0.6	)%

Restructuring charges in fiscal 2012 consisted of severance and other charges partially offset by changes in our lease loss liability. In fiscal 2011, restructuring charges consisted of a $2.3 million credit from the utilization of a section of the San Jose facility that had previously been recorded as a lease loss at the time we ceased using the space and the sublease of a section of our Santa Rosa facility that had previously been recorded as a lease loss at the time we ceased using the space, partially offset by severance and other charges.


	Year ended						$ Change			% Change
	July 1, 2012			July 3, 2011
Interest income	$	282		$	957		$	(675	)		(70.5	)%
Percentage of Revenue		0.1	%		0.5	%

Interest income decreased in fiscal 2012 compared to the same period in the prior year due to a decline in the fair value of investments (classified as trading securities) under our deferred compensation plan and lower yields.


	Year ended						$ Change			% Change
	July 1, 2012			July 3, 2011
Income tax provision	$	5,771		$	6,861		$	(1,090	)		(15.9	)%
Percentage of Revenue		2.4	%		3.3	%

Income tax provision: Our effective tax rate in fiscal 2012 was 33.7% on income from continuing operations before income taxes of $17.1 million, compared to an effective tax rate of 85.5% on income from continuing operations before income taxes of $8.0 million in fiscal 2011. The tax rate in fiscal 2012 benefited

from the release of reserves on an uncertain tax position that is no longer necessary. The tax rate in fiscal 2011 was impacted by a $4.5 million valuation allowance related to state income tax credits primarily attributable to research and development credits that could not be utilized.

Key Operating Metric

A key operating performance measure is sales backlog. This metric, which compares fiscal 2013 with fiscal 2012, is discussed below.

Sales backlog:

Our backlog consists of firm orders that have yet to be shipped to the customer, or may not be shippable to a customer until a future period. Most orders included in backlog can be rescheduled or cancelled by customers without significant penalty. Historically, a substantial portion of net revenue in any fiscal period has been derived from orders received during that fiscal period. Our total backlog amounted to $45.3 million as of June 30, 2013, compared to $45.4 million as of July 1, 2012.

Our backlog may be affected by the cancellation or delay of customer orders, the overall condition of the telecommunications industry, U.S. government spending on defense programs, overall worldwide economic conditions and the cyclical nature of customer demand in each of our markets.

Liquidity and Capital Resources

Balance Sheet and Cash Flows

The following table summarizes our cash, cash equivalents and short-term investments:


	June 30, 2013		July 1, 2012		Change $
Cash and cash equivalents	$	29,358	$	27,659	$	1,699
Short-term investments		46,131		39,280		6,851

Total	$	75,489	$	66,939	$	8,550

As of June 30, 2013, our principal sources of liquidity consisted of cash, cash equivalents and short-term investments of $75.5 million and accounts receivable, net of $38.8 million.

As of June 30, 2013, working capital was $141.6 million compared to $140.0 million as of July 1, 2012. Cash, cash equivalents and short-term investments as of June 30, 2013 increased to $75.5 million from $66.9 million as of July 1, 2012. Our days sales outstanding in accounts receivable was 68 days as of June 30, 2013, compared to 67 days as of July 1, 2012.

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 the purchase of property, plant and equipment.

Cash flows from operating activities

Net cash provided by operating activities in fiscal 2013 was $19.2 million. The net cash provided by operating activities consisted of non-cash charges of $14.6 million, a net change in operating assets of $7.3 million, partially offset by a net loss of $2.7 million. The non-cash charges consisted of $7.1 million in stock-based compensation expense, $6.8 million in depreciation and amortization expenses, $2.6 million in provision for excess and obsolete inventory, $0.5 million in allowance for doubtful accounts, and $0.5 million loss on disposal of assets, partially offset by $2.9 million in use of deferred income taxes. The net changes in operating

assets consisted primarily of a $6.7 million decrease in accounts receivable, a $3.0 million decrease in prepaids and other assets, a $0.5 million decrease in inventories, partially offset by a decrease in accounts payable of $2.1 million, and a decrease in accrued compensation of $0.9 million.

Cash flows from investing activities

Net cash used for investing activities was $15.0 million in fiscal 2013, which represented the purchase of short-term investments of $46.7 million, property, plant and equipment of $6.4 million, and acquisition of a business and intangible assets of $0.7 million, partially offset by the sale/maturities of short-term investments of $38.8 million.

Cash flows from financing activities

Net cash used for financing activities was $2.5 million in fiscal 2013, which represented the repurchase of common stock of $7.0 million, partially offset by cash generated from the exercise of common stock options of $4.5 million.

We believe that our existing cash resources will be sufficient to meet our anticipated operating and working capital expenditure needs in the ordinary course of business for at least the next 12 months and the foreseeable future. We base our expense levels in part on our expectation of future revenue levels. If our revenue for a particular period is lower than we expect, we may take steps to reduce our operating expenses accordingly. If cash generated from operations is insufficient to satisfy our liquidity requirements or if we require additional capital resources to grow our business or to acquire complementary technologies and businesses in the future, we may seek to issue additional equity securities or obtain debt financing. Additional financing may not be available at all or on terms acceptable to us. Additional financing may also be dilutive to our existing stockholders. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources.

Contractual Obligations

We operate in multiple locations domestically and internationally. As such, certain facilities and equipment are leased under operating lease agreements. Due to excess capacity on several non-cancelable leases as a result of the economic downturn and reorganization, we subleased certain facilities and recognized lease loss liabilities for the remainder.

We incur purchase commitments during our normal course of business. As of June 30, 2013, our principal commitments totaled $12.4 million and related primarily to commitments to purchase inventory.

The following table summarizes our contractual cash obligations as of June 30, 2013, and the effect such obligations are expected to have on liquidity and cash flow in future periods.


	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(In thousands)
Contractual Obligations
Operating leases obligations (1)	$	13,599	$	4,296	$	9,034	$	269	$	—
Purchase obligations		12,390		10,756		1,634		—		—
Post-retirement benefits liabilities (2)		208		31		55		45		77
Lease obligations on abandoned space (3)		2,629		1,050		1,579		—		—

Total	$	28,826	$	16,133	$	12,302	$	314	$	77

(1)	Consists of lease obligations on space used by the Company for operations and does not include lease obligations on space that has been abandoned.

(2)

Relates to a post-retirement health care benefits plan, assumed during an acquisition in fiscal 2003. The plan was curtailed in fiscal 2003, and only existing retired participants and employees of the acquired company, now employed by Symmetricom and meeting the retirement eligibility requirements by December 31, 2004, are eligible for participation. The health care plan is a contributory plan.

(3)	Consists of gross lease obligations on abandoned space whether sub-leased or not.

Uncertain tax positions of $16.2 million consist of amounts which reduce the net deferred tax asset balance to $34.0 million at June 30, 2013, which would affect our income tax expense if recognized. Due to the high degree of uncertainty regarding the settlement of these liabilities, we are unable to estimate the year in which the future cash flows may occur and therefore have not included them in the above table.

Recent Accounting Pronouncements

Refer to Note 1 to the consolidated financial statements included in this Form 10-K for a discussion of the expected impact of recently issued accounting pronouncements.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Exposure

As of June 30, 2013, we had short-term investments of $46.1 million. These investments are mainly in government sponsored enterprise, certificates of deposits and corporate debt securities that have maturity dates of greater than three months. These securities are subject to interest rate risk in as much as their fair value will fall if market interest rates increase. A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to rates at June 30, 2013 would not have materially affected the fair value of our investment portfolio. We do not use derivative financial instruments to mitigate the risks inherent in these securities.

Foreign Currency Exchange Rate Exposure

Our exposure to market risk due to fluctuations in currency exchange rates relates primarily to the intercompany balances with our subsidiaries in the United Kingdom, Germany, China and India. Although we transact business in various countries, settlement amounts are usually based on United States currency. Transaction gains or losses have not been significant in the past and we do not presently engage in hedging activity. A hypothetical 10% adverse change in Pound Sterling, Euro, Chinese Yuan Renminbi or Indian Rupee against United States dollars would not result in a material foreign exchange loss. Consequently, we do not expect that a sudden or significant fluctuation in foreign exchange rates would have a direct material impact on our business.

Notwithstanding the foregoing analysis of the direct effects of interest rate and currency exchange rate fluctuations on the value of our investments and accounts, the indirect effects of such fluctuations could have a materially harmful effect on our business. For example, international demand for our products is affected by foreign currency exchange rates. In addition, interest rate fluctuations may affect the buying patterns of our customers. Furthermore, interest rate and currency exchange rate fluctuations have broad influence on the general condition of the United States, foreign and global economies which could materially harm our business.

Item 8.

Consolidated Financial Statements and Supplementary Data

Supplementary quarterly financial data (unaudited):

The following table shows our unaudited condensed, consolidated quarterly statements of operations data for each of the quarters in the fiscal years ended June 30, 2013 and July 1, 2012. This information has been derived from our unaudited financial information, which, in the opinion of management, has been prepared on the same basis as our audited financial statements and includes all adjustments necessary for the fair presentation of the financial information for the quarters presented.


