WASHINGTON, D.C. 20549
FORM 10-K
___X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended September 30, 1996
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period N/A
Commission file number 0-10877
TCI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or
organization)
94-3026925
(IRS Employer Identification No.)
222 Caspian Drive, Sunnyvale CA 94089 (408) 747-6100
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive
offices)
Securities registered pursuant to Section 12(b) of the
Act:
Name of each exchange on which registered None
Title of each class None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (l) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the
past 90 days:
YES X NO_____
Indicate by check mark if disclosure of delinquent
filers pursuant to item 405 of Regulation S-K 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 [X]
As of September 30, 1996, the aggregate market value of
voting stock held by non-affiliates was $21,063,724.
As of September 30, 1996, the number of shares of common
stock outstanding was 3,179,430.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the
Securities and Exchange Commission in connection with
the Annual Meeting of Stockholders to be held on
February 11, 1997 are incorporated by reference into
Part III hereof.
PART I
ITEM 1. Business
General
Except for historical information contained herein, the
matters discussed in this report contain forward-looking
statements that involve risks and uncertainties that
could cause results to differ materially.
TCI International, Inc. (the Company) is a holding
company which has three operating subsidiaries,
Technology for Communications International ("TCI"), a
company incorporated in California on March
13, 1968; BR Communications ("BR"), a company
incorporated in California on January 24, 1966, and; TCI
Wireless, Inc. ("TCIW") a company incorporated in
California on April 28, 1995. The operating
subsidiaries share resources, including facilities,
management and labor. Prior to fiscal year 1994, the
Company was organized into three separate operating
units. In response to the forecast changes to its order
trend, the Company relocated its operations and began a
consolidation of its three independent operating units
into its present facilities. In fiscal year 1994, the
Company completed this physical consolidation and now
operates under one central management structure. Unless
the context indicates otherwise, the terms "Company,"
"TCI," "BR", and "TCIW" shall include their
consolidated subsidiaries.
The Company manufactures and markets signal collection
systems, spectrum and frequency management systems,
special purpose communications systems, and antennas and
related equipment for high-power broadcasting, over-the-
horizon radar, and short-wave communication. The
Company's products historically have been sold primarily
to U.S. and foreign government agencies, and to a lesser
extent, commercial broadcast entities. See "United
States Government Contracts and Regulations."
Products
The Company's signal collection systems cover the full
spectrum of radio frequencies, while the majority of the
Company's antenna and frequency management products are
primarily designed for operation in the HF, or "short-
wave," portion of the electromagnetic spectrum (1.6 to
30 megahertz), and to the medium frequency portion of
this spectrum (0.5 to 1.6 megahertz). High frequency
radio signals have the special characteristic of being
reflected by the earth's ionosphere and, therefore,
offer an effective medium for radio communication over
long distances. The Company has recently developed
antennas covering frequencies up to 3000 megahertz which
have applications in both signal collection and
broadcasting systems.
Antenna Systems
High frequency antennas are typically complex wire-
strung structures supported by towers up to four hundred
feet high. Their design involves complex relationships
between many electromagnetic and structural variables.
Antennas are an important part of communication systems
because effective radio communication depends upon
signal strength relative to background noise. The
signal-to-noise ratio can be improved by increasing
transmitter power and by improving the performance of
the transmitting and receiving antennas. In most
situations, the ability to increase transmitter power is
limited by either regulation or expense; accordingly,
antenna design assumes a key role in the practical
solution to the problem of increasing signal quality.
The integrated application of the Company's proprietary
electromagnetic and structural design software, together
with the technical experience of its staff, has made it
possible for the Company to produce antenna designs
having the optimal gain, bandwidth, and power-handling
capability required for specific applications and
environments, with reductions in design time and expense
as well as product cost.
Communications antennas of the type designed and
manufactured by the Company are usually employed in
large scale systems, such as civil shore-to-ship and
land-to-air systems, as well as their tactical military
counterparts. Typical Company communications antennas
and related antenna systems range in price from
approximately $20,000 to $300,000.
Broadcast Systems
In many countries, short-wave radio broadcasting remains
the preferred medium for the governments' international
news organizations and propaganda services to reach
foreign mass audiences. The U.S. Information Agency
(Voice of America) and the BBC World Service are
examples of users of radio broadcasting products of the
Company. TCI markets high performance, high-power
broadcast antennas and antenna systems which operate
continuously over a wide range and provide for
electronically-controlled broadcasting patterns.
Typical system orders range in price between $200,000
and $15,000,000.
Within a country's borders, essentially all broadcasting
is done using AM, FM, and TV. AM broadcasting uses
frequencies in the medium frequency (MF) band in the
range 525 to 1705 kHz, which are received by car radios
or pocket transistor radios. FM and TV transmissions
use frequencies above 30 MHz in the very high and ultra-
high (VHF and UHF) frequency range.
The Company manufactures antennas for MF broadcasting,
which it sells either directly to local broadcasting
organizations or to transmitter manufacturers and
systems integrators who re-sell to broadcasters. TCI
also offers complete MF transmitting systems, including
TCI antennas and transmitting and audio equipment
manufactured by others and integrated by the Company.
The Company has recently completed several turn-key FM
and TV transmitting systems comprised of both program
input equipment, transmitters, transmission lines, and
FM/TV antennas. The company also has several bids
outstanding for additional FM and TV transmitting
systems. Pay TV systems using cable or wireless
technologies have become increasingly popular outside
the United States, including a wireless pay TV system
which utilizes microwave transmissions to avoid the
necessity of wiring to subscribers' homes with coaxial
cables. The Company is currently investigating ways to
add value to this growing marketplace by developing
strategic relationships with current suppliers and
exploring product introduction avenues with its own
products.
Signal Collection Systems
Signal collection systems are used to identify, locate,
classify, and analyze radio transmissions which may
originate at great distances from the system. These
functions are performed rapidly, automatically, and
without detection by the subject. The systems are
principally used by military organizations to locate and
track hostile forces.
A primary objective of signal collection systems is to
locate the source of a transmission as quickly and
precisely as possible. The conventional solution to
this problem employs multiple "direction-finding"
stations to locate a transmitter by triangulation. The
Company's proprietary software, however, makes it
possible to calculate the approximate distance, as well
as the direction, of a transmission source using only a
single locating station.
Signal collection systems may also require the ability
to recognize the presence of new transmission sources
rapidly, as well as to classify them by modulation,
frequency, and signal characteristics. The Company's
signal collection software performs these judgmental
tasks automatically, thereby eliminating the need for
the large numbers of operating personnel traditionally
required. This software may be integrated with
additional signal processing equipment and specialized
receiving antennas to form various configurations of a
computer-based signal collection system. The Company's
collection systems can also manage or integrate the
output from other intelligence-gathering sources to
provide the system operators with integrated information
from which useful estimates regarding the disposition
and intentions of potential adversaries can be reached.
The sales prices of complete signal collection systems
typically range from approximately $100,000 to
$15,000,000, depending on system configuration. Certain
components of a system may be useful to a client in
special situations and would be priced considerably
less.
Radio Spectrum Management Systems
Consistent and reliable management of the
electromagnetic spectrum and effective enforcement of
spectrum utilization regulations have become a world-
wide necessity, brought about by the rapid expansion in
the number of users of cellular telephones, pagers, and
other personal communication devices. The Spectrum
Management System produced by the Company provides an
integrated solution to this regulatory problem. The
principal users of these systems are regulatory agencies
whose interest is in identifying and tracking in-country
transmitters, and not external, hostile forces.
The primary objectives of spectrum management systems
are the following: (a) maintenance of sufficient order
and discipline in the radio spectrum so that modern
radio and wireless services can function; (b) frequency
assignments to users; (c) licensing, invoicing and
administration; (d) data base management; (e) spectrum
monitoring, which includes signal intercept,
identification, location and measurement; and (f)
preparation and submission of reports. Traditionally,
these functions have been performed manually, using
stand-alone receivers, measurement instruments, and
numerous forms filled out by hand. The Company provides
turn-key systems which perform all tasks in an
automated, integrated, seamless operation, with a
minimum of operator intervention. These systems use
Company products, as well as other commercial, off the
shelf equipment, integrated in a flexible configuration.
This modular architecture allows the use of a common
set of building blocks to tailor each system to the
exact requirements of the customer.
The spectrum management system configuration can vary in
complexity from a single site, single position station
to a large scale multi-site network, including 5 - 15
fixed sites, plus a complimentary set of mobile
measurement vans. Typical systems range in price
between $500,000 and $20,000,000.
Special Purpose Communications Systems
The Company has developed and sold special purpose
communication systems in response to specific user
needs. These systems include communication management
systems, automated switching systems, antennas with
special survivability specifications, and emergency
communication networks.
Frequency Management and Spread Spectrum Communication
Systems
The variability of propagation conditions and the
difficulty of locating optimum propagation frequencies
reduce the probability of establishing satisfactory HF
communications at any given moment. While less than a
100% reliability factor is acceptable for many users of
HF communications, historically certain military and
diplomatic communicators have demanded a very high level
of reliability. In order to achieve the dependability
needed by these military and diplomatic users, the
Company has developed frequency management systems which
allow HF communicators to obtain real-time continuous
measurements of spectrum-wide propagation
characteristics, interference levels, and channel
occupancy. By correlating these measurements, the HF
operator can select the optimum frequency over which to
communicate. Although developed initially for military
users, these products are suitable for other
applications, including HF broadcast.
The technology and equipment developed for frequency
management systems provides highly reliable spread
spectrum transmission and reception of short messages.
These messages of 40 characters or less can include
emergency action commands.
Given the change in the world's political environment
over the last five years, the Company has observed that
the U.S. Government's reliance upon HF communications
has decreased, with increasing reliance placed upon
satellite communications. There continues to be
interest in HF communications by foreign governments who
can not access satellites or who place less reliance
upon such communications.
The Company's frequency management systems are currently
employed by the United States Army, Navy, Air Force, and
Marine Corps, as well as by the armed forces of numerous
foreign nations. The price of a minimum configuration
is approximately $50,000; however, the price of a
typical system configuration is considerably higher.
Marketing
The Company markets its equipment and systems to U.S.
and foreign government agencies by its direct marketing
force, supplemented by local representatives who are
paid a commission for most foreign sales.
Communications and broadcast systems are also sold to
national telephone and telegraph carriers, information
services, and religious organizations. Foreign sales of
signal collection systems, frequency management systems,
spread spectrum communication systems, and certain
antennas having specialized military applications must
have the approval of the United States Department of
State which limits the sales of such products to foreign
markets. Such sales are subject to changes in United
States policy concerning the export of military
technology.
Historically, more than 90% of the Company's overseas
sales have been denominated in United States dollars.
The value of the United States dollar, relative to
foreign currencies, affects the competitive position of
the Company's products overseas.
See Note 6 of the Notes to Consolidated Financial
Statements for information concerning revenue
attributable to export sales and individual customers.
Manufacturing
Antenna systems are generally manufactured to order from
standard cable, fittings, insulators, and fasteners. In
the manufacturing process, fittings are attached to
antenna wires by machinery which also measures, forms,
and cuts the wires to close tolerances. Antennas are
packaged in pre-assembled kits, reducing installation
time and cost, and increasing reliability.
Signal collection systems are assembled from standard
computers, radio frequency switches, receivers, and
specialized instruments manufactured to the Company's
specifications either by the Company or by specialized
vendors. After the proprietary software is incorporated
into the system, it is tested in a simulated operating
environment.
Frequency management products are generally assembled
from standard components and other items produced to the
Company's specifications, such as printed circuit
boards, fabricated metal parts and crystal filters.
Many of the products contain microprocessors for which
proprietary software is designed and tested by the
Company's engineers and technicians. Certain custom
communications systems involve the integration of other
manufacturers' equipment with products produced by the
Company.
Radio spectrum monitoring systems are assembled using
readily available computer equipment and specialized
signal measurement equipment provided by qualified
subcontractors combined with specialized equipment
provided by the Company. To a significant extent, the
heart of such systems lies in the proprietary software
that is incorporated into the system. These systems are
thoroughly tested in a simulated operating environment
prior to final delivery.
