WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 of other jurisdiction of incorporation or
organization)
94-3026925
(I.R.S. Employer Identification Number)
222 Caspian Drive, Sunnyvale, California 94089-1014
(Address of principal executive offices) (Zip Code)
(408)747-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. Yes X No ___
As of March 31, 1997, 3,198,832 shares of Common Stock
were outstanding.
TCI INTERNATIONAL, INC.
PART I FINANCIAL INFORMATION
Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements
included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company
believes the information included herein, when read in
conjunction with the financial statements and related
notes included in the Company's Annual Report on
Form 10-K for the year ended September 30, 1996, filed
with the Securities and Exchange Commission, to be not
misleading. Further, the following financial statements
reflect, in the opinion of management, all adjustments
necessary (consisting of normal recurring entries) to
present fairly the financial position and results of
operations as of and for the periods indicated.
The results of operations for the six months ended
March 31, 1997, are not necessarily indicative of results
to be expected for the entire year ending
September 30, 1997.
TCI INTERNATIONAL, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenue $ 9,472 $ 7,809 $20,140 $13,736
Operating costs and expenses:
Cost of revenue 6,635 5,210 13,700 8,447
Marketing, general and administrative 2,969 2,559 6,455 5,116
9,604 7,769 20,155 13,563
Income (loss) from operations (132) 40 (15) 173
Investment income, net 255 343 692 681
Income before provision
for income taxes 123 383 677 854
Provision for income taxes 39 23 217 160
Net income $ 84 $ 360 $ 460 $ 694
Net income, per share $ .02 $ .11 $ .14 $ .21
Shares used in per share
computations 3,371 3,366 3,369 3,379
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
TCI INTERNATIONAL, INC.
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
March 31, September 30,
1997 1996
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 7,493 $ 7,249
(Includes restricted cash of $3,260 on March 31, 1997
$1,896 on Sept 30, 1996)
Short-term investments 14,814 15,529
Accounts receivable -
Billed 2,338 1,922
Unbilled 5,161 4,715
Inventories 5,711 5,179
Prepaid expenses 648 830
Total current assets 36,165 35,424
Property and equipment, net 1,495 1,566
Long-term investments 0 1,788
Other assets 420 414
Total assets $38,080 $39,192
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,569 $ 6,123
Customer deposits and billings on
uncompleted contracts in excess of
revenue recognized 1,690 3,336
Accrued liabilities 4,264 3,719
Total current liabilities 11,523 13,178
Stockholders' equity:
Common stock, par value $.01;
authorized 5,000 shares;
issued and outstanding
3,281 shares 11,780 11,780
Retained earnings 15,170 14,723
Valuation allowance-short-term
investments (24) (34)
Treasury shares at cost; 83 and
102 shares at Mar. 31, 1997 and
Sept 30, 1996, respectively (369) (455)
Total stockholders' equity 26,557 26,014
Total liabilities and
stockholders' equity $38,080 $39,192
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
TCI INTERNATIONAL, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31,
(In thousands)
1997 1996
<S> <C> <C>
Cash provided by (used in):
Operations:
Net income $ 460 $ 694
Reconciliation to cash provided by
operations:
Depreciation 304 274
Changes in assets and liabilities:
Accounts receivable (862) (929)
Inventories (532) (575)
Prepaid expenses 176 (568)
Accounts payable (554) 1,130
Customer deposits/billing in
excess of revenue (1,646) 6,028
Accrued liabilities 545 (899)
Cash provided by (used in) operations (2,109) 5,155
Investing activities:
Purchases of property and equipment (228) (232)
Purchases of short-term investments (5,777) (13,621)
Proceeds from sale of investments 8,290 9,159
Cash provided by (used in) investing
activities 2,285 (4,694)
Financing activities:
Stock options exercised 68 78
Cash provided by financing activities 68 78
Net increase in cash and cash equivalents 244 539
Cash and cash equivalents at
beginning of period 7,249 3,598
Cash and cash equivalents at
end of period $ 7,493 $ 4,137
See accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
TCI INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Note 1
Inventories consist of the following (in thousands):
March 31, September 30,
1997 1996
<S> <C> <C>
Material and component parts $4,136 $3,726
Work in process 1,575 1,453
$5,711 $5,179
</TABLE>
Note 2
At March 31, 1997 there were outstanding standby letters
of credit of approximately $3,513,000 serving as
performance and payment bonds. The standby letters of
credit expire at various dates through 2000; however,
certain performance bonds are automatically renewable
until canceled by the beneficiary. These outstanding
standby letters of credit are fully secured by the
Company's cash or short term investment portfolio.