	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
	(In thousands, except per share amounts)
Fiscal 2013
Net revenue	$	56,391		$	49,151		$	53,349	$	52,099
Gross profit		24,302			21,001			24,083		23,514
Operating income (loss)		(379	)		(2,814	)		165		(2,317	)
Income (loss) before taxes		(415	)		(2,636	)		263		(2,113	)
Net income (loss)		(203	)		(1,775	)		819		(1,546	)
Basic net income (loss) per share		(0.01	)		(0.04	)		0.02		(0.04	)
Diluted net income (loss) per share		(0.01	)		(0.04	)		0.02		(0.04	)

Fiscal 2012
Net revenue	$	56,378		$	58,294		$	60,438	$	62,606
Gross profit		25,945			25,210			24,661		28,196
Operating income		4,089			3,643			3,275		5,837
Income before taxes		4,155			3,347			3,500		6,124
Net income		2,749			2,445			2,204		3,957
Basic net income per share		0.06			0.06			0.05		0.10
Diluted net income per share		0.06			0.06			0.05		0.09

SYMMETRICOM, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page
Report of Independent Registered Public Accounting Firm		42

Consolidated Balance Sheets at June 30, 2013 and July 1, 2012		43

Consolidated Statements of Operations for the years ended June 30, 2013, July 1, 2012, and July 3, 2011		44

Consolidated Statements of Comprehensive Income (loss) for the years ended June 30, 2013, July 1, 2012, and July 3, 2011		45

Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2013, July 1, 2012, and July 3, 2011		46

Consolidated Statements of Cash Flows for the years ended June 30, 2013, July 1, 2012, and July 3, 2011		47

Notes to the Consolidated Financial Statements		48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Symmetricom, Inc.

San Jose, California

We have audited the accompanying consolidated balance sheets of Symmetricom, Inc. and subsidiaries (the “Company”) as of June 30, 2013 and July 1, 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15(a) 2. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Symmetricom, Inc. and subsidiaries as of June 30, 2013, and July 1, 2012, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of June 30, 2013, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 11, 2013 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

San Jose, California

September 11, 2013

SYMMETRICOM, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)


	June 30, 2013			July 1, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	29,358		$	27,659
Short-term investments		46,131			39,280
Accounts receivable, net of allowance for doubtful accounts of $636 in 2013 and $108 in 2012		38,756			45,952
Inventories		44,516			47,618
Prepaids and other current assets		18,389			16,943

Total current assets		177,150			177,452
Property, plant and equipment, net		23,869			22,702
Intangible assets, net		2,958			3,458
Deferred taxes and other assets		26,951			27,413

Total assets	$	230,928		$	231,025

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,813		$	9,300
Accrued compensation		13,702			14,574
Accrued warranty		1,550			1,722
Other accrued liabilities		12,483			11,841

Total current liabilities		35,548			37,437
Long-term obligations		5,264			5,472
Deferred income taxes		334			334

Total liabilities		41,146			43,243

Commitments and contingencies (Notes 7 and 8)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 500 shares authorized, none issued		—			—
Common stock, $0.0001 par value; 70,000 shares authorized, 52,956 shares issued and 41,097 outstanding in 2013; 51,500 shares issued and 40,952 outstanding in 2012		198,227			193,478
Accumulated other comprehensive loss		(276	)		(232	)
Accumulated deficit		(8,169	)		(5,464	)

Total stockholders’ equity		189,782			187,782

Total liabilities and stockholders’ equity	$	230,928		$	231,025

See notes to the consolidated financial statements.

SYMMETRICOM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


	Year ended
	June 30, 2013			July 1, 2012		July 3, 2011
Net revenue	$	210,990		$	237,716	$	208,146
Cost of products and services		115,953			131,907		107,990
Amortization of purchased technology		1,194			619		1,073
Restructuring charges		943			1,178		9,351

Total cost of sales		118,090			133,704		118,414

Gross profit		92,900			104,012		89,732
Operating expenses:
Research and development		32,384			27,960		27,045
Selling, general and administrative		60,717			58,921		56,607
Amortization of intangible assets		346			242		243
Restructuring charges		4,798			45		(1,294	)

Total operating expenses		98,245			87,168		82,601

Operating income (loss)		(5,345	)		16,844		7,131
Interest income		444			282		957
Interest expense		—			—		(58	)

Income (loss) from continuing operations before taxes		(4,901	)		17,126		8,030
Income tax provision (benefit)		(2,196	)		5,771		6,861

Income (loss) from continuing operations		(2,705	)		11,355		1,169
Income from discontinued operations, net of tax		—			—		254

Net income (loss)	$	(2,705	)	$	11,355	$	1,423

Earnings per share—basic:
Income (loss) from continuing operations	$	(0.07	)	$	0.27	$	0.03
Income from discontinued operations, net of tax		—			—		—

Net income (loss)	$	(0.07	)	$	0.27	$	0.03

Weighted average shares outstanding—basic		40,509			41,981		43,188

Earnings per share—diluted:
Income (loss) from continuing operations	$	(0.07	)	$	0.27	$	0.03
Income from discontinued operations, net of tax		—			—		—

Net income (loss)	$	(0.07	)	$	0.27	$	0.03

Weighted average shares outstanding—diluted		40,509			42,697		43,782

See notes to the consolidated financial statements.

SYMMETRICOM, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
Income (loss) from continuing operations , net of tax	$	(2,705	)	$	11,355		$	1,169
Income (loss) from discontinued operations, net of tax		—			—			254

Net income (loss)		(2,705	)		11,355			1,423

Other Comprehensive income (loss):
Foreign currency translation adjustments		52			(199	)		278
Unrealized gain (loss) on short-term investments (net of tax effect of $48, $2, $25)		(96	)		(4	)		49

Other comprehensive income (loss), net of tax		(44	)		(203	)		327

Total comprehensive income (loss)	$	(2,749	)	$	11,152		$	1,750

See notes to the consolidated financial statements.

SYMMETRICOM, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)


	Common Stock						Accumulated Other Comprehensive Income (loss)			Accumulated Deficit			Total Stock- holders’ Equity
	Shares			Amount			Accumulated Other Comprehensive Income (loss)			Accumulated Deficit			Total Stock- holders’ Equity
Balance at June 27, 2010		43,699		$	202,450		$	(356	)	$	(18,242	)	$	183,852
Issuance of common stock:
Stock option exercises		462			2,167			—			—			2,167
Restricted stock issued		211			—			—			—			—
Repurchase of common stock		(1,385	)		(7,957	)		—			—			(7,957	)
Restricted stock canceled		(27	)		—			—			—			—
Stock option income tax expense		—			(456	)		—			—			(456	)
Stock-based compensation		—			4,798			—			—			4,798
Adjustment for repayment of convertible notes, net
Income from continuing operations		—			—			—			1,169			1,169
Income from discontinued operations, net of tax											254			254
Unrealized loss on short-term investments, net of taxes		—			—			49			—			49
Cumulative adjustments to foreign currency translation, net of taxes		—			—			278			—			278

Balance at July 3, 2011		42,960			201,002			(29	)		(16,819	)		184,154
Issuance of common stock:
Stock option exercises and ESPP issuance		765			3,455			—			—			3,455
Restricted stock issued		156			—			—			—			—
Repurchase of common stock		(2,929	)		(16,136	)		—			—			(16,136	)
Stock option income tax expense		—			(985	)		—			—			(985	)
Stock-based compensation		—			6,142			—			—			6,142
Net income		—			—			—			11,355			11,355
Unrealized gain on short-term investments, net of taxes		—			—			(4	)		—			(4	)
Cumulative adjustments to foreign currency translation, net of taxes		—			—			(199	)		—			(199	)

Balance at July 1, 2012		40,952			193,478			(232	)		(5,464	)		187,782
Issuance of common stock:
Stock option exercises and ESPP issuance		995			4,481			—			—			4,481
Restricted stock issued		461			—			—			—			—
Repurchase of common stock		(1,147	)		(7,010	)		—			—			(7,010	)
Restricted stock cancelled		(164	)		—			—			—			—
Stock option income tax expense					163			—			—			163
Stock-based compensation		—			7,115			—			—			7,115
Net loss		—						—			(2,705	)		(2,705	)
Unrealized loss on short-term investments, net of taxes		—			—			(96	)		—			(96	)
Cumulative adjustments to foreign currency translation, net of taxes		—			—			52			—			52

Balance at June 30, 2013		41,097		$	198,227		$	(276	)	$	(8,169	)	$	189,782

See notes to the consolidated financial statements.