The Company is dependent upon the ability of its
suppliers and subcontractors to meet performance
specifications, quality standards, and delivery
schedules in order to fulfill commitments to its
customers. While the Company endeavors to assure the
availability of multiple sources of supply, in certain
cases involving complex equipment it must rely on a sole
source. The failure of certain suppliers or
subcontractors to meet the Company's needs would
adversely affect the Company. While the Company has
from time to time experienced delays in obtaining raw
materials and components, to date these delays have not
materially affected its business.
Although most of the Company's products are installed by
the Company's customers, the Company offers installation
services including turn-key project management.
United States Government Contracts and Regulations
Sales to the U.S. Government under prime and
subcontracts accounted for 42%, 60%, and 52% of the
Company's revenue in fiscal years 1996, 1995, and 1994,
respectively. The Company's U.S. Government business is
performed under cost-reimbursement-type contracts (cost-
plus-fixed-fee, cost-plus-incentive-fee, and cost-plus-
award-fee) and under fixed-price-type contracts (firm
fixed-price and fixed-price incentive). During fiscal
1996, 40% of the Company's total revenue came from U.S.
Government fixed-priced-type contracts, and 2% from U.S.
Government cost-reimbursement-type contracts, compared
to 59% and 1%, respectively, in fiscal 1995 and 50% and
2%, respectively, in fiscal 1994.
Under U.S. Government regulations, certain costs,
including certain financing costs and marketing
expenses, are not reimbursable. The U.S. Government
also regulates the methods under which costs are
allocated to U.S. Government contracts. Additionally,
costs incurred under U.S. Government contracts are
subject to audit. Management believes the results of
such audits, if any, will not have a material effect on
the Company's financial results.
Contracts with the United States Information Agency
("USIA") combined with subcontracts to companies with
prime contracts to the USIA accounted for 23% of total
revenue in fiscal 1996, 18% in fiscal 1995 and 33% in
fiscal 1994. See further discussion regarding a
contract with the USIA in Item 7, "Management's
Discussion and Analysis of Financial Condition and
Results of Operations."
U.S. Government contracts are, by their terms, subject
to termination by the U.S. Government either for
convenience or for default of the contractor. The
continuation of long-term U.S. Government contracts may
be dependent upon the continuing availability of
Congressional appropriations. Due to the size of the
Company's contracts with the USIA and other agencies, a
U.S. Government contract termination may have a material
negative affect on the operating results of the Company.
See further discussion in Item 7 "Management's
Discussion and Analysis of Financial Condition and
Results of Operations."
The Company believes that the United States intelligence
community is adjusting its focus from the ex-Soviet
Union to a much wider and diverse population of threats.
Because of this shift in focus from Cold War driven
planning, the Company expects that large, long duration
U.S. Government programs in defense intelligence and
broadcasting will not return and that revenue from such
contracts will generally decrease as a percentage of
total revenue in future periods. See Item 7,
"Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Competition and Risk
The Company encounters intensive competition in the sale
of its products from numerous other companies.
Accordingly, substantial efforts must be undertaken
continually and on a long-term basis in order to
maintain existing levels of business. All of the
Company's major competitors have substantially greater
financial and marketing resources than the Company.
The world political environment has seen dramatic
changes within the last several years and as a result
U.S. Government procurements for signal collection
systems, special purpose communications systems, and
propaganda-oriented broadcasting systems have decreased
substantially. As a result, the Company is focusing
more on overseas and commercial opportunities, as are
the Company's competitors.
The principal competitive factors in the broadcast and
communications markets are reliability, performance,
price, and breadth of product line. The Company's
principal competitors in the ground-based, high
frequency (HF) communications antenna market are Andrew
Corporation, Antenna Products Corporation, CSA, and
Marconi Communications Systems, Limited. In the market
for HF (short-wave) and medium wave (MF) broadcast
antennas, the principal competitors are divisions of
larger companies, including Thomcast, Marconi
Communications Systems, Limited, and Continental
Electronics, all of which also manufacture broadcasting
transmitters. The size, international reputation, and
vertically integrated operations of these companies give
them an advantage over the Company, particularly in
bidding on entirely new stations in Third World
countries.
In signal collection systems, competitors include
Lockheed-Martin, TRW, E-Systems, Loral Corporation,
Harris Corporation, Andrew Corporation, AEG Telefunken,
Siemens Plessey & Co. Ltd., Racal Communications, Rohde
and Schwarz, Southwest Research Institute (SWRI),
Thomson-CSF, and Tadiran. Performance, the ability to
design and produce a system for a specialized
application, and price are the principal competitive
determinants. Selection of a particular supplier's
products for incorporation in a military signal
collection system frequently limits further competition
by other vendors during the program's life cycle.
Manufacturers of HF frequency management systems
include, among others, Rockwell International Corp.,
Harris Corporation, Andrew Corporation, and Racal
Communications. Since the competitors' products tend to
be less expensive, the Company must convince its
customers that its equipment has sufficient performance
advantages.
Competition to provide radio spectrum monitoring and
compliance systems comes from, among others, Tadiran,
Rohde and Schwarz, Thomson-C.S.F., Hewlett Packard and
ZETA, a division of Sierra Networks, Inc.. Similar to
the Company's position in supplying signal collection
systems, best value expressed as a function of
performance and price are the competitive determinants
in most markets. Additionally, since many of these
systems are marketed in less developed countries, the
ability to offer attractive financing alternatives also
weighs strongly in the customer's decision making
process. The Company will continue to rely on the
availability of external sources of capital to meet its
requirement to offer financing on these international
procurements.
The Company's communication products are also subject to
competition from alternative methods of communications,
particularly from satellites and terrestrial microwave
transmissions which presently are, and will continue to
be, the dominant carriers of long distance
communications. However, because these carriers are
vulnerable in an armed conflict and require a large
capital investment or access to equipment not owned or
controlled by the user, the Company believes there is a
continuing market for short-wave communication systems.
For further information on risks, see Item 7 -
"Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Backlog
See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Research and Development
See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Patents
The Company believes that its success does not depend on
the ownership of patents or trademarks but rather on its
proprietary software, innovative skills, technical
competence, marketing abilities, and responsiveness to
customer needs.
Employees
As of September 30, 1996, the Company had 168 full-time
employees plus 46 temporary agencies' employees assigned
to the Company. None of the employees are represented
by a labor union, and the Company considers its employee
relations to be good. The Company's success is
dependent on its ability to retain highly-skilled
personnel.
<PAGE>
ITEM 2 - Properties
Floor Area (sq. ft.) Lease
Company Expiration
Leased Date
Sunnyvale, CA (1 building) 95,000 2000
Sunnyvale, CA (1 building) 29,000 1998
Total 124,000
In addition, the Company leases office space in
Alexandria, Virginia and in Redhill, Surrey, United
Kingdom (U.K.). The Company believes that its office
space for its corporate headquarters is suitable and
adequate and will meet its needs for the foreseeable
future.
ITEM 3 - Legal Proceedings
On December 14, 1994, the California Regional Water
Quality Control Board for the San Francisco Bay Region
adopted an order naming the Company as a potentially
responsible party (PRP), along with several other
parties, for ground water contamination in the vicinity
of a property the Company formerly occupied as a tenant
in Mountain View, California. The Company contends that
it is not responsible for any such contamination. In a
related development in early 1995, the Regional Water
Board ordered the owner of the property to conduct a
program of soil sampling to determine if the site is
currently a source of ground water contamination. The
results of this sampling program were reviewed by and
summarized in a letter from the Regional Water Board
dated October 11, 1995 in which it concluded that the
current levels of contamination do not indicate the site
is a source of ground water contamination presently, and
as a result no further investigative or remedial action
is necessary. However, in its correspondence the
Regional Water Board refused to rule out the possibility
that the site was a source of contamination in the past
and as such it has left the matter to be resolved
through binding arbitration. Being named as a PRP could
result in the Company becoming subject to a subsequent
final order from the Regional Water Board or a defendant
in a civil lawsuit in which others might seek to recover
from the Company a portion of the costs spent on
investigating and cleaning up the contamination.
Because there is currently no proposal to impose a final
binding regulatory order on the Company, it is not
possible to predict either the outcome of the current
regulatory proceedings or to estimate with any certainty
whether the Company will ultimately be judged to be
liable for any portion of the investigation and
remediation costs associated with the subject site.
There have been no further developments on this issue
since October 1995.
During 1990, the Company received a notice from an
overseas customer stating that the Company had not
fulfilled certain requirements of a $6,000,000 contract.
No legal proceedings have been initiated on this claim.
The Company believes, based upon a review of the
customer's claim and consultation with legal counsel,
that the liability, if any, relating to this claim would
not have a material adverse effect on its results of
operations or its financial position.
The Company is from time to time involved in routine
litigation or threatened litigation arising from the
ordinary course of its business. Such matters, if
decided adversely to the Company, would not, in the
opinion of management, have a material adverse effect on
the financial condition of the Company.
ITEM 4 - Submission of Matters to a Vote of Security
Holders
No matters were submitted to a vote of security holders
through the solicitation of proxies or otherwise during
the fourth fiscal quarter of 1996.
PART II
ITEM 5 - Market for Registrant's Common Equity and
Related Stockholder Matters
The Company's common stock is traded over-the-counter on
the National Market System and quoted on the National
Association of Securities Dealers Automated Quotation
System (NASDAQ Symbol TCII). The following table sets
forth the high and low closing ales price as reported on
the Over-the-Counter National Market System. These
prices do not include retail markups, markdowns or
commissions.
<TABLE>
Fiscal 1996 Fiscal 1995
Quarter Ended High Low High Low
<S> <C> <C> <C> <C>
December 31 $10.13 $7.50 $4.50 $4.00
March 31 9.00 6.38 5.88 4.13
June 30 7.63 6.50 7.38 5.13
September 30 7.50 6.13 9.88 6.25
</TABLE>
As of September 30, 1996, there were 581 stockholders of
record. The Company has not paid any cash dividends on
its common stock since inception, and the Company
presently intends to reinvest any earnings in the
business.
ITEM 6 - Selected Financial Data
The following table summarizes certain selected
consolidated financial data and is qualified in its
entirety by the more detailed Consolidated Financial
Statements included elsewhere herein.
<TABLE>
Data for the Five Years Ended September 30,
(In thousands, except per share amounts)
1996 1995 1994 1993 1992
<S>
Statement of Operations Data: <C> <C> <C> <C> <C>
Revenue $32,695 $29,354 $25,562 $28,258 $62,443
Operating costs and expenses:
Cost of revenue 21,856 18,672 15,798 22,613 51,998
Marketing, general and administrative
10,941 10,348 9,555 10,110 12,060
Write-off of goodwill 0 0 0 5,462 0
Income (loss) from operations (102) 334 209 (9,927) (1,615)
Investment income, net 1,602 1,072 691 338 1,781
Income (loss) before provision (credit)
for income taxes 1,500 1,406 900 (9,589) 166
Income (loss) before change in accounting
for income taxes and extraordinary item
1,056 1,311 756 (8,322) 237
Change in accounting for income taxes
(SFAS 109) 0 0 1,511 0 0
Extraordinary tax credit 0 0 0 0 360
Net income (loss) 1,056 1,311 2,267 (8,322) 597
Per share:
Income (loss) before change in accounting
for income taxes and extraordinary item
.31 .39 .23 (2.44) .07
Change in accounting for income taxes
(SFAS 109) 0 0 .45 0 0
Net income (loss) .31 .39 .68 (2.44) .18
Shares used in per share
computations 3,366 3,400 3,335 3,417 3,315
Balance Sheet Data:
Working capital $22,246 $23,172 $22,098 $19,355 $19,833
Total assets 39,192 32,373 33,241 33,895 47,728
Stockholders' equity 26,014 24,855 24,072 22,620 30,840
</TABLE>
<PAGE>
Quarterly Financial Data for the Two Years Ended
September 30, 1996
Since revenue are generally recognized on a percentage
of completion basis, which is based upon total direct
and indirect costs incurred, there may be fluctuations
in the Company's quarterly results. These fluctuations
can result from uneven flow of incoming material and
revisions to cost estimates on long-term contracts.
