The following discussion and analysis of our financial condition and results of operations should be read together with the accompanying consolidated financial statements and related notes included elsewhere in this report on Form 10-K.

Overview

Symmetricom is a leading supplier of precise timing standards to industry, government, utilities, research centers and aerospace markets. We also supply QoE (Quality of Experience) solutions that enable communication service providers to monitor the performance, as perceived by end users, of IP-based video and other next generation network applications. Timing and synchronization products and services include network synchronization systems and timing elements used by network operators and users, governments and professional services. Such products play an important role in the operation, bandwidth utilization, and quality of service of wireline, wireless and cable networks enabling our customers to increase the reliability of their networks in today's evolving communications environment.

Symmetricom's customers include worldwide public network providers, incumbent local exchange carriers (ILECs), public telephone and telegraph companies (PTTs), competitive local exchange carriers (CLECs), other telephone companies, wireless service providers, cable television operators, distributors and systems integrators, communications original equipment manufacturers (OEMs), aerospace contractors, governments and research facilities.

Our fiscal year is the 52 or 53 weeks ending on the Sunday closest to June 30. Fiscal years 2007 through 2009 were 52-week fiscal years.

Fiscal Year 2009 Summary

For the year ended June 28, 2009, Symmetricom achieved revenues of $221 million, up 6% from the previous year, augmented by sales of our new cable timing product and continued strength in the Timing, Test and Measurement business. Fiscal 2009 was a year of continuing innovation and progress in our growth investments and included measurable gains across many markets. We are now the leading supplier of timing products to the cable market, and have fortified our position in evolving wireless, wireline, government and enterprise networks. In fiscal 2009 we began to realize the benefits of our outsource-manufacturing strategy as we completed the transfer of printed circuit board assemblies to our outsourcing vendor. We made additional business model refinements during the year that further reduced costs in support of our near- and long-term profitability objectives. Our new product initiatives continued to show progress and promise with our cable timing product sales contributing meaningfully to gross margin. Sales of PackeTime, though still emerging, are gaining traction, with nearly a dozen carriers and OEMs now customers. The Chip Scale Atomic Clock, which we believe will be an important long-term growth driver for our Timing, Test and Measurement business, continues to make appreciable progress toward volume production.

Impairment of Goodwill

During the third quarter of fiscal 2009, due to a decline in our stock price and a lowered business outlook, we determined that indicators of a potential goodwill impairment existed. Accordingly, we completed a step one goodwill impairment test to determine whether the decline in market capitalization and business outlook revisions indicated that the carrying value of our reporting units were in excess of fair value. Based on the results of our step one test, we determined that the fair values of the Wireline and Timing, Test and Measurement reporting units were less than their respective carrying amounts, and therefore the second step of the goodwill impairment test was performed to measure the amount of impairment loss for each reporting unit. As a result, we recorded a goodwill impairment charge of approximately $48.1 million in the third quarter of fiscal 2009,

consisting of $28.0 million related to the Wireline reporting segment and $20.1 million related to the Timing, Test and Measurement reporting segment.

Restructuring

During the second half of fiscal 2009, we announced two restructuring plans to further streamline manufacturing operations and improve operational efficiencies. As part of our ongoing outsourcing and operational efficiency program, we eliminated approximately 130 positions, or about 14% of our total workforce. The reductions began in January 2009 and will be completed by the third quarter of fiscal 2010. We expect to incur restructuring charges of approximately $8.8 million in connection with the plans. Total restructuring charges are expected to include approximately $2.0 million in accelerated depreciation charges and approximately $6.8 million in one-time termination benefits and other restructuring related charges. Total charges related to these two restructurings in fiscal 2009 were $5.7 million, including $1.2 million related to accelerated depreciation and $4.5 million in one-time termination benefits and other restructuring related charges. Upon completion, we expect the restructuring and other actions to reduce our annual manufacturing and operating costs by approximately $9.5 million.

Over the first nine months of fiscal 2010, we expect to incur remaining integration and restructuring charges amounting to $3.1 million, including approximately $0.9 million in accelerated depreciation charges and approximately $2.2 million in one-time termination benefits and other restructuring related charges.

Other

On October 1, 2008, we announced Justin Spencer had been named as Chief Financial Officer and Executive Vice President, effective September 30, 2008.