SYMMETRICOM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
Cash flows from operating activities:
Net income (loss)	$	(2,705	)	$	11,355		$	1,423
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		6,800			5,864			6,664
Deferred income taxes		(2,851	)		4,515			6,953
Loss on disposal of fixed assets		474			211			13
Allowance for doubtful accounts		517			(157	)		102
Provision for excess and obsolete inventory		2,591			2,944			1,760
Stock-based compensation		7,115			6,142			4,798
Changes in assets and liabilities:
Accounts receivable		6,679			(5,284	)		(538	)
Inventories		510			9,463			(27,153	)
Prepaids and other assets		3,004			(3,170	)		1,995
Accounts payable		(2,119	)		(6,921	)		9,401
Accrued compensation		(872	)		831			(4,987	)
Other accrued liabilities		65			(3,172	)		(206	)

Net cash provided by operating activities		19,208			22,621			225

Cash flows from investing activities:
Purchases of short-term investments		(46,721	)		(30,089	)		(56,662	)
Sale/maturities of short-term investments		38,799			33,382			66,068
Purchases of plant and equipment		(6,408	)		(4,503	)		(5,595	)
Cash proceeds from sale of discontinued operations		—			210			—
Payment to acquire business and other assets		(702	)		(1,400	)		—

Net cash provided by (used for) investing activities		(15,032	)		(2,400	)		3,811

Cash flows from financing activities:
Proceeds from issuance of common stock		4,481			3,455			2,167
Repurchase of common stock		(7,010	)		(16,136	)		(7,957	)

Net cash used for financing activities		(2,529	)		(12,681	)		(5,790	)

Effect of exchange rate changes in cash		52			(199	)		278

Net increase (decrease) in cash and cash equivalents		1,699			7,341			(1,476	)
Cash and cash equivalents at beginning of year		27,659			20,318			21,794

Cash and cash equivalents at end of year	$	29,358		$	27,659		$	20,318

Non-cash investing and financing activities:
Unrealized gain (loss) on securities, net	$	(96	)	$	(4	)	$	49
Plant and equipment purchases included in accounts payable		817			185			77
Contingent consideration for acquisition of business		650			540			—
Cash payments for:
Interest	$	—		$	—		$	53
Income taxes		1,805			1,080			371

See notes to the consolidated financial statements.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Summary of Significant Accounting Policies

Business

Symmetricom^® is a leading source of highly precise timekeeping technologies, instruments and solutions worldwide. 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 (SyncE), Building Integrated Timing Supply (BITS) and Data Over Cable Service Interface Specifications (DOCSIS) timing.

Principles of Consolidation

The consolidated financial statements include the accounts of Symmetricom, Inc., and its wholly owned subsidiaries (“Symmetricom,” “we,” “our” or the “Company”). All significant intercompany accounts and transactions are eliminated.

Fiscal Year

Our fiscal year is the 52 or 53 weeks ending on the Sunday closest to June 30. Fiscal years 2013 and 2012 were 52-week fiscal years and 2011 was a 53-week fiscal year.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates include:

•

Revenue recognition

•

Accounting for income taxes

•

Inventory valuation

•

Warranty accrual

•

Accruals for contingent liabilities (including restructuring charges)

•

Stock based compensation

•

Allowance for doubtful accounts

•

Valuation of short-term investments

•

Valuation of long-lived assets including intangible assets

These estimates are based on available information as of the date of these consolidated financial statements and actual results could differ from these estimates.

Cash and Cash Equivalents

We consider all highly liquid debt investments with a remaining maturity of three months or less when purchased to be cash and cash equivalents.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Short-Term Investments

Fair Values of Financial Instruments

The estimated fair value of our financial instruments, which include cash and cash equivalents, short-term investments, accounts receivable, and accounts payable, approximate their carrying amount.

Allowance for Doubtful Accounts

We record allowance for doubtful accounts based upon an assessment of various factors. We consider historical experience, the age of the accounts receivable balances, the credit quality of the customers, current economic conditions and other factors that may affect customers’ ability to pay to determine the level of allowance required.

Inventories

Inventories are valued at the lower-of-cost (first-in, first-out) or market. We assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a periodic basis. Obsolete inventory or inventory in excess of management’s estimated usage is written down to its estimated market value less costs to sell, if less than its cost. Inherent in the estimates of market value are management’s estimates related to current economic trends, future demand and technological obsolescence.

Property, Plant and Equipment, Net

Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the assets except for land as follows:


Buildings and improvements		15 - 39 years
Leasehold improvements		5 - 15 years, or life of lease, if shorter
Machinery, equipment and computer software		3 - 7 years

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounting for Income Taxes

We provide for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in the financial statements in the period that includes the enactment date.

Authoritative accounting guidance from income taxes prescribes a recognition threshold and measurement framework for the financial statement reporting and disclosure of an income tax position taken or expected to be taken on a tax return. Under this guidance, a tax position is recognized in the financial statements when it is more likely than-not, based on the technical merits, that the position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50% likelihood of being realized upon settlement.

Valuation of Long-lived Assets Including Other Intangible Assets Subject to Amortization

The carrying value of long-lived assets is evaluated whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, is less than the carrying value of the asset. An impairment loss is measured as the amount by which the carrying amount exceeds the fair value.

Comprehensive Income (loss)

Financial Accounting Standards Board (FASB) issued authoritative guidance on reporting comprehensive income, establishes standards for reporting and display of comprehensive income and its components. It also requires companies to report comprehensive income that includes unrealized holding gains and losses and other items that have previously been excluded from net income and reflected instead in stockholders’ equity.

Accumulated other comprehensive loss, consists of the following:


	June 30, 2013			July 1, 2012			July 3, 2011
	(in thousands)
Foreign currency translation adjustments, net of taxes	$	(187	)	$	(239	)	$	(40	)
Unrealized gain (loss) on short-term investments, net of taxes		(89	)		7			11

Total accumulated other comprehensive loss	$	(276	)	$	(232	)	$	(29	)

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Warranty

Our standard warranty agreement is one year from shipment. However, our warranty agreements are contract and component specific and can range to twenty years for selected components. We offer extended warranty contracts to our customers. The extended warranty is offered on products that are less than eight years old. The extended warranty contract is applicable for a maximum of nine years after the expiration of the standard one-year warranty. The revenue from extended warranty contracts is recognized ratably over the period of contract.

The change in accrued warranty expense is summarized as follows:


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
	(In thousands)
Beginning balance	$	1,722		$	1,601		$	2,900
Provision for warranty for the year		2,733			2,549			1,617
Accruals related to changes in estimate		(352	)		286			(520	)
Less: Actual warranty costs		(2,553	)		(2,714	)		(2,396	)

Ending balance	$	1,550		$	1,722		$	1,601

Software Development Costs

Costs for the development of new software and substantial enhancements to existing software are expensed as incurred until technological feasibility has been established, at which time any additional development costs would be capitalized in accordance with FASB issued authoritative guidance on Accounting for the Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed. We believe the current process for developing software is essentially completed concurrently with the establishment of technological feasibility; accordingly, no costs have been capitalized to date.

Foreign Currency Translation

The functional currency of each of our international subsidiaries in the United Kingdom and China is the U.S. dollar, while in Germany it is the Euro and in India it is the Indian rupee.

For our subsidiaries in which the U.S. Dollar is the functional currency, foreign currency denominated assets and liabilities are translated at the period-end exchange rates, except for inventories, prepaid expenses, and property and equipment, which are translated at historical exchange rates. Statements of operations are translated at the average exchange rates during the year except for those expenses related to the balance sheet amounts, which are translated using historical exchange rates. Net gains (losses) from these foreign exchange remeasurements are charged to operations and have not been material to our consolidated operating results for any of the periods presented.

For our subsidiaries in Germany and India, foreign currency denominated assets and liabilities are translated at the period-end exchange rates, while revenue and expenses are translated at average rates prevailing during the year. Translation adjustments are reported in other comprehensive income (loss).

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue Recognition

We assess collectability based on the creditworthiness of the customer and past transaction history. We perform periodic credit evaluations of our customers and do not require collateral from our customers. However, for many of our international customers, we require an irrevocable letter of credit to be issued by the customer before the product is shipped. If we determine that collection of the invoice is not reasonably assured, we recognize revenue at the time that collection becomes reasonably assured, which is generally upon the receipt of cash.

•

the price list established by our management which is typically based on general pricing practices, market conditions, geographies and targeted gross margin of products and services sold; and

•

analysis of pricing history of new arrangements, including multiple element and stand-alone transactions.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

completion on the individual contracts. Any anticipated losses on contracts are charged to operations as soon as they are determinable. Revenue recognized under cost reimbursable contracts is recognized on the basis of direct and indirect costs incurred plus a negotiated profit calculated as a percentage of costs or as a performance based award fee. Revenue from long-term contracts is reviewed periodically, with adjustments recorded in the period in which the revisions are made.

Unbilled receivables totaled $5.7 million as of June 30, 2013 compared to $5.6 million as of July 1, 2012 and are included within the “Prepaid and Other Current Assets” line item on our consolidated balance sheets. All unbilled receivables as of June 30, 2013 are expected to be collected in fiscal 2014.

Stock-Based Compensation

We account for stock-based compensation in accordance with FASB issued authoritative guidance on share-based compensation. Under this guidance, share-based compensation cost is measured at the grant date based on the fair value of the award using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires that we determine subjective variables including estimated term of the award and the estimated volatility in addition to other less subjective variables. The identified fair value resulting from this model is recognized as expense, net of estimated forfeitures, over the applicable vesting period of the stock award.