<TABLE>
(In thousands, except per share amounts)
Fourth Third Second First
Quarter Quarter Quarter Quarter
Fiscal 1996
<S> <C> <C> <C> <C>
Revenue $10,400 $8,559 $7,809 $5,927
Gross profit 2,614 2,936 2,599 2,690
Net income 77 285 360 334
Net income per share .02 .08 .11 .10
Fiscal 1995
Revenue $7,270 $8,364 $6,881 $6,839
Gross profit 2,685 2,654 2,427 2,916
Net income 332 277 302 400
Net income per share .10 .08 .09 .12
</TABLE>
ITEM 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operation
Overview
Since 1992, the Company believes its business has been
affected by the end of the Cold War, which permanently
eroded the market demand for many of the Company's
traditional products. The Company believes that the
United States intelligence community is adjusting its
focus from the ex-Soviet Union to a much wider and
diverse population of threats. Because of this shift in
focus from Cold War driven planning, the Company expects
that large, long duration U.S. government programs in
defense intelligence and broadcasting will not return
and that revenue from such contracts will generally
constitute a smaller percentage of total revenue in
future periods. Similarly, the Company believes the
long-term market for ultra-reliable HF communication
systems will continue to diminish and will in the future
be limited to predominantly overseas markets. As a
result, the Company is in many cases forced to pursue
smaller, overseas projects with a strong component of
proprietary Company products and software. The Company
also intends to leverage its expertise in RF technology
applications and its ability to conduct business in
foreign markets by pursuing outside technology and
business acquisitions which complement various
characteristics of its existing core businesses. There
can be no assurance that the company will be successful
in implementing this diversification strategy.
Recently, the Company's diversification efforts have
focused on three significant areas. The first two areas
relate directly to proprietary elements of frequency
management technology for use in commercial aviation and
maritime communications applications. The third area of
diversification leverages the direction finding
technology developed by TCI principally for military
applications into a world-wide market for similar radio
spectrum monitoring and surveillance equipment. These
systems are used by national regulatory agencies,
similar to the Federal Communications Commission ("FCC")
to maintain order and discipline in the radio spectrum.
Recently, the Company determined that certain attributes
of the maritime communications market, including an
assessment that an ever-growing, overabundance of
satellite communications capacity is coming on line and
as a result, introduction of a world-wide, maritime
communications network using proprietary elements of the
Company's HF radio technology is not economically viable
at the present time. It has consequently decided to
halt the expenditure of development funds in this area.
While limited efforts continue to be made to find
proprietary avenues for the use of the Company's
equipment in the commercial aviation market, any
resultant suitable market for the Company's products in
this particular application is not expected to be large
enough to materially affect future operating results.
During fiscal 1995, teamed with the Hewlett Packard
Company, the Company achieved its first diversification
success as it won a contract to supply radio spectrum
monitoring and surveillance equipment to a foreign
customer due to be delivered in early 1997. In early
fiscal 1996, again teamed with the Hewlett Packard
Company, the Company won its second significant radio
spectrum monitoring and surveillance contract. In an
effort to increase both its market share and the gross
margins available, the Company plans to continue to make
investments in its related product line so as to
increase its relative content and value-added component.
During the last three years the Company has expended
approximately $2,800,000 on research and development
efforts related to its product and market
diversification efforts. All costs for such product
development are presently funded internally and are
expensed as incurred. While the Company has remained
profitable during the period of this investment, the
Company expects that the future costs of these and other
efforts including potential acquisitions may be
significant enough to generate a loss from operations in
both fiscal 1997 and 1998. While marketable products
are not expected to be ready before fiscal 1998, at the
earliest, the investment of money and personnel will
continue on each of the commercial efforts until either
successful product introduction is achieved or it is
determined that a viable market does not exist for these
products.
The Company's funded backlog as of September 30, 1996
was approximately $30 million, compared to approximately
$26 million as of September 30, 1995. The following
table sets forth the total backlog, which includes the
value of unexercised options (on U.S. Government
contracts) which the Company believed were likely to be
exercised, for the periods indicated (in thousands):
As of September 30,
1996 1995 1994
Backlog $35,000 $36,000 $28,000
Of the $35 million backlog at 1996 fiscal year end,
approximately $30 million is expected to be recognized
as revenue prior to September 30, 1997. Most contracts
are, by their nature, subject to termination for reasons
of cause or default, and on occasion, can be terminated
for reasons beyond the control of the Company.
The three-year trend of relative stability in the total
backlog is a reflection of the Company's success in
replacing diminishing sales from its traditional
businesses with opportunities in the radio monitoring
and spectrum compliance business area. Of the
$35,000,000 total backlog reported at fiscal 1996 year
end, approximately $11,000,000 is associated with the
Company's first diversification success in the form of
two contract awards for the supply of spectrum
monitoring and compliance systems for two foreign
customers. Future growth in revenue and backlog is
largely contingent on the ability of the Company to
successfully execute its plans for product and market
diversification.
Results of Operations
As an aid to understanding the Company's consolidated
operating results, the following table indicates the
percentage relationships of income and expense items for
each of the last three fiscal years.
<TABLE>
Percentage of Revenue
Years Ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of revenue 66.8 63.6 61.8
Marketing, general and administrative 33.5 35.3 37.4
Income (loss) from operations (0.3) 1.1 0.8
Investment income, net 4.9 3.7 2.7
Income before provision
for income taxes 4.6 4.8 3.5
Provision for income taxes 1.4 0.3 0.6
Income before change in accounting
for income taxes 3.2 4.5 3.0
Change in accounting for income taxes (SFAS 109) 0 0 5.9
Net income 3.2% 4.5% 8.9%
</TABLE>
The approximate revenue attributable to contracts from
both domestic and overseas customers is shown below (in
thousands):
1996 1995 1994
Domestic revenue $15,000 $18,100 $13,800
Overseas revenue 17,700 11,200 11,800
Total $32,700 $29,300 $25,600
In fiscal 1996, largely due to the Company's
diversification success in the radio monitoring and
spectrum compliance market, revenue continued its two
year trend of growth from levels of the previous year.
Because more than 27% of fiscal 1996 revenue came from
radio and spectrum compliance programs, substantially
all of the Company's revenue growth can be seen to have
come from its diversification efforts which have been
focused entirely overseas. More specifically, revenue
from one commercial contract in the radio monitoring and
spectrum compliance business area represented 19% of the
total revenue in fiscal 1996. The Company anticipates
that revenue may continue to grow modestly, particularly
in the international sector, but that it will not return
to the historical levels of years prior to fiscal 1993
without the Company first achieving additional and
broad-based success with product and market
diversification efforts.
Because the Company has experienced significant
competitive bidding pressures to be the low-priced
supplier in its broadcast and spectrum management system
product lines during the last two years, the reduction
in gross margins initially seen in fiscal 1995 continued
during fiscal 1996. Because the Company expects to
execute a significant portion of this backlog during
fiscal 1997, margins expressed as a percentage of
revenue are not expected to improve until such time as
new products are introduced which gain acceptance from
customers in the form of new contracts. In fiscal 1996,
Marketing, General and Administrative ("M,G&A") costs
increased 6% over previous year levels. This increase
reflects an added emphasis placed on marketing related
activities as well as a general increase in personnel
costs. The Company anticipates quarter to quarter
fluctuations in the amount of revenue recognized based
upon the timing of receipt of material on its long-term
contracts as well as the timing of award of foreign
business, and as a result, quarter-to-quarter
comparisons of revenue and profitability are not
particularly meaningful.
The growth in 1995 revenue over that recognized in
fiscal 1994 is attributable principally to increased
activity in its existing core product businesses. While
fiscal 1995 overseas revenue remained at approximately
the same level as fiscal 1994, domestic revenue
increased 31% over prior year levels due to an increase
in activity within the Company's broadcast antenna
systems business area. Due to forces similar to those
experienced in fiscal 1996, fiscal 1995 M,G&A costs grew
approximately 8% over fiscal 1994 levels.
The one time effect of adopting SFAS No. 109 in fiscal
1994 resulted in an increase in net income of
$1,511,000, or $.45 per share during the same year.
Excluding this one-time adjustment, net income would
have been 3% of revenue.
Over the recent three year period, the Company has
successfully minimized its payment of income taxes by
offsetting these liabilities with a net operating loss
carryforward ("NOL") originally generated in fiscal
1993. As a result, the effective tax rate incurred by
the Company in fiscal 1996, 1995, and 1994 was 30%, 7%,
and 16% respectively. At the end of fiscal 1996, the
Company had approximately $190,000 of NOL remaining
which to the extent it is able to generate profits the
Company intends to use the remaining NOL to offset tax
liabilities in future fiscal years. If the Company is
unable to generate profits against which the NOL would
be utilized to offset a corresponding tax liability, the
current NOL would expire in 2008. A valuation allowance
has been recorded for the entire deferred tax asset as a
result of uncertainties regarding the realization of the
asset due to the lack of consistent earnings history for
the Company.
Expenditures for independent research and development
("IR&D") were approximately $2,000,000, $1,800,000, and
$1,500,000 in fiscal 1996, 1995, and 1994, respectively.
In addition to IR&D, a significant portion of
engineering effort is customer-sponsored by both cost
reimbursement and fixed-price contracts. Such
engineering effort relates to the design and development
of new products as well as improvements to existing
products. Expenditures for customer-sponsored research,
development, and engineering were approximately
$4,200,000, $3,500,000 and $3,200,000 in fiscal 1996,
1995, and 1994, respectively. Additionally, a portion
of new product development work of a conceptual nature
is charged to bid and proposal costs when the
development has an immediate, potential customer. IR&D
and bid and proposal costs are included in M,G&A
expenses in the statements of operations.
During the past three years, a substantial part of the
Company's net income has been derived from interest
income from its various investments. Because the
Company plans to expend significant funds on its product
and market diversification efforts, and because the
precise timing of payments due on existing contracts and
the receipt of down payments on new contracts is
difficult to predict, the Company believes investment
income may decline and may not return to current levels
until such time as the Company begins generating
positive cash flows from its diversification activities.
Factors That May Affect Future Operating Results
The Company operates in a highly competitive environment
that involves a number of risks, some of which are
beyond the Company's control. The following discussion
highlights some of these risks.
Fluctuations in Operating Results
The Company's operating results may fluctuate from
quarter to quarter and year to year for a number of
reasons. While there is no seasonality to the Company's
business, because of the Company's relative small size,
combined with the extended delivery cycles of its long-
term project-oriented business, revenue and accompanying
gross margins are inherently difficult to predict.
Because the Company plans its operating expenses, many
of which are relatively fixed in the short term, based
on the assumption of stable performance, a relatively
small revenue shortfall may cause profitability from
operations to suffer. Historically, the Company has
endured periods of volatility in its revenue results due
to a number of factors, including shortfalls in new
orders, delays in the availability of new products,
delays in subcontractor provided materials and services,
and delays associated with foreign construction
activities. Gross margins are strongly influenced by a
mix of considerations, including pressures to be the low
price supplier in competitive bid solicitations, the mix
of contract material and non-recurring engineering
services, and the mix of newly developed and existing
product sold to various customers. The Company believes
these historical challenges will continue to affect its
future business.
During fiscal 1995, the Company formed a wholly-owned
subsidiary, TCIW, to provide wireless communication
services to the maritime and commercial aviation markets
using proprietary equipment developed by the Company and
facilities and bandwidth provided by various coast
station operators around the world. Since its
formation, the Company has determined that an
opportunity to provide a world-wide maritime
communications network using elements of its proprietary
products is not economically viable at the present time,
and as a result, has ceased expenditures on this
activity. The Company intends, however, to leverage its
expertise in RF technology applications and its ability
to conduct business in foreign markets by pursuing
outside technology and business acquisitions which
complement various characteristics of its existing core
businesses. The Company expects that the future cost
of this product diversification strategy may be
significant enough to generate a loss from operations
during any quarter between now and at least the end of
fiscal 1998.
Managing a Changing Business
The Company is in the process of adopting a business
management plan that includes substantial investments in
its sales and marketing organizations, increased funding
of existing internal research and development programs,
and certain investments in corporate infrastructure that
will be required to support the Company's
diversification objectives during the next three years.
Accompanying this process are a number of risks,
including a higher level of operating expenses, the
difficulty of competing with companies of larger size
for talented technical personnel, and the complexities
of managing a changing business. There also exists the
risk the Company may inaccurately estimate the viability
of any one or all of its diversification efforts and as
a result, may experience substantial revenue shortfalls
of a size so significant as to generate losses from
operations.