On June 28, 2009, our President and Chief Executive Officer, Thomas W. Steipp, retired from Symmetricom and resigned from our Board of Directors. On July 27, 2009, we announced that David G. Côté had been named as President and Chief Executive Officer, effective August 3, 2009. The Board of Directors has also appointed Mr. Côté to the Board of Directors.

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

Financial markets in the U.S. and abroad have experienced a severe downturn arising from a multitude of factors, including concerns about the systemic impact of inflation and deflation, geopolitical issues, adverse credit conditions, higher energy costs, lower corporate profits and capital spending, and declining real estate and mortgage markets, combined with volatile oil prices, decreased business and consumer confidence and increased unemployment. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases cease, to provide funding to borrowers.

Adverse economic conditions in the U.S. and other markets in which we operate and into which we sell our products have adversely affected and may continue to adversely affect our liquidity and financial condition. If current economic conditions or the constrained credit environment continue, our customers may be unable to timely replace maturing liabilities and access the capital markets to meet liquidity needs on satisfactory terms or at all, resulting in adverse effects on our results of operations. In addition, our customers may delay or reduce capital expenditures. This could result in reductions in sales of our products, longer sales cycles, difficulties in collecting accounts receivable, additional excess and obsolete inventory, potential impairment charges related to our goodwill and intangible assets, gross margin deterioration, slower adoption of new technologies, increased price competition and supplier difficulties.

Fiscal Year 2010 Outlook

We believe our new product initiatives, an expanded geographic focus, and a more streamlined cost structure will enable us to continue to benefit from the modernization of communication networks worldwide and to capitalize on promising opportunities for growth in fiscal 2010.

As communication service providers roll out next generation networks to keep up with rising traffic and demand, we expect sales of our sync equipment and investments in next-generation timing products to contribute to our business and create opportunities for expansion. Government networks and systems are also evolving, driving the ongoing need for reliable sync and timing, and creating demand for innovative new products to support their changing needs. We believe our Timing, Test, and Measurement business is positioned to perform well in this environment.

While we will continue our focus on efficiency in fiscal 2010, our primary efforts will be centered on maximizing existing opportunities and bringing to market innovative new products. We also expect to identify and pursue potential new growth opportunities that leverage our strong technology platform and relationships. We are mindful that we are still in an unpredictable economic environment and have limited visibility into our customers' calendar 2010 capital spending plans.

We expect our fiscal 2010 revenue to have a seasonal pattern similar to prior years with stronger revenues in our fiscal second half as telecommunications and cable service providers release their 2010 capital budgets. Following the successful launch of our cable product, we now have the supply chain capabilities to meet market demand and expect revenue for this product to more closely reflect cable infrastructure spending seasonality. Profit is expected to be even more heavily weighted to the second half as we realize the full benefit of the cost reductions we announced in June 2009.

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 estimates 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 collectibility 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 collectibility 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 purchase order is accepted. If we determine that collection of the invoice is not reasonably assured, we recognize the 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. For instances where embedded software is more than incidental to product functionality, we account for the transactions in accordance with the rules applicable to software revenue recognition. We commonly have transactions that involve sales of both product and services to our customers. 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 defer 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.

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-plus reimbursement. 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-plus 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.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts based on an ongoing review of customer accounts, payment patterns and specific collection issues. Where specific collection issues are identified, we record a specific allowance based on the amount that we believe will be uncollected. For accounts where specific collection issues are not identified, we record a reserve based on the age of the receivable and historical collection patterns.

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. Our warranty reserve is based on the number of installed units, historical analysis of the volume of product returned to us under the warranty program, management's judgment regarding anticipated rates of warranty claims and associated repair costs. We use the historical data to forecast our anticipated future warranty obligations. 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 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 is related to stock options and has a valuation allowance because of uncertainty regarding their realization. If these tax credits are realized, the benefit will be credited to common stock.

In fiscal 2008, we adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, which provides a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

Short-term Investments

Short-term investments consist of government securities, mutual funds and corporate debt securities that mature between three and 36 months. All of our short-term investments, except the deferred compensation assets, are classified as available-for-sale. During fiscal 2009, we reclassified the deferred compensation assets from available-for-sale to trading securities in order to maintain consistency with the method in which we account for the deferred compensation obligations. 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 earnings, net of taxes.