Research and Development Costs

Research and development expenditures, which include software development costs, are expensed as incurred.

Earnings Per Share

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings 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 CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation of the denominator used in the calculation of basic and diluted net earnings (loss) per share is as follows:


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
	(In thousands, except per share amounts)
Numerator:
Income (loss) from continuing operations	$	(2,705	)	$	11,355		$	1,169
Income from discontinued operations		—			—			254

Net income (loss)	$	(2,705	)	$	11,355		$	1,423

Shares (Denominator):
Weighted average common shares outstanding		40,802			42,224			43,368
Weighted average common shares outstanding subject to repurchase		(293	)		(243	)		(180	)

Weighted average shares outstanding—basic		40,509			41,981			43,188
Weighted average dilutive share equivalents from stock options		—			583			530
Weighted average dilutive common shares subject to repurchase		—			133			64

Weighted average shares outstanding—diluted		40,509			42,697			43,782

Earnings per share—basic:
Income (loss) from continuing operations	$	(0.07	)	$	0.27		$	0.03
Income from discontinued operations		—			—			—

Net income (loss)	$	(0.07	)	$	0.27		$	0.03

Earnings per share—diluted:
Income (loss) from continuing operations	$	(0.07	)	$	0.27		$	0.03
Income from discontinued operations		—			—			—

Net income (loss)	$	(0.07	)	$	0.27		$	0.03

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 diluted earnings per share calculation, as their effect would have been antidilutive:


	Year ended
	June 30, 2013		July 1, 2012		July 3, 2011
	(In thousands)
Stock options		8,086		4,155		2,777

Total shares of common stock excluded from diluted net earnings per share calculation		8,086		4,155		2,777

Recent Accounting Pronouncements

In fiscal 2012, the Company adopted revised guidance related to the presentation of comprehensive income. This guidance eliminates the current option to report other comprehensive income (OCI) and its components in

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the statement of changes in stockholders’ equity. The Company adopted, and retrospectively applied this guidance during the fourth quarter of 2012 and elected to present the statement of other comprehensive income (loss) as a separate statement for the reporting periods.

In February 2013, the FASB issued guidance on disclosure requirements for items reclassified out of accumulated other comprehensive income (“AOCI”). This new guidance requires entities to present (either on the face of the income statement or in the notes) the effects on the line items of the income statement for amounts reclassified out of AOCI. The new guidance will be effective for us beginning July 1, 2013. Other than requiring additional disclosures, we do not anticipate material impacts on our financial statements upon adoption.

Note 2—Balance Sheet Components

Inventories consist of the following:


	June 30, 2013		July 1, 2012
	(In thousands)
Raw materials	$	19,007	$	21,003
Work-in-process		11,025		10,440
Finished goods		14,484		16,175

Inventories	$	44,516	$	47,618

Certain inventories, not expected to be consumed within the next 12 months, are included in the consolidated balance sheet as non-current other assets (within “Deferred Taxes and Other Assets”). These inventories consist of raw materials and finished goods and totaled $1.3 million and $2.6 million, as of June 30, 2013 and July 1, 2012, respectively.

Property, plant and equipment, net consist of the following:


	June 30, 2013			July 1, 2012
	(In thousands)
Property, plant and equipment, net:
Land	$	200		$	200
Buildings and improvements		19,164			16,119
Machinery and equipment		29,203			27,610
Computer software		12,673			12,384
Leasehold improvements		19,409			18,923

		80,649			75,236
Accumulated depreciation and amortization		(56,780	)		(52,534	)

	$	23,869		$	22,702

During fiscal years 2013, 2012, and 2011, depreciation expense was $5.3 million, $5.0 million, and $5.3 million, respectively.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other accrued liabilities consist of the following:


	June 30, 2013		July 1, 2012
	(In thousands)
Other accrued liabilities:
Deferred revenue	$	6,093	$	6,996
Accrued expenses		4,497		2,717
Manufacturer sales representative commissions payable		843		1,303
Lease loss accrual, net		1,050		668
Income taxes payable		—		157

Total	$	12,483	$	11,841

Long-term obligations consist of the following:


	June 30, 2013		July 1, 2012
	(In thousands)
Long-term obligations:
Deferred revenue	$	1,979	$	2,254
Lease loss accrual, net		1,579		1,240
Rent accrual		713		1,102
Post-retirement benefits		186		173
Income tax		216		216
Contingent consideration for acquired business		591		487

Total	$	5,264	$	5,472

Note 3—Financial Instruments

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

•

Level 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 CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of June 30, 2013 and July 1, 2012:


	Fair Value as of June 30, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
			(In thousands)
*Assets:*
Money market funds	$	8,798	$	8,798	$	—	$	—

Short-term investments:
Corporate debt securities and certificates of deposits		35,034		—		35,034		—
Government sponsored enterprise debt securities		8,246		—		8,246		—
Mutual funds		2,851		2,851		—		—

Total short-term investments		46,131		2,851		43,280		—

Total financial assets	$	54,929	$	11,649	$	43,280	$	—

*Liabilities:*
Contingent consideration	$	650	$	—	$	—	$	650

Total financial liabilities	$	650	$	—	$	—	$	650


	Fair Value as of July 1, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
			(In thousands)
*Assets:*
Money market funds	$	8,650	$	8,650	$	—	$	—

Short-term investments:
Corporate debt securities		23,703		—		23,703		—
Government sponsored enterprise debt securities		12,515		—		12,515		—
Mutual funds		3,062		3,062		—		—

Total short-term investments		39,280		3,062		36,218		—

Total financial assets	$	47,930	$	11,712	$	36,218	$	—

*Liabilities:*
Contingent consideration	$	540	$	—	$	—	$	540

Total financial liabilities	$	540	$	—	$	—	$	540

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, certificates of deposits 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 discussed further in Note 10.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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


	Amortized Cost Basis		Gross Unrealized Gains (Losses)			Fair Value
			(In thousands)
June 30, 2013
Money market funds	$	8,798	$	—		$	8,798
Corporate debt securities and certificates of deposits		35,171		(137	)		35,034
Government sponsored enterprise debt securities		8,263		(17	)		8,246
Mutual funds		2,851		—			2,851

Total financial assets	$	55,083	$	(154	)	$	54,929

July 1, 2012
Money market funds	$	8,650	$	—		$	8,650
Corporate debt securities		23,705		(2	)		23,703
Government sponsored enterprise debt securities		12,513		2			12,515
Mutual funds		3,062		—			3,062

Total financial assets	$	47,930	$	—		$	47,930

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


	Amortized Cost		Fair Value
	(In thousands)
Less than 1 year	$	8,325	$	8,325
Due in 1 to 3 years		35,109		34,955

Total	$	43,434	$	43,280

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

Level 3 financial liability:

The following table reconciles the beginning and ending balances for Level 3 liabilities for fiscal 2013 (in thousands):


	Contingent consideration
Balance as of July 1, 2012	$	540
Add: Adjustment to present value of contingent consideration		110

Balance as of June 30, 2013	$	650

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Contingent consideration on acquired business was measured at fair value on a recurring basis using Level 3 inputs as defined in the fair value hierarchy. The following table presents certain information about the significant unobservable inputs used in the fair value measurement for the contingent consideration measured at fair value on a recurring basis using significant unobservable inputs:


Description	Valuation Techniques	Significant Unobservable Inputs
Liabilities: Contingent consideration	Present value of a Probability Weighted earn-out model using an appropriate discount rate.	Estimate of future revenue associated with acquired technology. Revenue of $4.9 million over a range of 3.5 years to 4 years.

An increase in the revenue growth percentage could result in a significantly higher estimated fair value of the contingent consideration liability. Alternatively, a decrease in the revenue growth percentage could result in a significantly lower estimated fair value of contingent consideration liability.

The fair value of contingent consideration was derived from a probability weighted earn-out model of future contingent payments. The cash payments, if any, are expected to be made quarterly, and based upon revenue generated from the acquired product line, starting in the first quarter of fiscal 2014. No payments were made in fiscal 2013. The change in the time period of estimated revenue to be generated from the acquired product line resulted in accretion of contingent liability in fiscal 2013. The valuation of this liability is estimated based upon a collaborative effort of the Company’s marketing and finance departments. These future contingent payments are calculated based on estimates of future revenue attributable to the acquired technology (Note 12). To obtain a current valuation of these projected cash flows, an expected present value technique is applied using an appropriate discount rate. The cash flow projections and discount rates will be reviewed quarterly and updated as and when necessary. Potential valuation adjustments will be made as future revenue projections are updated which affect the calculation of the related contingent consideration payments. These adjustments will be recorded in the consolidated statement of operations.