Risk Associated with Expansion into Additional Markets
and Product Development
The Company believes that its future success is
substantially dependent on its ability to successfully
acquire, develop and commercialize new products and
penetrate new markets. In addition to the Company's
ongoing efforts to diversify its product offerings
within its core businesses such as the spectrum
management system business, the Company intends to
pursue a diverse, but focused product and market
development initiative during the next three years. The
Company believes that its general knowledge of RF
technology and its related applications combined with
its proven ability to conduct business in overseas
markets can be exploited to return the Company to an
aggressive growth posture. While not strictly limited
to these product areas, the Company is currently
pursuing various rural communication and telephony
applications using its proprietary technology, certain
transmitter product initiatives in the FM, TV and
wireless cable TV markets which compliment the Company's
antenna expertise, and certain RF technologies with
potential application in the markets of tracking various
kinds of assets in indoor and outdoor settings. There
can be no assurance that the Company can successfully
develop these or any other additional products, that any
such products will be capable of being produced in
commercial quantities at reasonable cost, or that any
such products will achieve market acceptance. Should the
Company expend funds to acquire outside entities or
technology, there can be no assurance that sufficient
returns will be realized to offset these investments.
The inability of the Company to successfully develop or
commercialize new products or failure of such products
to achieve market acceptance would have a material
adverse effect on the Company's business, financial
condition and results of operations.
Risks Associated with Conducting Business Overseas
A substantial part of the Company's revenue are derived
from fixed priced contracts with foreign governmental
entities. With increasing frequency, the Company finds
a demand for its products in third world countries and
developing nations which have an inherently more
volatile and uncertain political and credit risk profile
than the U.S. Government market with which the Company
is accustom to conducting its business. While the
Company seeks to minimize the collection risks on these
contracts by normally securing significant advanced
payments with the balance secured by irrevocable letters
of credit, the Company cannot always be assured of
receiving full payment for work that it has performed
due to unforeseen credit and political risks . Should
such a default on payments owed the Company ever occur,
a significant effect on earnings, cash flows and cash
balances may result.
Competition
Most all of the Company's products are positioned in
niche markets which include strong elements of imbedded
proprietary technology. In most of these markets, the
Company competes with companies of significantly larger
size, many of whom have substantially greater technical,
marketing, and financial resources compared to similar
resources available within the Company. This type of
competition has resulted in and is expected to continue
to result in significant price competition.
Liquidity and Capital Resources
As of September 30, 1996, the Company had approximately
$25 million in cash, short-term investments and long
term investment. At September 30, 1996, the Company had
standby letters of credit outstanding of approximately
$4.4 million. These standby letters of credit are
collateralized by the Company's cash or short-term
investments. See further discussion in Note 8 of the
Notes to Consolidated Financial Statements. The fiscal
1996 year end accounts payable balance is approximately
three times the balance at fiscal year end 1995. The
growth in this balance is attributable almost entirely
to obligations the Company has accrued, but not yet paid
to subcontractors on its spectrum monitoring business.
As the Company completes its obligations on these
contracts, the payables and cash or cash equivalents
balances are expected to return to levels more
consistent with those experienced prior to fiscal 1996.
The Company currently believes that its cash and
expected cash flow from operations will be sufficient to
fund its operations through fiscal 1997.
A significant portion of the Company's sales is
associated with long-term contracts and programs in
which there are significant inherent risks. These risks
include the uncertainty of economic conditions,
dependence on future appropriations and administrative
allotments of funds, changes in governmental policies,
difficulty of forecasting costs and work schedules,
product obsolescence, and other factors characteristic
of the industry. Contracts with agencies of the U.S.
Government or with prime contractors working on U.S.
Government contracts contain provisions permitting
termination at any time for the convenience of the Government. No assurance
can be given regarding future
financial results as such results are dependent upon
many factors, including economic and competitive
conditions, incoming order levels, shipment volume,
product margins and foreign exchange rates.
The large size of certain of the Company's orders makes
it possible that a single contract termination,
cancellation, delay, or failure to perform could have a
significant adverse effect on revenue, results of
operations, and the cash position of the Company.
A portion of the Company's revenue are derived from
governments in areas of political instability. The
Company generally attempts to reduce the risks
associated with such instability by requesting advance
payment if appropriate, as well as letters of credit or
central government guarantees. Most of the Company's
overseas contracts provide for payments in U.S. dollars.
However, in certain instances the Company, for
competitive reasons, must accept payment in a foreign
currency.
Management does not consider inflation to be a
significant factor in its operations.
ITEM 8 - Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements.
ITEM 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Not applicable
PART III
ITEM 10 - Directors and Executive Officers of the
Registrant
This information is included in Part I of this Report
under the caption "Executive Officers of the Registrant
who are not Directors" following Item 4, and/or will be
included in the definitive Proxy Statement of Registrant
filed with the Securities and Exchange Commission and is
incorporated herein by reference.
ITEM 11 - Executive Compensation
This information will be included in the definitive
Proxy Statement filed with the Securities and Exchange
Commission and is incorporated herein by reference.
ITEM 12 - Security Ownership of Certain Beneficial
Owners and Management
This information will be included in the definitive
Proxy Statement filed with the Securities and Exchange
Commission and is incorporated herein by reference.
ITEM 13 - Certain Relationships and Related Transactions
This information will be included in the definitive
Proxy Statement filed with the Securities and Exchange
Commission and is incorporated herein by reference.
PART IV
ITEM 14 - Exhibits, Financial Statement Schedules and
Reports on Form 8-K
A. Financial Statements and Schedules
1. Consolidated Financial Statements as identified
in the Index on Page F-1 of this report.
2. Financial Statement Schedules.
In accordance with Regulation S-X, individual financial
statements of the Registrant and its subsidiaries and
other financial statement schedules are not included
herewith because (a) they are not applicable to or
required of the Registrant or (b) the information
required to be set forth therein is included in the
financial statements or other schedules.
B. Reports on Form 8-K
Not applicable.
C. Exhibits
3.1 Restated Certificate of Incorporation of TCI
International, Inc. (Incorporated by reference to
Exhibit 3.1 to the Company's Form 10-K for fiscal
year ended September 30, 1990; commission file number
0-10877)
3.2 Bylaws of Technology for Communications
International, Inc. (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-4 No. 33-11265)
3.3 Amendments to the Bylaws of TCI International, Inc.
(Incorporated by reference to Exhibit 3.3 to the
Company's Form 10-K for fiscal year ended September 30,
1988; commission file number 0-10877)
3.4 Amendment to Restated Certificate of Incorporation
of TCI International, Inc. (Incorporated by reference to
Exhibit 3.4 to the Company's Form 10-Q for the quarter
ended March 31, 1992; commission file number
0-10877)
4.1 Rights Agreement between the Company and Bank of
America, NT&SA, dated December 15, 1989 (Incorporated
by reference to Exhibit 1 to the Company's Form 8-K
dated January 5, 1990; commission file number 0-10877)
4.2 First Amendment to Rights Agreement between the
Company and Bank of America, NT&SA. (Incorporated by
reference to Exhibit 2 to the Company's Form 8,
Amendment No. 1 dated October 7, 1991; commission file
number 0-10877)
10.1 Amended and Restated Credit agreement between the
Company and Wells Fargo Bank, National Associated.
(Incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for quarter ended June 30, 1994;
commission file number 0-10877)
10.2 First Amendment to Credit agreement between the
Company and Wells Fargo Bank, National Associated.
(Incorporated by reference to Exhibit 10.6 to the
Company's Form 10-Q for quarter ended
December 31, 1994; commission file number 0-10877)
10.3 Second Amendment dated April 14, 1995 to Credit
agreement between the Company and Wells Fargo Bank,
National Associated. (Incorporated by reference to
Exhibit 10.17a to the Company's Form 10-K for fiscal
year ended September 30, 1996; commission file number
0-10877)
10.4 Third Amendment and Addendum dated April 28, 1995
to Credit agreement between the Company and Wells Fargo
Bank, National Associated. (Incorporated by reference to
Exhibit 10.17b to the Company's Form 10-K for fiscal
year ended September 30, 1996; commission file number
0-10877)
10.5 Fourth Amendment dated September 14, 1995 to
Credit agreement between the Company and Wells Fargo
Bank, National Associated. (Incorporated by reference to
Exhibit 10.17c to the Company's Form 10-K for fiscal
year ended September 30, 1996; commission file number
0-10877)
10.6 The Company's Stock Option Plan (1981) as amended.
(Incorporated by reference to Exhibit 28(a) to the
Company's Registration Statement on Form S-8 No.
33-11339 filed on December 29, 1988.)
10.7 Form of Incentive Stock Option Agreement under the
Company's Stock Option Plan (1981). (Incorporated by
reference to Exhibit 28(b) to the Company's Registration
Statement on Form S-8 No. 33-11339 filed on
December 29, 1988.)
10.8 Form of Non-Qualified Stock Option Agreement under
the Company's Stock Option Plan (1981). (Incorporated by
reference to Exhibit 28(c) to the Company's Registration
Statement on Form S-8 No. 33-11339 filed on
December 29, 1988.)
10.9 The Company's Employee Stock Ownership Plan
(Incorporated by reference to Exhibit 99 to the
Company's Registration Statement on Form S-8 No.
3-73484 filed on December 27, 1993.)
10.10 Amendment No. 1 to the Company's Employee Stock
Ownership Plan dated as of October 1, 1992.(Incorporated
by reference to Exhibit 10.6 to the Company's Form 10-K
for fiscal year ended September 30, 1996; commission
file number 0-10877)
10.11 Plan Amendment to the Company's Employee Stock
Ownership Plan dated as of January 1, 1994.(Incorporated
by reference to Exhibit 10.7 to the Company's Form 10-K
for fiscal year ended September 30, 1996; commission
file number 0-10877)
10.12 TCI's 401(k) Plan. (Incorporated by reference to
Exhibit 10.21 to TCI's Form 10-K for the fiscal year
ended September 30, 1986; commission file number
0-10877)
10.13 Amendments la, 1b, and 2 to the TCI
International, Inc. 401(k) Plan. (Incorporated by
reference to Exhibit 10.15 to the Company's Form 10-K
for fiscal year ended September 30, 1988; commission
file number 0-10877)
10.14 Directors' Indemnification Agreements and
Addendum's dated November 29, 1990. (Incorporated by
reference to Exhibit 10.21 to the Company's Form 10-K
for fiscal year ended September 30, 1990; commission
file number 0-10877)
10.15 Lease between Technology for Communications
International and Justin M. Jacobs, Jr. DBA Caspian
Investments, dated May 1, 1992. (Incorporated by
reference to Exhibit 10.23 to the Company's Form 10-Q
for the quarter ending March 31, 1992; commission file
number 0-10877)
10.16 Lease between Technology for Communications
International and RREEF USA FUND-II Inc. dated
May 1, 1992. (Incorporated by reference to Exhibit
10.24 to the Company's Form 10-Q for the quarter ending
March 31, 1992; commission file number 0-10877)
10.17 Purchase agreement dated December 28, 1995
between Technology for Communications International and
Ministry of Communications, The Communications Fund,
Colombia.
22 List of subsidiaries of TCI International, Inc.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
TCI INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reference
Report of KPMG Peat Marwick LLP F-2
Report of Deloitte & Touche LLP F-3
Consolidated Financial Statements:
Consolidated Balance Sheets as
of September 30,1996 and 1995 F-4
Consolidated Statements of
Operations for the Three Years Ended
September 30, 1996 F-5
Consolidated Statements of
Stockholders' Equity for the Three
Years Ended September 30, 1996 F-6
Consolidated Statements of Cash
Flows for the Three Years
Ended September 30, 1996 F-7
Notes to Consolidated Financial
Statements F-8
REPORT OF KPMG PEAT MARWICK LLP
To the Stockholders and Board of Directors of TCI
International, Inc.:
We have audited the accompanying consolidated balance
sheet of TCI International, Inc. and subsidiaries as of
September 30, 1996, and the related consolidated
statements of operations, stockholders' equity and cash
flows for the year then ended. These consolidated
financial statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on these consolidated financial statements
based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial
statements referred to above present fairly, in all
material respects, the financial position of TCI
International, Inc. and subsidiaries as of September 30,
1996, and the results of their operations and their cash
flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
November 8, 1996
Palo Alto, California
REPORT OF DELOITTE & TOUCHE LLP
To the Stockholders and Board of Directors of TCI
International, Inc.:
We have audited the consolidated balance sheet of TCI
International, Inc. and its subsidiaries as of September
30, 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each
of the two years in the period ended September 30, 1995.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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 TCI International, Inc. and its subsidiaries
at September 30, 1995, and the results of their
operations and their cash flows for each of the two
years in the period ended September 30, 1995 in
conformity with generally accepted accounting
principles.