Short-term 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. If the cost of an investment exceeds its fair value, we evaluate, among other factors, general market conditions, the duration and extent to which the fair value is less than cost, and our intent and ability to hold the investment. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established.

During fiscal 2009, we recorded $1.4 million in losses related to short-term investments. See the "Liquidity and Capital Resources" section below for additional information regarding this loss and our determination of the fair value of these investments at June 28, 2009.

During the fourth quarter of fiscal 2009, we adopted Financial Accounting Standards Board ("FASB") Staff Position ("FSP") FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary

Impairments" ("FSP FAS 115-2/124-2"). FSP FAS 115-2/124-2 requires entities to separate an other-than-temporary impairment of a debt security into two components when there are credit-related losses associated with an impaired debt security that management asserts it has no intent to sell, and it is more likely than not that management will not be required to sell the security before recovery of the security's cost basis. The amount of the other-than-temporary impairment related to a credit loss is recognized in earnings, and the amount of the other-than-temporary impairment related to other factors is recorded in other comprehensive loss. For fiscal 2009, the adoption of FSP FAS 115-2/124-2 did not have a material impact on our consolidated financial statements.

Business Combinations

We allocate the purchase price of acquired companies to the tangible and intangible assets acquired, liabilities assumed, as well as in-process research and development based on their estimated fair values. We engage an independent third-party appraisal firm to assist us in determining the fair values of the assets acquired and the liabilities assumed. Such valuations require management to make significant estimations and assumptions, especially with respect to intangible assets.

Critical estimates in valuing certain intangible assets include but are not limited to: future expected cash flows from customer contracts, customer lists, distribution agreements, acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimating cash flows from the projects when completed; and the brand awareness and the market position of the acquired products and assumptions about the period of time the brand will continue to be used in the combined company's product portfolio. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

Valuation of Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we test the carrying amount of goodwill annually during the fourth fiscal quarter as well as at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill.

During the third quarter of fiscal 2009, due to a decline in our stock price and a lowered business outlook, we determined that indicators of a potential goodwill impairment existed. Accordingly, we completed a step one goodwill impairment test to determine whether the decline in market capitalization and business outlook revisions indicated that the carrying value of our reporting units were in excess of fair value.

A step one goodwill impairment test compares the fair value of a reporting unit to its carrying value to determine if a step two test is required. We estimate our reporting unit's fair values using a weighted average of values determined under an income approach and a market approach. We weighed these approaches at approximately 67% and 33% for the income approach and the market approach, respectively. We applied a lower weighting to the market approach as there are a limited number of highly comparable companies, which are a key component of the market approach. Under the income approach, fair value is determined by discounting estimated future cash flows. The income approach is dependent on several significant assumptions, including our earnings projections and our cost of capital. Under the market approach, we estimate the fair value of each reporting unit based on pricing multiples of certain financial parameters observed in comparable companies.

Based on the results of our step one test, we determined that the fair values of the Wireline and Timing, Test and Measurement reporting units were less than their respective carrying amounts, and therefore the second step of the goodwill impairment test was performed to measure the amount of impairment loss for the each reporting unit. As a result, we recorded a goodwill impairment charge of approximately $48.1 million in the third quarter

of fiscal 2009, consisting of $28.0 million related to the Wireline reporting segment and $20.1 million related to the Timing, Test and Measurement reporting segment.

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

Long-lived assets are reviewed 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. We review our intangible assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. 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, an evaluation of the recoverability of the net carrying value of the asset over its remaining useful life is made. If this evaluation indicates that the intangible asset is not recoverable, the net carrying value of the related intangible asset will be reduced to fair value. 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.

In the third quarter of fiscal 2009, because of the identification of goodwill impairment indicators (See above-Valuation of Goodwill), we first reviewed our other intangible and long-lived assets for impairment and determined there was no impairment.

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 28, 2009           June 29, 2008           July 1, 2007
Net revenue
Telecom Solutions Division:
Wireline Products                                  47.0 %                  43.6 %                 45.1 %
Wireless/OEM Products                               8.3 %                  11.1 %                 12.8 %
. . .