Note 4—Intangible Assets

Intangible assets are recorded at cost, less accumulated amortization. Other intangible assets as of June 30, 2013 and July 1, 2012 consist of:


	Gross Carrying Amount		Accumulated Amortization			Net Intangible Assets
	(in thousands)
Purchased technology	$	26,606	$	(24,633	)	$	1,973
Customer lists and trademarks		7,303		(6,318	)		985

Total as of June 30, 2013	$	33,909	$	(30,951	)	$	2,958

Purchased technology	$	25,970	$	(23,845	)	$	2,125
Customer lists and trademarks		7,303		(5,970	)		1,333

Total as of July 1, 2012	$	33,273	$	(29,815	)	$	3,458

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The estimated future amortization expense is as follows:


	(in thousands)
Fiscal year:
2014	$	1,087
2015		714
2016		540
2017		233
2018		212
Thereafter		172

Total amortization	$	2,958

Intangible asset amortization expense for fiscal 2013, 2012, and 2011 was approximately $1.4 million, $0.9 million, and $1.3 million, respectively. The remaining estimated weighted average useful life of purchased technology assets, and customer lists and trademarks was 2.5 years and 4 years, respectively. During fiscal 2013, the Company impaired approximately $0.3 million of intangible assets to write-down the value of the asset to its fair value of $0.1 million arising from a decline in expected future cash flows associated with this intangible asset. The impairment charge was included within “amortization of purchased technology” on the consolidated statements of operations.

Note 5—Income Taxes

Income (loss) from continuing operations before taxes and income tax provision (benefit) on income (loss) from continuing operations consists of the following:


	Year ended
	June 30, 2013			July 1, 2012		July 3, 2011
	(In thousands)
Income (loss) from continuing operations before taxes:
Domestic	$	(6,122	)	$	15,366	$	7,443
Foreign		1,221			1,760		587

Total	$	(4,901	)	$	17,126	$	8,030

Income tax provision (benefit):
Current:
Federal	$	—		$	355	$	(107	)
State		72			247		56
Puerto Rico		—			—		216
Foreign		428			572		(142	)

Total		500			1,174		23

Deferred:
Federal		(2,620	)		4,102		1,670
State		(76	)		495		4,861
Puerto Rico		—			—		307

Total		(2,696	)		4,597		6,838

Total income tax provision (benefit) on income (loss) from continuing operations	$	(2,196	)	$	5,771	$	6,861

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In the year ended July 3, 2011, the income tax provision (benefit) attributable to continuing operations and discontinued operations, included in the consolidated statements of operations was $6,861 and $143, respectively. For all other periods, there was no impact related to discontinued operations.

The effective income tax rate on our continuing operations differs from the federal statutory income tax rate as follows:


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
Federal statutory income tax expense (benefit) rate		35.0	%		35.0	%		35.0	%
Puerto Rico taxes		—			—			6.5
State income taxes, net of federal benefit		0.1			1.3			4.9
Valuation allowance- state credits, net of federal benefit		(7.4	)		3.0			55.7
Foreign taxes		(0.3	)		(0.3	)		(3.7	)
Federal research and development credit		25.2			(1.1	)		(6.9	)
Non deductible expenses		(4.1	)		—			—
Other		(3.7	)		(4.2	)		(6.0	)

Effective income tax rate on continuing operations		44.8	%		33.7	%		85.5	%

The principal components of deferred tax assets and liabilities are as follows:


	June 30, 2013			July 1, 2012
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	391		$	2,804
Tax credit carryforwards		16,805			15,135
Reserves and accruals		21,527			18,264
Depreciation and amortization		2,796			2,408

		41,519			38,611
Valuation allowance		(7,193	)		(7,307	)

Total deferred tax assets		34,326			31,304
Deferred tax liabilities:
Unremitted foreign earnings		334			334

Net deferred tax assets	$	33,992		$	30,970

Net deferred tax assets are comprised of the following:


	June 30, 2013			July 1, 2012
	(In thousands)
Current assets	$	9,348		$	6,961
Non-current assets		24,978			24,343
Non-current liabilities		(334	)		(334	)

Net deferred tax assets	$	33,992		$	30,970

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of June 30, 2013, for federal income tax purposes, we had net operating loss carryforwards of approximately $10.0 million which will expire in years 2024 through 2033. We had California net operating loss carryforwards of approximately $7.0 million which will expire in years 2014 through 2033.

Also, we had federal research and development tax credit carryforwards of approximately $11.9 million that will expire in the fiscal years 2018 through 2033, alternative minimum tax credit carryforwards of approximately $4.5 million that have no expiration date, and approximately $1.9 million of foreign tax credits that will expire in 2016 through 2019. A total of $0.1 million of the alternative minimum tax credit carryforwards are related to excess tax benefits as a result of stock option exercises, and therefore, will be recorded to additional paid-in-capital in the period in which they are realized. Additionally, for state income tax purposes, we had research and development tax credit carryforwards of approximately $14.2 million that have no expiration date.

As of June 30, 2013, the Company’s foreign subsidiaries have accumulated undistributed earnings of approximately $6.0 million that are intended to be indefinitely reinvested outside the U.S. and, accordingly, no provision for U.S. federal and state tax has been made for the distribution of these earnings.

We have provided a valuation allowance for certain deferred tax assets because we have determined that it is more likely than not that we will not have sufficient taxable income to realize these tax assets. At June 30, 2013, $0.9 million of the valuation allowance was attributable to foreign tax credit generated from fiscal 2007 through fiscal 2009 that may not be utilized before it expires in fiscal 2017 through fiscal 2019. The $0.5 million of the valuation allowance was attributable to a fiscal 2009 short-term investment loss incurred which has a limited carryforward period. For state income tax purposes, we have a $5.5 million valuation allowance related to state income tax credits primarily attributable to research and development credits that are not expected to be utilized.

As of June 30, 2013, we had $16.2 million of unrecognized tax benefits, of which $13.7 million, if recognized, would impact our effective tax rate. We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2013, 2012, and 2011, we had no interest or penalties related to unrecognized tax benefits recorded to income tax expense.

The aggregate changes in the balance of unrecognized tax benefits were as follows:


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
	(in thousands)
Beginning balance	$	16,166		$	16,249		$	15,424
Increase for tax positions of current year		431			571			756
Increase for tax positions of prior years		—			—			617
Decrease for tax positions of prior years		(117	)		(200	)
Lapse of Statute of Limitations		(280	)		(454	)		(548	)
Settlements		—			—			—

Ending balance	$	16,200		$	16,166		$	16,249

We are subject to income tax in the United States and a number of state and foreign jurisdictions. The tax years ended June 28, 2009 and onwards remain open to examination by major taxing jurisdictions in which we operate which include the United States, The State of California and Germany. We ceased operating in Puerto Rico in fiscal 2012. However, fiscal 2009 through 2011 remain open for examination and we are currently under examination in Puerto Rico for fiscal 2010 and 2011.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 6—Stockholders’ Equity

Stock Options and Awards

Symmetricom has equity benefit plans under which employees, directors and consultants may be granted non-qualified and incentive options to purchase shares of our common stock and restricted stock. Stock options granted under these plans have contractual terms ranging from 5-10 years. One of these plans was amended in fiscal 2003 to effectively provide that restricted stock could be granted and repurchased for no cash purchase price. Stock appreciation rights may also be granted under this plan; however, none have been granted to date. All options have been granted at the fair market value of our common stock on the date of grant and generally vest over three or four years.

Our right to repurchase restricted shares generally lapses over the same three or four-year term as the vesting period applicable to the stock options. The estimated future annual forfeiture rate used to record stock-based compensation expense was 5%, 7%, and 8% for fiscal 2013, 2012, and 2011, respectively. At June 30, 2013, the total future compensation cost related to unvested stock-based awards granted to employees, directors and consultants under the Company’s stock option plans was approximately $5.9 million, net of estimated forfeitures of $0.8 million. This cost will be amortized on an accelerated basis over a period of approximately 1.4 years and will be adjusted for subsequent changes in estimated forfeitures.

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


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
	(In thousands)
Cost of sales	$	1,037		$	867		$	802
Research and development		1,200			1,183			870
Selling, general and administrative		4,878			4,092			3,126

Pre-tax stock-based compensation expense		7,115			6,142			4,798
Less: Income tax effect		(2,633	)		(2,273	)		(1,775	)

Net stock-based compensation expense	$	4,482		$	3,869		$	3,023

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes stock option and award activity for fiscal years 2013, 2012 and 2011:


				Non Performance-based Options Outstanding					Restricted Stock Outstanding
	Shares Available For Grant			Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Grant-Date Fair Value
	(In thousands, except per share amounts)
Balances at June 27, 2010		5,697			6,043		$	5.84		219		$	5.20
Granted—options		(2,193	)		2,193			6.20
Granted—restricted shares		(422	)		—			—		211			6.55
Exercised		—			(462	)		4.69
Vested		—			—			—		(175	)		5.19
Cancelled and expired		1,457			(1,240	)		7.22		(27	)		5.78
Expired from plans prior to 1999		(76	)		—					—			—

Balances at July 3, 2011		4,463			6,534		$	5.78		228		$	6.39
Granted—options		(2,109	)		2,109			5.16
Granted—restricted shares		(312	)		—			—		156			5.32
Exercised		—			(475	)		4.53
Vested		—			—			—		(123	)		6.53
Cancelled and expired		852			(852	)		7.07		—
Shares expired from plans prior to 1999		(5	)		—			—		—			—

Balances at July 1, 2012		2,889			7,316		$	5.54		261		$	5.68
Increase in authorized shares		2,000
Granted—options		(2,428	)		2,428			5.69
Granted—restricted shares		(878	)		—			—		461			5.47
Exercised		—			(680	)		4.46
Vested		—			—			—		(162	)		5.84
Cancelled and expired		1,310			(978	)		5.76		(164	)		5.92

Balances at June 30, 2013		2,893			8,086		$	5.64		396		$	5.28

On October 26, 2012 at our annual meeting of shareholders, the shareholders approved an additional 2.0 million shares for future issuance under the 2006 Incentive Award Plan.