In fiscal 1994, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes," and Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," as described in Note 11
and 2, respectively, of the Consolidated Financial
Statements.
Deloitte & Touche LLP
November 22, 1995
San Jose, California
<TABLE>
TCI INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
In thousands, except per share amounts
September 30, 1996 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,249 $ 3,598
(Includes restricted cash of $1,896 in 1996, $2,474 in 1995)
Short-term investments 15,529 15,068
Accounts receivable:
Billed 1,922 3,529
Unbilled 4,715 3,831
Inventories 5,179 4,282
Prepaid expenses 830 382
Total current assets 35,424 30,690
Property and equipment, net 1,566 1,592
Long-term marketable securities 1,788 0
Other assets 414 91
Total assets $ 39,192 $ 32,373
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,123 $ 1,900
Customer deposits and billings
on uncompleted contracts in
excess of revenue recognized 3,336 1,754
Accrued liabilities 3,719 3,864
Total current liabilities 13,178 7,518
Commitments and contingencies (Notes 8 and 10)
Stockholders' equity:
Common stock:
Authorized - 5,000 shares, $.01 par value
Issued - 3,281 shares in 1996
3,281 shares in 1995 11,780 11,780
Shares held in treasury at cost - 102 shares in 1996;
142 shares in 1995 (455) (634)
Retained earnings 14,723 13,702
Net unrealized gain (loss) on
investments (34) 7
Total stockholders' equity 26,014 24,855
Total liabilities and stockholders'
equity $ 39,192 $ 32,373
</TABLE>
See accompanying Notes to Consolidated Financial
Statements.
<TABLE>
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share amounts
Years ended September 30, 1996 1995 1994
<S> <C> <C> <C>
Revenue $ 32,695 $ 29,354 $ 25,562
Operating costs and expenses:
Cost of revenue 21,856 18,672 15,798
Marketing, general and administrative 10,941 10,348 9,555
32,797 29,020 25,353
Income (loss) from operations (102) 334 209
Investment income, net 1,602 1,072 691
Income before provision
for income taxes 1,500 1,406 900
Provision for income taxes 444 95 144
Income before change in accounting
for income taxes 1,056 1,311 756
Change in accounting for income taxes
(SFAS 109) 0 0 1,511
Net income $1,056 $1,311 $2,267
Per share:
Income before change in accounting
for income taxes $.31 $.39 $.23
Net income $.31 $.39 $.68
Shares used in per share computations 3,366 3,400 3,335
</TABLE>
See accompanying Notes to Consolidated Financial
Statements
<TABLE>
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
In thousands
Common Net Unrealized
Stock in Gain (Loss)
Common Stock Treasury Retained on
Shares Amount Shares Amount Earnings Investments Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1993
3,440 $12,350 0 $ 0 $10,270 $ 0 $22,620
Repurchase and retirement
of common stock
(104) (374) 0 0 (54) 0 (428)
Repurchase of common stock for treasury
stock
0 0 (78) (311) 0 0 (311)
Stock options exercised
5 17 0 0 0 0 17
Net unrealized loss on
investments
0 0 0 0 0 (93) (93)
Net income
0 0 0 0 2,267 0 2,267
Balances at September 30, 1994
3,341 11,993 (78) (311) 12,483 (93) 24,072
Retirement of treasury stock
(60) (213) 60 262 (49) 0 0
Repurchase of common stock for treasury
stock
0 0 (164) (764) 0 0 (764)
Stock options exercised
0 0 40 179 (43) 0 136
Net unrealized gain on
investments
0 0 0 0 0 100 100
Net income
0 0 0 0 1,311 0 1,311
Balances at September 30, 1995
3,281 11,780 (142) (634) 13,702 7 24,855
Stock options exercised
0 0 40 179 (35) 0 144
Net unrealized loss on
investments
0 0 0 0 0 (41) (41)
Net income 0 0 0 0 1,056 0 1,056
Balances at September 30, 1996
3,281 $11,780 (102) $(455) $14,723 $(34) $26,014
</TABLE>
See accompanying Notes to Consolidated Financial
Statements.
<TABLE>
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
Year ended September 30, 1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Operations:
Net income $ 1,056 $ 1,311 $ 2,267
Reconciliation to cash provided by (used in) operations:
Depreciation and amortization 557 644 736
Gain on properties held for resale 0 0 (363)
Gain on sale of investments 0 (32) (82)
Effect of change in accounting for income taxes
(SFAS 109) 0 0 (1,511)
Changes in assets and liabilities:
Accounts receivable 723 (1,739) 7,324
Refundable income taxes 0 739 46
Inventories (897) 619 715
Prepaid expenses and other assets (771) 102 (18)
Accounts payable 4,223 (268) 699
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized
1,582 (724) (1,274)
Accrued liabilities (145) (659) (225)
Cash provided by (used in) operations
6,328 (7) 8,314
Cash flows from investing activities:
Purchases of property and equipment (531) (347) (275)
Purchases of short-term and long-term investments
(23,266) (32,830) (9,874)
Proceeds from sale of short-term investments
0 2,564 689
Proceeds from maturity of short-term investments
20,976 26,260 1,174
Proceeds from sale of buildings 0 0 1,725
Other 0 0 57
Cash used in investing activities (2,821) (4,353) (6,504)
Cash flows from financing activities:
Repurchases of common stock 0 (764) (739)
Stock options exercised 144 136 17
Cash provided by (used in) financing
activities 144 (628) (722)
Net increase (decrease) in cash and cash equivalents
3,651 (4,988) 1,088
Cash and cash equivalents at beginning of year
3,598 8,586 7,498
Cash and cash equivalents at end of year
$ 7,249 $ 3,598 $ 8,586
</TABLE>
See accompanying Notes to Consolidated Financial
Statements.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Principles of Consolidation - The consolidated financial
statements include the accounts of TCI International,
Inc. and its subsidiaries (collectively, the "Company").
The Company manufactures and markets signal collection
systems, spectrum and frequency management systems,
special purpose communications systems, and antennas and
related equipment for high-power broadcasting, over-the-
horizon radar, and short-wave communication. The
Company's products historically have been sold primarily
to U.S. and foreign government agencies, and to a lesser
extent, commercial broadcast entities. The Company has
three wholly-owned subsidiaries, Technology for
Communications International ("TCI"), BR Communications
("BR"), and TCI Wireless ("TCIW"). All significant
intercompany balances and transactions have been
eliminated.
Although for presentation purposes the Company has
indicated its year end as September 30, its fiscal year
actually ends on the Sunday nearest to September 30.
The Company's fiscal for 1996, 1995, and 1994 ended on
September 29, October 1, and October 2, respectively.
Cash Equivalents - Cash equivalents consist of money
market investments, government securities, and
commercial paper purchased with a maturity at the date
of acquisition of less than 90 days. The restricted
cash represents the amount held as collateral for stand-
by letters of credit at the end of the fiscal year.
Revenue Recognition - Revenue and costs under cost-
reimbursable type contracts are recognized as costs are
incurred and include applicable fees. Revenue from
contracts calling for delivery of standard products are
recognized as the product is shipped. Revenue and costs
under certain long-term fixed-price contracts are
recognized on the percentage-of-completion method, based
on total direct and indirect production costs incurred.
Amounts in excess of agreed upon contract price for
customer-directed changes, constructive changes,
customer delays or other causes of additional contract
costs are recognized in contract value if it is probable
that a claim for such amounts will result in additional
revenue and the amounts can be reasonably estimated.
Revisions in cost and profit estimates are reflected in
the period in which the facts requiring the revision
become known and are estimable. Losses on contracts are
recorded when identified.
Risks Associated with Long-Term Contracts - A
significant portion of the Company's revenue has been
associated with long-term contracts and programs in
which there are significant inherent risks. These risks
include the uncertainty of economic conditions,
dependence on future appropriations and administrative
allotment of funds, changes in governmental policies,
difficulty of forecasting costs and work schedules,
product obsolescence, and other factors characteristic
of the industry. To offset the expected downturn in
revenue from the sales of signal collection systems,
antenna systems, and special communications equipment to
the U.S. Government, the Company will increasingly focus
on overseas and commercial sales. However, many
overseas customers are also experiencing reductions in
their defense equipment budgets. Contracts with the
U.S. Government are, by their terms, subject to
termination by the U.S. Government either for its
convenience or for default by the contractor.
Additionally, costs incurred under U.S. Government
contracts are subject to audit. Management believes the
results of such audits, when conducted, will not have a
material effect on the Company's financial results (see
Note 6).
A portion of the Company's revenue are derived from
governments in areas of political instability. The
Company generally attempts to reduce the risks
associated with such instability by requesting advance
payment if appropriate, as well as letters of credit or
central government guarantees. Most of the Company's
overseas contracts provide for payments in U.S. dollars.
However, in certain instances the Company, for
competitive reasons, must accept payment in a foreign
currencies. Foreign currency gains and losses have not
been significant for any of the periods reported.
The large size of certain of the Company's orders make
it possible that a single contract termination,
cancellation, delay, or failure to perform may
significantly affect management's estimates and the
Company's performance.
Research and Development Expenses - Marketing, general
and administrative expenses include independent (not
directly related to or funded by a customer contract)
research and development costs of $1,976,000 in fiscal
1996 $1,830,000 in fiscal 1995, and $1,512,000 in fiscal
1994.
Inventories - Inventories are stated at the lower of
cost (first-in, first-out basis) or market and include
material, labor, and overhead.
Property and Equipment - Property and equipment are
stated at cost and are depreciated or amortized using
the straight-line method over the following estimated
useful lives:
Years
Machinery and equipment 3 - 10
Leasehold improvements Life of lease
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes - Income taxes are accounted for under 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 bases and
operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted
rates expected to apply to taxable income in the years
in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment
date.
Net Income per Share - Net income per share is computed
based on the weighted average number of common shares
outstanding and common equivalent shares outstanding
during the period. Common equivalent shares consist of
the dilutive effect of stock options.
Financial Instruments - Due to the short maturities of
the Company's financial instruments, including cash and
cash equivalents, short-term investments, accounts
receivable, accounts payable, and accrued liabilities,
the carrying amounts approximate the fair value of the
instruments. The long-term marketable securities are
carried at fair value.
Use of Estimates - The Company's management has made a
number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these
financial statements in conformity with generally
accepted accounting principles. Actual results could
differ from those estimates.
Recent Accounting Pronouncement - In March 1995, the
Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No.
121 will be effective for fiscal years beginning after
December 15, 1995, and requires long-lived assets to be
evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company will adopt
SFAS No. 121 in fiscal 1997 and does not expect it to
have a material effect on the Company's results of
operations or financial position.
2. Short-term and Long-term Investments
The Company classifies its investments as "available-
for-sale securities" and the carrying value of such
securities has been adjusted to fair market value. The
resulting change in fair market value is reported as a
separate component of stockholders' equity.
The amortized cost, gross unrealized holding gains,
gross unrealized holding losses and fair value for
available-for-sale securities by major security type at
September 30, 1996 and September 30, 1995, were as
follows:
<TABLE>
<S> <C> <C> <C>
September 30, 1996 (In thousands) Amortized Gross Unrealized Gross Unrealized Fair
Short-term investments: Cost Holding Gains Holding Losses Value
Certificate of deposits $6,514 $0 $ 5 $6,509
Commercial paper 999 0 0 999
Corporate bonds 5,015 0 0 5,015
Government bonds 1,995 0 5 1,990
Municipal bonds 1,016 0 0 1,016
15,539 0 10 15,529
Long-term investments:
Government bonds 1,812 0 24 1,788
$17,351 $0 $34 $17,317
September 30, 1996 (In thousands) Amortized Gross Unrealized Gross Unrealized Fair
Short-term investments: Cost Holding Gains Holding Losses Value
Certificate of deposits $4,235 $0 $0 $4,235
Commercial paper 3,848 0 3 3,845
Corporate bonds 3,065 3 0 3,068
Government bonds 2,913 7 0 2,920
Municipal bonds 1,000 0 0 1,000
$15,061 $10 $3 $15,068
</TABLE>
The short-term and long-term cash management portfolio
is managed by a securities investment firm which invests
primarily in stocks and bonds based upon the Company's
investment guidelines. The securities are of investment
quality to ensure safety of principal and are selected
by the firm, who has been given semi-discretionary
authority to manage assets in the portfolio.