Options outstanding, vested and expected to vest, and exercisable as of June 30, 2013 were as follows:


Option	Number of Shares		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value
	(In thousands)		(In years)				(In thousands)
Outstanding		8,086		3.83	$	5.64	$	65
Vested and expected to vest		7,868		3.77	$	5.65	$	64
Exercisable		4,539		2.49	$	5.72	$	51

The aggregate intrinsic value in the preceding table represents the total pre-tax value of stock options outstanding as of June 30, 2013, based on our common stock closing price of $4.49 on June 30, 2013, which would have been received by the option holders had all option holders exercised and sold their options as of that date.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of June 30, 2013, July 1, 2012, and July 3, 2011, the number of shares and weighted average exercise prices of exercisable options were 4.5 million at $5.72; 3.6 million at $5.68; and 2.8 million at $6.02, respectively.

The total intrinsic value of options exercised during fiscal 2013, 2012, and 2011, was $1.0 million, $0.6 million, and $0.6 million, respectively.

The weighted average grant-date fair value of options granted was $2.79 in 2013, $2.45 in 2012 and $3.06 in 2011. Our calculations were made using the Black-Scholes option-pricing model. The fair value of our stock-based awards to employees was estimated assuming no expected dividend and the following weighted-average assumptions for fiscal 2013, 2012 and 2011:


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
Expected life (in years)		5.3			4.9			5.1
Risk-free interest rate		0.9	%		0.6	%		1.2	%
Volatility		56.8	%		56.6	%		56.6	%

Restricted Stock Awards

Our restricted stock awards are grants that entitle the holder to acquire shares of restricted common stock with certain designated prices or at no cost on a time or performance basis. The shares of restricted stock cannot be sold, pledged, or otherwise disposed of until the award vests and any unvested shares may be reacquired by us following the awardees’ termination of service. The restricted stock awards typically vest on the first, second or third anniversary of the grant date or on a graded vesting schedule over the designated service period with certain conditions and restrictions.

Employee Stock Purchase Plan

On August 13, 2010, the Board of Directors approved an employee stock purchase plan (the “ESPP”) and reserved 1.4 million shares for issuance under the ESPP. The ESPP allows eligible employees to purchase shares of the Company’s stock at a discount through payroll deductions. The ESPP consists of six-month offering periods commencing on the first trading day of March and September each year. Employees purchase shares in the purchase period at 85% of the market value of the Company’s common stock at either the beginning of the offering period or the end of the offering period, whichever price is lower. The first six month offering period commenced on March 1, 2011.

Stock Repurchase Program

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 June 30, 2013, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 1.9 million.

In fiscal 2013, we repurchased 870,000 shares for an aggregate price of approximately $5.4 million. The repurchased shares were recorded as a reduction of our common stock and resulted in a reduction of stockholders’ equity. Further, we repurchased 277,000 shares in fiscal 2013 for an aggregate price of approximately $1.6 million to cover the cost of employee income taxes on vested restricted stock and option exercises.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Preferred Stock

We have 500,000 shares of $0.0001 par value preferred stock authorized, of which none have been issued as of June 30, 2013.

Note 7—Commitments

Operating Leases

We lease certain facilities and equipment under operating lease agreements. Net rental expense charged to operations was $3.6 million in 2013, $3.6 million in 2012 and $3.7 million in 2011. Future minimum lease payments as of June 30, 2013 are as follows:


	Operating Lease
	(In thousands)
For the fiscal year:
2014	$	4,821
2015		6,281
2016		3,468
2017		255
2018		14
Thereafter		—

Total minimum lease payments	$	14,839

Lease loss liabilities were recorded as a result of facility consolidations related to our restructuring activities and discontinued operations. As of June 30, 2013, the accrued lease loss liability was approximately $2.6 million. The total minimum rentals to be received (between June 30, 2013 and January 31, 2016) in the future under non-cancelable subleases as of June 30, 2013 were $1.6 million.

Purchase Orders

We had $12.4 million in non-cancelable purchase commitments with our suppliers as of June 30, 2013.

Note 8—Litigation and Contingencies

Litigation—The Company is or was a party to the following material litigation:

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

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 adjacent properties, and have also taken steps to begin work on the Miller property. As of June 30, 2013, we had accrual of $80,000 for remediation costs and other ongoing monitoring costs which has been included within “other accrued liabilities” on our 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.

Note 9—Restructuring Charges

During fiscal 2013, we incurred approximately $5.7 million in lease loss charges, severance, consulting, and other charges in connection with restructuring activities primarily associated with our restructuring plan to realign and consolidate activities to drive efficiencies across our operations. The lease loss accruals are subject to periodic revisions based on current market estimates. The lease loss accruals as of June 30, 2013 will be paid over the next five years.

During fiscal 2012, we incurred approximately $1.2 million in lease loss charges, severance, consulting, and other charges in connection with restructuring activities primarily 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.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During fiscal 2011, we incurred approximately $8.1 million (net) in charges for: severance, manufacturing transfer consulting services, lease loss charges, and additional depreciation on leasehold improvements. These expenses included $8.7 million of severance, consulting, additional depreciation and other charges for our Puerto Rico facility closure and $1.7 million of severance, consulting and other charges related to the plan to move the Government business unit’s engineering and manufacturing teams from our Santa Rosa facility to San Jose and other facilities. The lease loss accrual was reduced by $2.3 million due to re-occupation of a section of our San Jose facility that was previously not used and the sub-lease of a section of our Santa Rosa facility. The lease loss accruals are subject to periodic revisions based on current market estimates.

The following tables show the details of the restructuring cost accruals, which consist of facilities and severance costs, for the years ended June 30, 2013 and July 1, 2012:


	Balance at July 1, 2012		Expense Additions			Payments			Balance at June 30, 2013
	(in thousands)
Lease loss accrual (fiscal 2004)	$	137		17			(42	)		112
All other restructuring changes (fiscal 2004)		68		77			(66	)		79
Lease loss accrual (fiscal 2009)		902		115			(294	)		723
All other restructuring changes (fiscal 2010)		75		(234	)		164			5
Lease loss accrual (fiscal 2011)		170		13			(52	)		131
Lease loss accrual (fiscal 2012)		698		379			(310	)		767
All other restructuring changes (fiscal 2012)		159		203			(362	)		—
Lease loss accrual (fiscal 2013)		—		930			(32	)		898
Severance (fiscal 2013)		—		2,956			(1,265	)		1,691
All other restructuring changes (fiscal 2013)		—		1,285			(1,275	)		10

Total	$	2,209	$	5,741		$	(3,534	)	$	4,416


	Balance at July 3, 2011		Expense Additions			Payments			Balance at July 1, 2012
	(in thousands)
Lease loss accrual (fiscal 2004)	$	161	$	15		$	(39	)	$	137
All other restructuring changes (fiscal 2004)		50		72			(54	)		68
Lease loss accrual (fiscal 2009)		1,797		(482	)		(413	)		902
All other restructuring changes (fiscal 2010)		409		(47	)		(287	)		75
Lease loss accrual (fiscal 2011)		403		(125	)		(108	)		170
All other restructuring changes (fiscal 2011)		979		372			(1,351	)		—
Lease loss accrual (fiscal 2012)		—		853			(155	)		698
All other restructuring changes (fiscal 2012)		—		565			(406	)		159

Total	$	3,799	$	1,223		$	(2,813	)	$	2,209

Accrued severance will be paid within next twelve months. Over the next twelve months, we expect to incur an additional $4.7 million in restructuring charges related to the above restructuring plans.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 10—Benefit Plans

401(k) Plan

The Company has a 401(k) plan (the “Plan”) that allows eligible U.S. employees to contribute up to 50 percent of their annual compensation to the Plan, subject to certain limitations. Each employee directs the investment of the funds across a series of mutual funds. Effective in fiscal 2004, Symmetricom matched up to $0.50 per $1.00 deferred up to 3% of eligible compensation. Employee contributions vest immediately. Employer matching contributions vest 25%, 25% and 50% at end of first, second and third year, respectively. Symmetricom made matching contribution payments of $0.7 million in each fiscal year for 2013, 2012, and 2011 respectively.

Deferred Compensation Plan

The Company has a deferred compensation plan that allows outside directors and certain U.S. employees to contribute up to 100% of their compensation, provided that their contributions do not reduce their salary to an amount that is less than the amount necessary to pay applicable employment taxes and other withholding obligations. The Board of Directors is authorized to make discretionary contributions to the accounts of participants. No discretionary contributions were made in fiscal 2013, 2012 and 2011.