Cash equivalents and short term investments totaling
$4,620,000 are held by banks as collateral for
outstanding stand-by letters of credit (see Note 8).
Investment income consists of the following:
Year ended September 30, 1996 1995 1994
(In thousands)
Interest income and other $1,602 $1,040 $ 609
Realized gain on sale of
securities 0 32 82
$1,602 $1,072 $ 691
3. Accounts Receivable
Accounts receivable contain amounts which are billed in
accordance with the terms of the related contracts,
which may allow for progress billings upon shipment,
billings upon completion, or other billing arrangements.
Such amounts are classified as billed accounts
receivables. Unbilled accounts receivables represent
revenue recognized generally under a percentage of
completion basis which, based upon the terms of the
related contracts are not yet billable.
Certain U.S. Government contracts contain a retainage
provision, whereby a portion of the contract value is
not paid until completion and acceptance by the
customer. As of September 30, 1996 and 1995 accounts
receivable included $122,000 and $444,000 of contract
retentions receivable. As of September 30, 1996,
approximately $83,000 of such retainages are not
expected to be collected within one year.
4. Inventories
Inventories consist of the following:
September 30, 1996 1995
(In thousands)
Material and component parts $3,726 $3,336
Work in process 1,453 946
$5,179 $4,282
5. Property and Equipment
Property and equipment consist of the following:
September 30, 1996 1995
(In thousands)
Machinery and equipment $8,690 $8,230
Leasehold improvements 375 375
9,065 8,605
Accumulated depreciation and amortization
(7,499) (7,013)
$1,566 $1,592
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Export Revenue and Revenue from Major Customers
Revenue were derived from sales to customers located in
the following geographic areas:
Year ended September 30, 1996 1995 1994
(In thousands)
United States $14,977 $18,127 $13,782
Europe 2,848 3,945 1,229
Middle East 543 1,296 1,012
Africa 3,757 1,915 4,263
Asia/Pacific Basin 3,961 3,746 3,677
South America 6,585 166 1,298
Other 24 159 301
$32,695 $29,354 $25,562
Sales under U.S. Government prime contracts and
subcontracts accounted for 42%, 60%, and 52% of the
Company's total revenue in 1996, 1995, and 1994,
respectively, of which the U.S. Government prime
contracts accounted for 32%, 45%, and 22%, respectively.
Revenue from contracts with the United States
Information Agency (prime contracts and subcontracts)
represented 23%, 18% and 33% of the Company's total
revenue for 1996, 1995, and 1994, respectively.
Revenue from one commercial customer represented 19% of
the Company's total revenue for fiscal 1996.
7. Accrued Liabilities
Accrued liabilities consist of the following:
September 30, 1996 1995
(In thousands)
Accrued contract costs $1,455 $1,642
Compensation and employee
benefit plans 1,070 1,077
Accrued vacation 816 756
Other 378 389
$3,719 $3,864
8. Bank Credit Agreements
The Company has a bank credit agreement which expires on
January 1, 1998 that provides a fully secured credit
facility for the issuance of stand-by letters of credits
up to $7,000,000. This credit facility is secured by
the Company's cash or short-term investment portfolio.
At September 30, 1996, there were outstanding stand-by
letters of credit of approximately $4,400,000 held as
performance and payment bonds. The stand-by letters of
credit expire at various dates through 2000; however,
certain performance bonds are automatically renewable
until canceled by the beneficiary.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Employee Benefit Plans
The Company's operating subsidiaries make contributions
to their respective Employee Stock Ownership Plans
(ESOP) subject to the approval of the Board of
Directors. Accrued contributions were $200,000 for
fiscal 1996, $200,000 for fiscal 1995, and $100,000 for
fiscal 1994. As of September 30, 1996, the ESOP owns
603,404 of the Company's outstanding shares.
The Company has a 401(k) Plan (the Plan) covering all
employees of the Company. The Plan provides for
voluntary salary reduction contributions of up to 15% of
eligible participants' annual compensation. The Company
makes matching contributions of up to 2% of
participants' annual compensation. The Company's
accrued contributions to the Plan were $136,000 for
fiscal 1996, $126,000 for fiscal 1995, and $64,000 for
fiscal 1994.
Under the Company's Stock Option Plan, options may be
granted to employees at not less than fair market value
at the grant date. Most options vest ratably over an
eight year period and expire ten years after the date of
the grant. Activity in the Company's option plan is as
follows:
Shares Option Price
Options Outstanding at September 30, 1993
664,870 $2.25 - $11.14
Granted 10,000 4.125
Exercised (4,900) 3.375
Canceled (90,680) 3.375 - 11.14
Options Outstanding at September 30, 1994
579,290 2.25 - 11.00
Granted 303,000 4.25 - 8.75
Exercised (40,200) 3.375
Canceled (66,440) 3.375 - 11.00
Options Outstanding at September 30, 1995
775,650 2.25 - 9.50
Granted 181,000 6.75 - 6.88
Exercised (40,000) 3.375 - 4.25
Canceled (107,850) 3.375 - 9.50
Options Outstanding at September 30, 1996
808,800 $2.25 - $9.50
At September 30, 1996, options for 300,218 shares were
exercisable at prices ranging from $2.25 to $9.50 per
share and 159,735 shares were available for future
grant.
10. Commitments and Contingencies
The Company leases certain of its facilities and
equipment under operating leases which expire at various
dates through fiscal 2000 and require the following
minimum payments:
Year Ending September 30, Amounts
(in thousands)
1997 $ 581
1998 538
1999 448
2000 315
$1,882
Rental expense was $610,000, $601,000, and $568,000 in
fiscal 1996, 1995, and 1994, respectively.
On December 14, 1994, the California Regional Water
Quality Control Board for the San Francisco Bay Region
adopted an order naming the Company as a potentially
responsible party (PRP), along with several other
parties, for ground water contamination in the vicinity
of a property the Company formerly occupied as a tenant
in Mountain View, California. The Company contends that
it is not responsible for any such contamination. In a
related development in early fiscal 1995, the Regional
Water Board ordered the current owner of the property to
conduct a program of soil sampling to determine if the
site is currently a source of ground water
contamination. The results of this sampling program
were reviewed by and summarized in a letter from the
Regional Water Board dated October 11, 1995 in which it
concluded that the current levels of contamination do
not indicate the site is a source of ground water
contamination presently, and as a result, no further
investigative or remedial action is necessary. However,
in its correspondence the Regional Water Board refused
to rule out the possibility that the site was a source
of contamination in the past and as such it has left the
matter to be resolved through binding arbitration.
Being named as a PRP could result in the Company
becoming subject to a subsequent final order from the
Regional Water Board or a defendant in a civil lawsuit
in which others might seek to recover from the Company a
portion of the costs spent on investigating and cleaning
up the contamination. Because there is currently no
proposal to impose a final binding regulatory order on
the Company, it is not possible to predict either the
outcome of the current regulatory proceedings or to
estimate with any certainty whether the Company will
ultimately be judged to be liable for any portion of the
investigation and remediation costs associated with the
subject site. There have been no further developments on
this issue since October 1995.
During 1990, the Company received a notice from an
overseas customer stating that the Company had not
fulfilled certain requirements of a $6,000,000 contract.
No legal proceedings have been initiated on this claim.
The Company believes, based upon a review of the
customer's claim and consultation with legal counsel,
that the liability, if any, relating to this claim would
not have a material adverse effect on its results of
operations or its financial position.
The Company is from time to time involved in routine
litigation or threatened litigation arising from the
ordinary course of its business. Such matters, if
decided adversely to the Company, would not, in the
opinion of management, have a material adverse effect on
the financial condition of the Company.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Income Taxes
In fiscal year 1994 the Company adopted SFAS No. 109
"Accounting for income taxes" which requires an asset
and liability method of accounting for deferred income
taxes. The cumulative effect of the change was the
reversal of previously recorded deferred tax liabilities
resulting in an increase in net income of $1,511,000 or
$.45 per share.
The Company has net operating loss carryforwards for
federal income tax purposes of approximately $190,000
which expire through 2008.
The provision for federal income taxes for the years
ended September 30, 1996, 1995, and 1994, consist of the
following:
Years ended September 30, 1996 1995 1994
(In thousands)
Current:
Federal 396 86 140
State 48 9 4
444 95 144
Deferred:
Federal 0 0 0
State 0 0 0
0 0 0
Total $ 444 $ 95 $ 144
The effective tax rate differed from the statutory
federal income tax rate due to the following:
<TABLE>
<S> <C> <C> <C>
Year ended September 30, 1996 1995 1994
Statutory federal rate 35% 35% 35%
State taxes, net of federal benefit 6 6 6
Net operating loss not utilized 6 (36) (23)
Foreign sales corporation (19) 0 0
Alternative minimum tax 2 2 3
Other 0 0 (5)
Effective income tax rate 30% 7% 16%
</TABLE>
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards.
Significant components of the Company's net deferred
taxes are as follows:
Year ended September 30, 1996 1995
(In thousands)
Deferred tax assets:
Net operating loss carryforward 72 35
Long-term contracts 697 347
Accruals not currently
deductible 1,385 1,249
2,154 1,631
Deferred tax liabilities:
Differences in tax basis of property, plant
and equipment 115 140
115 140
Valuation allowance 2,039 1,491
Net deferred taxes 0 0
A valuation allowance has been recorded for the entire
deferred tax asset as a result of uncertainties
regarding the realization of the asset due to the lack
of consistent earnings history for the Company. The net
change in the total valuation allowance for the years
ended September 30, 1996 and September 30, 1995 was an
increase of $548,000 and a decrease of $743,000,
respectively.
Cash payments for income taxes were $934,000 in 1996,
$25,000 in 1995 and a net cash receipts from income tax
refund of $73,000 in 1994.
Pursuant to the requirements to 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.
TCI International, Inc.
Date: December 27, 1996 By: /s/ John W. Ballard, III
John W. Ballard, III
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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.
SIGNATURE TITLE DATE
/s/ John W. Ballard President and Director 12/27/96
(John W. Ballard) (Principal Executive Officer)
/s/ E.M.T. Jones Director 12/27/96
(E.M.T. Jones)
/s/ Hamilton W. Budge Director 12/27/96
(Hamilton W. Budge)
/s/ Asaph H. Hall Director 12/27/96
(Asaph H. Hall)
/s/ Alan C. Peyser Director 12/27/96
(Alan C. Peyser)
/s/ Donald C. Cox Director 12/27/96
(Donald C. Cox)
/s/ John W. Ballard, III Director 12/27/96
(John W. Ballard, III)
/s/ Slobodan Tkalcevic Director 12/27/96
(Slobodan Tkalcevic)
Ref: Form 10-K 1996
TCI INTERNATIONAL, INC.
EXHIBIT INDEX
Number Exhibit
22 List of Subsidiaries of TCI International, Inc.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
EXHIBIT 22
LIST OF SUBSIDIARIES OF TCI INTERNATIONAL, INC.
- Technology for Communications International, a California corporation
(TCI)
- BR Communications, a California corporation (BR)
- TCI Wireless, a California corporation (TCIW)
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
We consent to the incorporation by reference in the
registration statements (Nos. 33-73484, 33-26353, 33-
11339, 2-98005 and 2-80875) on Form S-8 of TCI
International, Inc. of our report dated November 8,
1996, relating to the consolidated balance sheet of TCI
International, Inc. and subsidiaries as of September 30,
1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the
year then ended, which report appears in the September
30, 1996 annual report on Form 10-K of TCI
International, Inc..
KPMG Peat Marwick LLP
December 27, 1996
Palo Alto, California
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in
Registration Statement (Nos. 33-73484, 33-26353,
33-11339, 2-98005 and 2-80875) of TCI International,
Inc. on Forms S-8 of our report dated November 22, 1995,
which includes an explanatory fourth paragraph
concerning a change in accounting for income taxes and
investments, appearing in this Annual Report on Form
10-K of TCI International, Inc. for the year ended
September 30, 1996.
Deloitte & Touche LLP
December 23, 1996
San Jose, California
<PAGE>
n
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K for the quarter ended September 30, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000357064
<NAME> TCI INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,249
<SECURITIES> 15,529
<RECEIVABLES> 6,637
<ALLOWANCES> 0
<INVENTORY> 5,179
<CURRENT-ASSETS> 35,424
<PP&E> 9,065
<DEPRECIATION> 7,499
<TOTAL-ASSETS> 39,192
<CURRENT-LIABILITIES> 13,178
<BONDS> 0
0
0
<COMMON> 11,780
<OTHER-SE> 26,014
<TOTAL-LIABILITY-AND-EQUITY> 39,192
<SALES> 32,695
<TOTAL-REVENUES> 32,695
<CGS> 21,856
<TOTAL-COSTS> 21,856
<OTHER-EXPENSES> 10,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,500
<INCOME-TAX> 444
<INCOME-CONTINUING> 1,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,056
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
EXHIBIT 10.17 for September 30, 1996 10-K
COLOMBIAN SPECTRUM MANAGEMANT AND CONTROL CONTRACT
CONTRACT No. 071
CONTRACTOR: Technology for Communications International
(TCI)
OBJECT: Procurement by the Communications Fund of an
Automatic Management and Control System of the
RadioElectric Spectrum, including its design, supply and
installation, training, maintenance and commissioning
(1)
AMOUNT: US$ Seventeen million, one hundred seventy-two
thousand, seven hundred eighty-four (US$ 17,172,784.00)
Between the undersigned, ARMANDO BENEDETTI JIMENO,
identified with Citizenship Card No. 17.125.181 of
Bogota in his capacity(2) as Minister of Communications,
and for the purposes of this contract as the legal
representative of THE COMMUNICATIONS FUND, a national
public agency registered to the MINISTRY OF
COMMUNICATIONS, created through Decree No. 1901 of
1990, regulated by Decree No. 313 of 1991, duly
empowered by Law 80 of 1993 (hereinafter THE FUND) as
one party, and as the other GEORG MORTEN KIER,
identified with Foreign Citizenship Card No.
66973, in his capacity as legal representative of
INSTRUMENTACION LIMITADA, a company with principal
domicile in Colombia, which acts as the representative
of Technology for Communications International (the
latter company which shall hereinafter be referred to as
THE CONTRACTOR) in Public Tender No. 004 of 1995 of THE
FUND, with the purpose of contracting the
procurement of an automatic system for the management
and control of the radioelectric spectrum (hereinafter
THE TENDER(3)) in the terms of the power of attorney
contained in Folios A-5 and A-6 of the file entitled
"SYSTEM FOR THE MANAGEMENT AND CONTROL OF THE SPECTRUM.
Section A, Presentation Letters, Legal Documents and
Table of Contents" of the proposal submitted by THE
CONTRACTOR for THE TENDER and in the other
relevant documents, and based on the following
considerations:
1) That through Resolution No. 00280 of April 21, 1995
amended by Resolution No. 00282 of May 10, 1995, the
Director of the FUND ordered the opening of the TENDER.
2) That the TENDER was opened on May 26 at 10:am and was
closed on September 15 of 1995 at 3:pm. 3) That on the
Fourth (4th) day of December of 1995, within the legal
term for award, the public hearing(4) for THE TENDER
award took place as set forth in Article 30 of Law 80,
1993, numeral 10, and during which the Tender and
Acquisitions Board of the Ministry of Communications
recorded in the corresponding Minutes, prior relevant
Legal, Technical and Economic reviews, a recommendation
to the Minister of Communications to award THE TENDER to
the CONTRACTOR, as was actually done through Resolution
No. 01126 of December 7th. of 1995 of the FUND; we have
decided to enter into this Contract (hereinafter THE
CONTRACT) which shall be governed by the
following clauses:
1st. CLAUSE - OBJECT: THE CONTRACT has the purpose of
procuring, by the FUND, of an Automatic System for the
Management and Control of the Radioelectric Spectrum
including the design, supply, installation, training,
maintenance and commissioning in accordance with that
provided for the Annex and the CONTRACTOR proposal.
2nd. CLAUSE - DURATION OF THE CONTRACT : The period(5)
of duration of this CONTRACT will be until the thirty
(30) of November 1997.
3rd CLAUSE - PERFORMANCE TIME(6): The execution of the
object of the CONTRACT is that of the schedule(7)
presented by the CONTRACTOR in his proposal.
4th. CLAUSE - VALUE OF CONTRACT: the value of THE
CONTRACT is the sum Seventeen million, one hundred
seventy-two thousand, seven hundred eighty-four United
States of America dollars (US$ 17,172,784.00), and which
includes VAT(8)
5th. CLAUSE - BUDGETARY APPROPRIATION. The value shall
be paid with charge to the budget of the FUND, and the
Finance Fund for Development Projects(9) as follows: a)
certificate of Budget Availability 708 for the value of
three thousand four hundred thirty-five million pesos
(COLP 3,435,000,000.00), program 0211, subprogram 0400,
project 002 resource 90, issued on 28th(10) December
1995 by the Finance Division of the Ministry of
Communications, fiscal validity 1995; b) certificate of
Budget Availability 709 for the value of two thousand
million pesos (COLP 2,000,000,000.00), program 0211,
subprogram 0400, project 002 resource 99, issued on
28th(11) December 1995 by the Finance Division of the
Ministry of Communications, fiscal validity
1995; c) certificate of Budget Availability 710 for the
value of five thousand fifty million eight hundred
thousand pesos (COLP 5,050,000,000.00), program 0211,
subprogram 0400, project 001 resource 90, issued on 28th
December 1995 by the Finance Division of the Ministry of
Communications, fiscal validity of 1995 d) certificate
of Budget Availability 720 for the value of three
hundred one million pesos (COLP 301,000,000.00), program
0211, subprogram 0400, project 002 resource 90, issued
on 28th December 1995 by the Finance Division of the
Ministry of Communications, fiscal validity 1995; e)
certificate of Budget Availability 538 for the value of
one thousand nine hundred ninety-three million two
hundred fifteen thousand one hundred forty pesos (COLP
1.993,215,140.00), purpose " Control management and
automation of the Radioelectric Spectrum",
agreement Fonade-Mincomunicaciones, issued 28 December
1995 by Budget of Finance Fund for Development Projects
FONADE with validity to 1995 and base on an Inter
administration Contract signed 28 December 1994; f)
Authorization for future validities
of the Estate(12) and Public Credit of 25 May 1995,
report No. 21-532, through the powers of the Executive
Secretariat of the Superior Board of Fiscal Policy-
CONFIS per resolution 003 of 24 September 1991, as
follows: for the value of three thousand two
hundred twenty four million one hundred sixty-nine
thousand pesos (COLP 3,224,169,000), program 0211,
subproject 0400, project 001, resource 90 and for the
value of three thousand one hundred thirty million five
hundred thirty-nine thousand pesos (COLP 3,130,539,000),
program 0211, subproject 0400, project 002, resource 90.
Paragraph: The budgetary register corresponding to the
foregoing a), b), c) and d) will be provided by the
Chief, Finance Division of the Ministry of
Communications.
6th. CLAUSE - FORM OF PAYMENT. The price stipulated in
the 4th Clause of THE CONTRACT shall be paid by the
FUND in the following manner: a) the FUND shall deliver
as advance payment the amount corresponding to fifty per
cent (50%) of the total amount set forth in the 4th.
Clause, and which corresponds to the supplies, once the
requirements for execution of THE CONTRACT are
fulfilled; b) Once the contractor accredits the
nationalization(13) of the equipments, the amount
corresponding to twenty percent (20%) of the total
amount set forth in the 4th. Clause, c) The amount
corresponding to the remaining thirty per cent (30%) of
the amount set forth in the 4th. Clause once THE FUND
receives the Act of Final Receipt(14) evidencing
that all the hardware and software are completely
installed and in perfect operating condition to complete
satisfaction of the FUND. The Act of Final Receipt shall
be prepared by the person or persons appointed by the
FUND according to the 25th Clause.
1st Paragraph: The disbursement of cash to which the
FUND is committed hereby, is subject to the budgetary
appropriation for such and the FUND is obliged to
include the necessary items in its annual expense
project.
2nd Paragraph - The transport, insurance and all other
expenses required to place the goods object of THE
CONTRACT at the sites of installation will be at
CONTRACTOR account.
3rd. Paragraph - For payments mentioned in b) and c)
CONTRACTOR must inform the fund with prior notice of not
less than 30 calendar days of the estimated dates when
the payments will be due in accordance with the schedule
proposed by the CONTRACTOR.
4th. Paragraph - Payment shall be made in Colombian
Pesos at the Representative Market Exchange Rate on the
date when each of the partial payments is caused as per
this Clause, and in accordance with the certification of
the Superintendent of Banks(15).
5th Paragraph: The Act of Final Receipt referred to in
this Clause will include the acceptance of the system
which will be made upon successful conclusion of the
final acceptance tests in accordance the test plan and
procedures which will be proposed by THE CONTRACTOR and
which must be approved by THE FUND(16), and by the
person or persons mentioned in the 25th Clause, before
7th. CLAUSE - INTEREST FOR DELAYS ON AMOUNTS NOT MADE ON
TIME - If the payments as per the 6th Clause have not
been made available to THE CONTRACTOR by THE FUND for
withdrawal at the Treasury Section of the Ministry of
Communications after fifteen (15) calendar days from
them becoming due, interest at bank delay rates(17) as
certified by the Superintendent of Banks will be
recognized for THE CONTRACTOR from the date the payments
were due and in the peso quantity of that date.
8th. CLAUSE - DELIVERY schedule: THE CONTRACTOR
undertakes to deliver the goods and services to THE FUND
in accordance with the schedule contained in the
proposal , the time counting from when the down payment
of the 6th. Clause is available for withdrawal at the
Treasury Section of the Ministry of Communications.
9th. CLAUSE - THE FUND is responsible to make the
necessary preparations, in accordance with the report
and with the recommendations of THE CONTRACTOR, of the
buildings and areas selected for the operation of the
technical verification stations and in a manner which
will not cause delays in the development of the schedule
for the object of THE CONTRACT. Any work which will
relate to the installation of the equipment, such as
installing towers for antennas, cable ducts, false
floors etc.(18), will be the responsibility of THE
CONTRACTOR.
10th CLAUSE - FACTORY WARRANTY(19) - In case of damage
or failures, THE CONTRACTOR undertakes to repair or
replace all faulty parts(20) during the first year of
operation of the contracted system, starting from the
date of presenting to THE FUND the Act of Final Receipt
as per the 6th Clause, and during which the necessary
support will be equally given to software. As from the
second year, the corrective and/or preventive
maintenance may be provided by the contractor under
another contract at the request of the fund.
1st Paragraph : This warranty does not apply: a) To any
element which has been repaired, worked upon,
disassembled or altered by individuals not authorized by
THE CONTRACTOR; b) To any element which has been subject
to misuse, negligence or accident not imputable to the
Contractor; c) To any element which has not been
connected, installed, used or adjusted pursuant to
instructions given by the Contractor or where such
procedures were not issued by the Contractor; d) to any
element which has had its serial number altered, effaced
or removed; e) failures of an element resulting from the
additions to the system as made by THE FUND after the
Act of Final Receipt mentioned in the 6th Clause of THE
CONTRACT.
2nd. Paragraph. - Claims on elements under this
guarantee must be attended to by THE CONTRACTOR in the
terms expressed in his proposal.
11th. CLAUSE - SUBSTITUTION. - The Contractor may
substitute the elements and equipment to be delivered in
the development of the object of THE CONTRACT and listed
in Annex 1 with prior written approval certified by the
person(21) or persons referred to in the 25th Clause, as
long as the Specifications are maintained or improved
and as long as the substitution does not imply a
modification in prices. The person or persons referred
to in the 25th Clause may not deny authorization except
for technical reasons duly justified.
12th CLAUSE - SOFTWARE LICENSE CONDITIONS. - THE
CONTRACTOR grants THE FUND a license to use the software
which must be delivered to THE FUND during the
development of the object of THE CONTRACT for all the
equipment to be supplied during the development of the
object of THE CONTRACT and under the conditions
contained in his proposal.
Paragraph - THE CONTRACTOR will provide the necessary
back-up software on magnetic media in order to restore
the system in case of failure and at all installations
where it operates.