Note 11—Business Segment Information

Symmetricom is organized into two operating segments: 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 certain of our selling, general, and administrative expenses, integration and 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 communications networks and equipment.

Government and Enterprise

Our Government and Enterprise business provides timing technology products for aerospace/defense, IT infrastructure, power 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.

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Year ended June 30, 2013


	Communications		Government and Enterprise		Corporate			Total
Net revenue	$	116,047	$	94,943	$	—		$	210,990
Cost of sales		56,166		60,981		943			118,090

Gross profit		59,881		33,962		(943	)		92,900
Operating expenses		36,612		27,922		33,711		$	98,245

Operating income (loss)	$	23,269	$	6,040	$	(34,654	)	$	(5,345	)


Year ended July 1, 2012
	Communications		Government and Enterprise		Corporate			Total
Net revenue	$	132,345	$	105,371	$	—		$	237,716
Cost of sales		65,781		66,745		1,178			133,704

Gross profit		66,564		38,626		(1,178	)		104,012
Operating expenses		37,867		27,001		22,300			87,168

Operating income (loss)	$	28,697	$	11,625	$	(23,478	)	$	16,844


Year ended July 3, 2011
	Communications		Government and Enterprise		Corporate			Total
Net revenue	$	119,104	$	89,042	$	—		$	208,146
Cost of sales		60,112		48,951		9,351			118,414

Gross profit		58,992		40,091		(9,351	)		89,732
Operating expenses		36,302		24,251		22,048			82,601

Operating income (loss)	$	22,690	$	15,840	$	(31,399	)	$	7,131

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:


	Year ended
	June 30, 2013		July 1, 2012		July 3, 2011
	(In thousands)
Selling, general and administrative costs	$	24,855	$	20,589	$	13,991
Research and development cost		3,115		488		—
Restructuring charges		5,741		1,223		8,057

Corporate-related total	$	33,711	$	22,300	$	22,048

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our export sales, based on the location of the customer, accounted for 37%, 38%, and 35%, of our net revenue in fiscal 2013, 2012, and 2011 respectively. The geographical components of revenue are as follows:


	Year ended
	June 30, 2013			July 1, 2012			July 3, 2011
United States		63	%		62	%		65	%
International:
Asia		15	%		14	%		11	%
Europe		17	%		17	%		17	%
Canada		3	%		4	%		3	%
Latin America		2	%		3	%		4	%

With the exception of property, plant and equipment, we do not identify or allocate our long-lived assets by geographic area. No material amount of property, plant and equipment exists outside the United States.

In fiscal 2013, 2012 and 2011, no customer accounted for 10% or more of our net revenue. As of June 30, 2013 and July 1, 2012, no customer accounted for 10% or more of the outstanding accounts receivable balance.

Note 12—Business Combination

In fiscal 2012, the Company acquired a product line (existing technology, customer relationships, fixed assets and employees) to enhance the Company’s product offerings in embedded timing and synchronization solutions for residential small cell solutions. This transaction was recorded as an acquisition of a business. The transaction price was approximately $2.4 million of which $1.4 million was paid in cash and approximately $1.0 million is contingent consideration payable as a royalty upon future sales of such products.

The fair value of the contingent consideration arrangement at the acquisition date was $0.5 million. We estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model (See Note 3). The purchase price was determined as follows (amounts in thousands):


Initial cash payment	$	1,400
Fair value of contingent consideration		540

Total	$	1,940

This purchase price was allocated to fixed assets and intangible assets based on their estimated fair values as follows (amounts in thousands):


Fixed assets	$	50
Intangible assets		1,890

Total	$	1,940

The estimated fair value of Intangible assets acquired under the transaction consists of the following (in thousands):


Existing technology (estimated useful life 4 years)	$	1,612
Customer relationships (estimated useful life 2 years)		278

Total	$	1,890

SYMMETRICOM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The fair value of the acquired non-monetary assets, summarized above, were derived from significant unobservable inputs (“Level 3 inputs”) determined by the Company based on market analysis, income analysis (discounted cash flow model), or cost approach. The fair value of fixed assets acquired was determined using market data for similar assets. The fair value of existing technology was determined using a discounted cash flow model from cash flow projections prepared by management, including an estimated undiscounted cash flows of approximately $3 million during the five to six year period after the acquisition, and a weighted average cost of capital. The fair value of customer relationships was determined using a cost approach which includes an estimate of time and expenses required to recreate the intangible asset.

During the second quarter of fiscal 2013, the Company acquired a product line (existing technology, inventories, and support from the former owner) to enhance the Company’s product offerings of test and measurement solutions. This transaction has been recorded as an acquisition of a business. The transaction price was approximately $0.5 million payable in cash in periodic installments to the former owner. The purchase price was entirely allocated to existing technology (the acquired intangible asset) which has an estimated useful life of 5 years.

Pro forma results of operations have not been presented because the effect of the business combinations described in this Note was not material to our condensed consolidated results of operations. Revenue and earnings per share for the acquired businesses from the date of acquisition through the respective fiscal year ends were not material.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of this period, our disclosure controls and procedures are effective (i) in recording, processing, summarizing and reporting information required to be disclosed in the reports that we file or submit under the Exchange Act within the time period specified by the SEC rules and forms, and (ii) in ensuring that information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including our principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management concluded that its internal control over financial reporting was effective as of June 30, 2013.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The effectiveness of our internal control over financial reporting as of June 30, 2013 has been audited by Deloitte & Touche LLP, our Independent Registered Public Accounting Firm, as stated in their report dated September 11, 2013.

Item 9B.

Other Information

None

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Symmetricom, Inc.

San Jose, California

We have audited the internal control over financial reporting of Symmetricom, Inc. and subsidiaries (the “Company”) as of June 30, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2013, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended June 30, 2013 of the Company and our report dated September 11, 2013 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

/s/ Deloitte & Touche LLP

San Jose, California

September 11, 2013

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

(a)	Executive Officers

See the section entitled “Executive Officers of Symmetricom” in Part I of this report.

(b)

Directors

The information required by this item is incorporated by reference from the information under the caption “Election of Directors” contained in the Company’s Proxy Statement to be filed with the Securities and Exchange Commission (the “SEC”) in connection with the solicitation of proxies for the Company’s 2013 Annual Meeting of Shareholders to be held on October 25, 2013 (the “Proxy Statement”).

(c)	Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires a company’s directors, officers and beneficial owners of more than 10% of any class of equity securities of the company registered pursuant to Section 12 of the Exchange Act to file with the SEC initial reports of beneficial ownership and reports of changes in ownership of Common Stock and other equity securities of Symmetricom registered pursuant to Section 12 of the Exchange Act. Information regarding Section 16 reporting compliance is contained in the section called “Other Information—Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated herein by reference.

(d)	Code of Ethics

We have adopted a written code of ethics that applies to all of our employees and to our Board of Directors. A copy of the code is available on our website at http://www.symmetricom.com. If any amendments are made to the Code of Ethics or if any waiver, including any implicit waiver, from a provision of the Code of Ethics is granted to the Company’s Principal Executive Officer, Principal Financial Officer, or Principal Accounting Officer, we intend to disclose the nature of such amendment or waiver on our website.

(e)	Corporate Governance

The information required by this item is incorporated by reference from the information under the captions “Election of Directors—Audit Committee” and “Election of Directors—Nominating and Governance Committee” contained in the Proxy Statement.

Item 11.

Executive Compensation

The information required by this item is incorporated by reference from the information under the captions “Election of Directors—Nominees,” “Election of Directors—Director Compensation,” “Executive Compensation and Related Information,” “Report of the Compensation Committee of the Board of Directors,” “Employment Contracts, Termination of Employment, Change-in-Control Arrangements” and “Certain Relationships and Related Party Transactions” contained in the Proxy Statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters

The information required by this item is incorporated by reference from the information under the caption “Other Information—Share Ownership by Principal Stockholders and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” contained in the Proxy Statement.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference from the information under the captions “Certain Relationships and Related Party Transactions” and “Election of Directors—The Board of Directors and its Committees” contained in the Proxy Statement.

Item 14.

Principal Accounting Fees and Services

The information required by this item is included in “Ratification of Appointment of Independent Registered Public Accounting Firm of the Company” contained in the Proxy Statement.

PART IV

Item 15.

Exhibits and Financial Statement Schedules

(a)

Financial Statements and Financial Statement Schedules

1. Financial Statements. Reference is made to the Index to Consolidated Statements of Symmetricom, Inc. under Item 8 of Part II hereof.

2. Financial Statement Schedules. The following financial statement schedule of Symmetricom for the years ended June 30, 2013, July 1, 2012, and July 3, 2011 is filed as part of this report on Form 10-K and should be read in conjunction with the financial statements: Schedule II—Valuation and Qualifying Accounts and Reserves. All other schedules have been omitted because they are not applicable, not required, or the required information is included in the Consolidated Financial Statements or notes thereto.

3. Exhibits. See Item 15(b) below. Each management contract or compensatory plan or arrangement required to be filed has been identified.