13th CLAUSE - FORCE MAJEUR OR FORTUITOUS CASES. - The
obligations resulting from THE CONTRACT will be
suspended during the time when any of the parties are
unable to fulfill all or part of them due to force
majeur or fortuitous cases. When such a situation
arises, the schedules of the 2nd and 3rd Clauses of
THE CONTRACT may be suspended, through mutual agreement
by the signing of an act, for a period equal to the
event which gave rise to the force majeur or fortuitous
case as well as the time necessary to allow the
execution of the object of THE CONTRACT to return to
normal, but without calculating a suspension time
for the schedules of the 2nd and 3rd Clause of THE
CONTRACT.
1st. Paragraph: Force Majeur or fortuitous cases are
understood to be such situations considered and defined
in article 64 of the Civil Code modified by Article 1 of
Law 95 of 1980.
2nd Paragraph: The party which invokes Force Majeur or
a fortuitous case must inform the other: a) the events
of cause within five (5) working days of happening, b)
the estimated time of suspension of activities within
thirty (30) working days from the same time, c) the
estimated impact on the schedules of the 2nd. and 3rd.
Clause of THE CONTRACT also within thirty (30) working
days from the same.
3rd. Paragraph: The party which invokes Force Majeur or
a fortuitous case must make all efforts to reduce the
effects on the schedules of the 2nd. and 3rd. Clauses of
THE CONTRACT and to continue as soon as possible
compliance with the obligations derived from THE
CONTRACT.
14th. CLAUSE - GUARANTEES WHICH THE CONTRACTOR MUST
ESTABLISH - THE CONTRACTOR commits to establish in favor
of THE FUND a guarantee in the form of a policy issued
by an insurance company legally authorized to operate in
Colombia and whose master policy is approved by the
Superintendent of Banks, or through a Bank guarantee,
and which must cover the following risks: a) In order to
ensure fulfillment of each and every obligation
established in THE CONTRACT, equivalent to ten per cent
(10%) of the amount set forth in the 4th Clause, and
valid throughout THE CONTRACT period starting from the
date of signing(22) of the same, b) To guarantee the
quality and correct functioning of the system object of
THE CONTRACT, and valid for a period of two (2)
years counted from the date of presenting the Act of
Final Receipt as per the 6th. Clause to THE FUND, and of
the amounts: for the first year the amount of fifty
percent (50%) and for the second year the amount of five
percent (5%) of the total value of THE CONTRACT. This
guarantee will be drawn upon only by prior requirement
of THE FUND and in the case that there is persistent
failure to perform(23). The quality and correct
functioning of the system is understood to mean an
adequate concept to meet the purposes for which the
system was contracted, c) To guarantee the salaries and
social benefits of personnel which THE CONTRACTOR could
employ in the country(24) for the execution of
the object of THE CONTRACT for the value one hundred
thousand US dollars (US$100,000.00) and valid throughout
the period of performance of THE CONTRACT and three (3)
more years counted from the time of receipt by THE FUND
of the Act of Final Receipt per the 6th. Clause of THE
CONTRACT, and d) To support(25) the proper management of
the advance payment, in an amount equivalent to one
hundred per cent (100%) thereof, valid for the period of
THE CONTRACT.
15th clause: establishment and Extension of thE
Guarantee: If the contractor refuses to establish or
extend the guarantee when the FUND so demands, the
contract will be considered as terminated at its current
state without the FUND having to acknowledge or pay any
indemnization.
16th CLAUSE - ASSIGNMENT(26): The rights and obligations
deriving hereof may not be assigned by the Contractor without prior written
consent from THE FUND.
17th CLAUSE - EFFECTS OF EXPIRATION(27).- THE FUND may
declar the present CONTRACT expired by a motivated
administrative act, without prior requirement or
indemnification whatsoever favorable to the CONTRACTOR,
and may order the application of any previously decreed
fines and the amount of the Monetary Penalty Clause,
when THE FUND considers the default on the part
of the CONTRACTOR as causing consequences which
seriously and directly effect the performance of THE
CONTRACT and may lead to its paralyzation or cause
damages to THE FUND or the Ministry of Communications,
pursuant to Article 18 of Law 80, 1993.
18th CLAUSE - INTERPRETATION, AMENDMENT AND UNILATERAL
TERMINATIONS: are deemed incorporated in this contract
in accordance with that established in Articles 15-17 of
Law 80, 1993.
19th CLAUSE: - FINES(28).- In the event of delay or
noncompliance with any of the obligations the CONTRACTOR
assumed under THE CONTRACT, the FUND shall impose
successive fines of up to 0.25% per day and up to a
total amount equivalent to ten per cent (10%)of the
value of THE CONTRACT. Imposition of fines will
be carried out through a motivated Resolution and will
be subject to norms set forth in Law 80 of 1993 as
regarding notices and recourse. The imposition of fines
shall be made without prejudice to the declaration of
administrative expiration which shall be at the FUND's
discretion.
Paragraph - The amount of the fines will be proportional
to the causes prompting the fines or the damages caused.
20th CLAUSE - MONETARY PENALTY(29) CLAUSE: In the event
of grave noncompliance with any of the obligations
resulting from THE CONTRACT or in the event of
administrative declaration of expiration, THE FUND may
apply as penalty an amount equivalent to ten per cent
(10%) of the total amount of THE CONTRACT, an amount
which shall enter the Treasury of the contracting
institution and may be taken directly from the balance,
if any, of credit to THE CONTRACTOR or from the
guarantee established and if such is not possible, it
will be collected through coercive jurisdiction.
21st. CLAUSE - DISQUALIFICATIONS(30) AND
INCOMPATIBILITIES: THE CONTRACTOR states under oath that
he is not affected by disqualifications and
incompatibilities set forth in Article Eight (8) of Law
80, 1993 and that is subject to regulations set
forth in Article Nine (9) of the same Law if a situation
occurs as described in the Article of reference.
22nd. CLAUSE - CONTRACT LAW: THE CONTRACT will be
governed by Colombian Laws and the jurisdiction of
Colombian Tribunals.
1st Paragraph: Controversies which may arise during the
performance of THE CONTRACT and in its execution,
development, termination or liquidation will be
presented to an arbitration tribunal seated in Santafe
de Bogota in accordance with the rules of Colombian
arbitration procedures; said tribunal will
comprise three arbitrators as follows - one by each of
the parties and one more named jointly.
2nd. Paragraph - If the parties do not manage to agree
on naming the 3rd. arbiter, he will be named by the
other two already named.
3rd. Paragraph - The expenses of the arbitration
procedures will be divided in equal parts between the
parties(31).
23rd CLAUSE - OF CONTRACTUAL EQUILIBRIUM. THE CONTRACT
will maintain the equality and equivalence between
rights and obligations which arise from proposing or
contracting, as the case may be. If such equality or
equivalence is broken through causes not imputable to
the effected party, the parties will take the necessary
measures to reestablish them as soon as
possible and in such case the parties will sign the
necessary agreements and pacts regarding amounts,
conditions and forms of payment for additional costs,
recognize financial costs and interest if applicable,
adjusting the availability of appropriations referred to
in number 14 of Article 25 of Law 80 of 1993. THE FUND
must take measures necessary to assure such payments and
their availability to THE CONTRACTOR in the same or
next period as may be the case.
24th. CLAUSE - TAXES AND FEES - THE CONTRACTOR will pay
all taxes, assessments, rights etc. without exception,
which arise from the execution of the object of THE
CONTRACT at his account.
25th CLAUSE - SUPERVISION OF THE EXECUTION OF THE OBJECT
OF THE CONTRACT. - THE FUND will designate one or more
persons to be in charge of supervising the correct
execution of the object of THE CONTRACT and such will be
informed to THE CONTRACTOR. The costs of said
supervision are at the account of THE FUND.
26th. CLAUSE - FORMALIZATION(32) OF THE AGREEMENT: This
Agreement shall be deemed formalized upon its signature
by the contracting parties; for its performance(33), the
CONTRACTOR is required to establish the guarantee as set
forth in the 14th Clause herein and such must have been
approved by the Legal office of the Ministry of
Communications.
Paragraph: This Contract must be published in the
Consolidated Contracts Daily(34) at the cost of the
CONTRACTOR and this requirement shall be deemed
fulfilled upon presenting the receipt for payment of the
corresponding fees, within an unextendable term of ten
(10) days from the signature of the same. The stamp tax
will be deducted by the FUND from the downpayment
mentioned in the 6th Clause of THE CONTRACT.
27th CLAUSE - LEGAL RELATIONSHIP BETWEEN THE PARTIES: No
consortium, temporary union, partnership, de facto
partnership, agency or any other legal concept which may
result in a new corporation, are established nor intend
to be established by the parties. Each of the parties is
independent with its own organization and employees and
therefore will assume responsibility for them, for the
subcontractors which they may contract or any other
person with which they may become related within the
framework of THE CONTRACT, and shall maintain the
other party free from any claim of such individuals or
entities.
28th CLAUSE - TRAINING - The Contractor will train,
during the time specified in the Schedule of the
proposal, the group designated by THE FUND. THE FUND
shall inform in writing giving the names of the
participants of each course not less than thirty (30)
calendar days before the beginning of each training
course.
1st Paragraph - The dates of the courses may be modified
by mutual consent of the parties. The event that the
dates will not be met, the parties must establish a new
date which must not be later than thirty (30) working
days from the initial one.
2nd Paragraph: - THE FUND will designate the person or
persons charged with issuing the certification of
completion, within five (5) working days on concluding
the corresponding course.
3rd Paragraph: - THE CONTRACTOR will assume the costs of
travel, lodging and maintenance in accordance with THE
FUND currently applicable norms.
29th CLAUSE - CONTRACT DOCUMENTS: The following
documents are integral parts of the present contract, in
the following order: The text of this contract and its
Annex (containing 12 pages printed on one side), the
Requirements Document, those of the process of selection
and the proposal presented by the contractor.
30th. CLAUSE: - NOTICES. All communications between the
parties relating to THE CONTRACT must be in writing and
in the Spanish language. The communications which must
be exchanged will be made to the following addresses:
TO THE FUND:
MINISTERIO DE COMUNICACIONES
SECRETARIA GENERAL
CARRERA 8 ENTRE CALLES 12A Y 13, PISO 4
EDIFICIO MURILLO TORO
TELEPHONE: 2824890 AND 2824654
2866911 EXT, 214/372
FAX 2882250
SANTAFE DE BOGOTA
THE CONTRACTOR:
TECHNOLOGY FOR COMMUNICATIONS INTERNATIONAL
INSTRUMENTACION LIMITADA
CALLE 115 #11A 10
TELEPHONE 6121313
FAX 6120805
SANTAFE DE BOGOTA
as approved and signed in Santa Fe de Bogota D.C. 28
December 1995
for THE COMMUNICATIONS FUND FOR THE CONTRACTOR ARMANDO
BENEDETTI JIMENO GEORG MORTEN KIER
FOOTNOTES
(1) Sp. " puesta en servicio" - placed in service -
translated as "commissioning" throughout.
(2) Sp. "condicion"
(3) Sp. "Licitacion"
(4) Sp. "audiencia publica"
(5) Sp. "termino" -
(6) Sp. "Plazo de Ejecucion" - execution time
(7) SP. "cronograma"
(8) Sp. "IVA" - Impuesto de Valor Agregado - Value
Added Tax
(9) Sp. "Fondo Financiero de Proyectos de
Desarrollo" - FONADE
(10) - note! -
(11) - note! -
(12) Sp "Hacienda"
(13) Sp. "nacionalizacion" - meaning having imported
into Colombia.
(14) Sp. "Acta de Recibo Final" - really the Final
Acceptance Certificate.
(15) Sp. "Superintendencia Bancaria"
(16) meaning that the Act must be signed by at
least the Secretary General and whoever is
designated as Inspector.
(17) Sp. "tasa de interes moratorio bancario"
(18) Note: 1) mention of "civil works" deleted; 2)
text taken from Requirements Document...
(19) Sp. "GARANTIA DE FABRICA"
(20) Sp. " elementos fisicos"
(21) note: difference with footnote 15.
(22) Sp. "perfeccionamento" - formalizing,
completing the formalities.
(23) Sp. "incumplimient"
(24) meaning Colombia..
(25) Sp. "amparar" - support, guarantee
(26) Sp. "cesion"
(27) Sp. "Caducidad" - Caducity - can't find the
correct legal term.....
(28) Sp. "multas"
(29) Sp. "Penal Pecuniaria"
(30) Sp. "inhabilidades"
(31) ....Solomonical....
(32) SP. "Perfeccionamiento"
(33) Sp. "execucion" - execution
(34) Sp. "Diario Unico de Contratacion"
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