(b)

Exhibits


Exhibit No.		Description of Exhibits
3.1(i)		Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s current report on Form 8-K (file no. 000-02287) filed January 9, 2002).

3.1(ii)		Amended and Restated By-Laws of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s current report on Form 8-K (file no. 000-02287) filed May 1, 2013).

4.1		Form of Common Stock Certificate (incorporated by reference from Exhibit 4.1 to the Registrant’s annual report on Form 10-K (file no. 000-02287) filed August 30, 2002).

10.1#		1999 Director Stock Option Plan, as amended through December 28, 2005, and forms of agreements thereunder (incorporated by reference from Exhibit 99.3 to the Registrant’s 1999 proxy statement (file no. 000-02287) filed September 23, 1999 and Exhibit 10.2 to the Registrant’s quarterly report on Form 10-Q (file no. 000-02287) filed February 13, 2001).

10.2#		Amendment to the Symmetricom, Inc. 1999 Director Stock Option Plan effective December 28, 2005 and form of option agreement thereunder (incorporated by reference from Exhibits 10.1 and 10.2 to the Registrant’s quarterly report on Form 10-Q (file no. 000-02287) filed February 8, 2006).

10.3#		1999 Employee Stock Option Plan, as amended through October 23, 2001, and forms of agreements thereunder (incorporated by reference from Exhibit 99.1 to the Registrant’s proxy statement (file no. 000-02287) filed September 23, 1999 and Exhibit 10.1 to the Registrant’s quarterly report on Form 10-Q (file no. 000-02287) filed February 13, 2001).

10.4#		Amendment to the Symmetricom, Inc. 1999 Employee Stock Option Plan effective May 28, 2003 (incorporated by reference from Exhibit (d)(6) to the Registrant’s tender offer statement on Schedule TO (file no. 000-02287) filed May 28, 2003).

10.5#		2002 Stock Option Plan (incorporated by reference from Exhibit 4.1 to Registrant’s registration statement on Form S-8 (file no. 333-97599) filed August 2, 2002).

10.6		Lease Agreement by and between the Registrant and Nexus Equity, Inc. dated June 10, 1996 (incorporated by reference from Exhibit 10.14 to the Registrant’s annual report on Form 10-K (file no. 000-02287) filed September 17, 1996).


Exhibit No.		Description of Exhibits

10.7		First Amendment to Lease by and between the Registrant and Nexus Equity II LLC, as successor in interest to Nexus Equity, Inc., dated November 18, 2005, effective as of October 27, 2005 (incorporated by reference from Exhibit 10.2 to the Registrant’s current report on Form 8-K (file no. 000-02287) filed November 22, 2005).

10.8		Form of Indemnification Agreement (incorporated by reference from Exhibit 10.6 to the Registrant’s annual report on Form 10-K (file no. 000-02287) filed August 30, 2002).

10.9#		Symmetricom, Inc. Deferred Compensation Plan effective October 1, 1999 (incorporated by reference from Exhibit 10.4 to the Registrant’s quarterly report on Form 10-Q (file no. 000-02287) filed May 15, 2001).

10.12#		Employment Offer Letter between the Registrant and Justin Spencer dated September 25, 2008 (incorporated by reference from Exhibit 10.1 to the Registrant’s current report on Form 8-K (file no. 000-02287) filed October 2, 2008).

10.13#		Form of Second Amended and Restated Executive Severance Benefits Agreement between the Registrant and executive officers party to those certain Amended and Restated Executive Severance Benefits Agreements, dated September 11, 2007 (incorporated by reference from Exhibit 10.1 to the Registrant’s quarterly report on Form 10-Q (file no. 000-02287) filed February 6, 2009).

10.14#		Form of Executive Severance Benefits Agreement between the Registrant and certain executive officers of the Registrant (incorporated by reference from Exhibit 10.1 to the Registrant’s quarterly report on Form 10-Q (file no. 000-02287) filed February 5, 2010).

10.24#		Amended and Restated 2006 Incentive Award Plan (incorporated by reference from Exhibit A to the Registrant’s definitive proxy statement on Schedule 14A (file no. 000-02287) filed September 26, 2012) and forms of agreements thereunder (incorporated by reference from Exhibit 4.4 to the Registrant’s registration statement on Form S-8 (file no. 333-155566) filed November 21, 2008).

10.25#		Employment Offer Letter, dated as of April 29, 2013, by and between the Registrant and Elizabeth Fetter (incorporated by reference from Exhibit 10.1 to the Registrant’s current report on Form 8-K (file no. 000-02287) filed on May 1, 2013).

10.26*		Manufacturing Service Agreement, dated March 12, 2010, by and between the Registrant and Sanmina-SCI Corporation (“Sanmina-SCI”); Addendum 1 to Manufacturing Service Agreement, dated September 19, 2009, by and between the Registrant and Sanmina-SCI; Addendum 2 to Manufacturing Service Agreement, dated March 22, 2010, by and between the Registrant and Sanmina-SCI, and Amendment 1 to Addendum 2 to Manufacturing Service Agreement, dated May 20, 2010, by and between the Registrant and Sanmina-SCI (incorporated by reference from Exhibit 10.26 to the Registrant’s annual report on Form 10-K (file no. 000-02287) filed September 10, 2010).

10.27#		Symmetricom, Inc. 2010 Employee Stock Purchase plan, as amended and restated as of April 29, 2011 (incorporated by reference from Exhibit 10.27 to the Registrant’s annual report on Form 10-K (file no. 000-02287) filed September 16, 2011).

10.28*		Amendment 1 to Master Service Agreement, dated May 16, 2012, between the Registrant and Sanmina-SCI (incorporated by reference from Exhibit 10.28 to the Registrant’s annual report on Form 10-K (file no. 000-02287) filed September 13. 2013).

10.29		Amendment 2 to Manufacturing Service Agreement, dated July 27, 2012, between the Registrant and Sanmina-SCI (incorporated by reference from Exhibit 10.29 to the Registrant’s annual report on Form 10-K (file no. 000-02287) filed September 13. 2013).


Exhibit No.		Description of Exhibits

10.30		Amendment 3 to Manufacturing Service Agreement, dated as of March 1, 2013, by and between the Registrant and SANMINA Corporation (incorporated by reference from Exhibit 10.1 to the Registrant’s quarterly report on Form 10-Q (file no. 000-02287) filed May 9, 2013).

10.31		Release and Waiver of Claims between the Registrant and David G. Côté, dated April 30, 2013 (incorporated by reference from Exhibit 10.2 to the Registrant’s current report on Form 8-K (file no. 000-02287) filed on May 1, 2013).

10.32#		Symmetricom, Inc. Director Compensation Policy.

21.1		Subsidiaries of the Registrant.

23.1		Consent of Independent Registered Public Accounting Firm.

24.1		Power of Attorney (see signature page to this annual report on Form 10-K).

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.

#	Management contract or compensatory plan or arrangement

*	Confidential treatment has been granted with respect to certain portions of this agreement.

(c)

Financial Statement Schedules

See Item 15(a)(2) above.

SCHEDULE II

SYMMETRICOM, INC.

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)


	Balance at Beginning of Year		Charged to Costs and Expenses			Deductions(1)			Balance at End of Year
Year ended June 30, 2013:
Accrued warranty expense	$	1,722	$	2,381		$	2,553		$	1,550
Allowance for doubtful accounts	$	108	$	517		$	(11	)	$	636
Year ended July 1, 2012:
Accrued warranty expense	$	1,601	$	2,835		$	2,714		$	1,722
Allowance for doubtful accounts	$	315	$	(157	)	$	50		$	108
Year ended July 3, 2011:
Accrued warranty expense	$	2,900	$	1,097		$	2,396		$	1,601
Allowance for doubtful accounts	$	427	$	102		$	214		$	315

(1)	Deductions represent costs charged or amounts written off against the reserve or allowance.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		SYMMETRICOM, INC.

Date: September 11, 2013	By:	/s/ Elizabeth Fetter
		Elizabeth Fetter Chief Executive Officer (Principal Executive Officer)

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Elizabeth Fetter and Justin R. Spencer, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signatures	Title	Date

/s/ ELIZABETH FETTER Elizabeth Fetter	Chief Executive Officer (Principal Executive Officer) and Director	September 11, 2013

/s/ JUSTIN R. SPENCER Justin R. Spencer	Executive Vice President Finance and Administration, Chief Financial Officer, and Secretary (Principal Financial and Accounting Officer)	September 11, 2013

/s/ JAMES CHIDDIX James Chiddix	Chairman of the Board	September 11, 2013

/s/ ALFRED BOSCHULTE Alfred Boschulte	Director	September 11, 2013

/s/ ROBERT T. CLARKSON Robert T. Clarkson	Director	September 11, 2013

		September 11, 2013

/s/ ROBERT M. NEUMEISTER JR. Robert M. Neumeister Jr.	Director	September 11, 2013

/s/ RICHARD W. OLIVER Richard W. Oliver	Director	September 11, 2013

/s/ RICHARD N. SNYDER Richard N. Snyder	Director	September 11, 2013

/s/ ROBERT J. STANZIONE Robert J. Stanzione	Director	September 11, 2013