Note 3
The Financial Accounting Standard Board recently issued
Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." SFAS No. 128 requires the
presentation of basic earnings per share ("EPS") and, for
companies with complex capital structures or potentially
dilutive securities, such as convertible debt, options
and warrants, diluted EPS. SFAS No. 128 is effective for
annual and interim periods ending after December 31,
1997. The Company expects that basic EPS will be higher
than net income per share as presented in the
accompanying consolidated financial statements and that
diluted EPS will not differ materially from net income
per share as presented in the accompanying consolidated
financial statements.
TCI INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second Fiscal Quarter of 1997
Compared to Second Fiscal Quarter of 1996
Except for historical information contain herein, the
matters discussed in this report contain forward-looking
statements that involve risks and uncertainties which
could cause future results to differ materially.
Revenue for the second quarter of fiscal year 1997 were
$9,472,000, reflecting an increase of approximately 21%
over revenue of $7,809,000 for the same period a year
ago. The increase in revenue is due to the timing of
completion of a number of long term contracts. Because
of the project-oriented nature of the business, the
Company believes it will continue to experience
significant variations in revenue. This may result in a
decline in revenue during the second half of fiscal year
1997 compared to the first half of fiscal year 1997. The
Company's ability to generate consistent or growing
revenue remains contingent upon its ability to secure
adequate levels of new business.
Although revenue increased 21%, gross profit expressed as
a percentage of revenue for the six month period
decreased from 39% to 32% when compared to the same
period a year ago. This trend is in part attributable to
the timing of execution of two inherently lower margin
contracts in the Company's spectrum management system
product line. Because fewer orders are being received
and filled in other, more traditionally profitable areas
of its business, the Company expects that gross profit
expressed as a percentage of revenue will not improve
during the remaining two quarters of the fiscal year. An
improvement in gross margins are not likely to occur
until such time as the Company successfully secures a
more profitable mix of new business opportunities.
In this regard, the Company has recently committed to
make certain internal expenditures designed to increase
its proprietary content in its growing spectrum
management system product line. These expenditures will
consist of expensed research and development efforts over
a period of at least the next four quarters which the
Company expects will reduce the future cost of goods
sold, thereby improving its prospect of winning new
business. If successful, the Company will substantially
reduce its reliance upon the supply of expensive
equipment and software by certain higher cost, key
subcontractors. It is expected that the combined effect
of these increased expenditures and the potential for
reduced revenue will result in a corresponding period of
reduced profitability. Because of the increase in the
number of significant- sized project opportunities in
this market it is also possible that the Company's
efforts to secure new business will be realized earlier
than currently anticipated.
Marketing, general and administrative expenses increased
by 26% from $5,116,000 in the first half of fiscal year
1996 to $6,455,000 in fiscal year 1997. This increase
is a result of the Company's continuous investment in
independent research and development, increased overall
marketing efforts and increased administrative activity
in the execution of its current contracts. As a
percentage of revenue, marketing, general and
administrative expenses decreased from 37% to 32%.
Net income for the second quarter was $84,000 or $.02 per
share, compared to $360,000 or $0.11 per share, for the
same period in fiscal year 1996. Net income as a
percentage of revenue decreased from 4.6% to .9%, due
primarily to the decrease in profit margins.
The Company's total backlog at March 31, 1997 was $21
million compared to $35 million at September 30, 1996.
The total funded portion of the Company's backlog at
March 31, 1997 was $19 million compared to $30 million at
September 30, 1996. The Company's funded backlog
excludes unfunded and unexercised options.
The results of operations for the first six months in
fiscal year 1997 are not necessarily indicative of future
quarterly or annual performance expectations.
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 of 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.
TCI INTERNATIONAL, INC.
LIQUIDITY AND CAPITAL RESOURCES
March 31, 1997 Compared to September 30, 1996
Consolidated cash, cash equivalents and marketable
securities totaled $22,307,000 at March 31, 1997,
compared to $24,566,000 at September 30, 1996. The
Company currently believes that its cash, cash
equivalents and short-term investments, together with
expected revenue from operations, will be sufficient to
fund its operations through fiscal year 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.
At March 31, 1997, the Company has standby letters of
credit outstanding of approximately $3,513,000. The
standby letters of credit are collateralized by the
Company's cash or short-term investments.
TCI INTERNATIONAL, INC.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders:
The following matters were acted upon at the Annual
Meeting of Stockholders of TCI International, Inc. on
February 11, 1997.
a. Management's nominees for directors, as set
forth in the TCI International, Inc. proxy
statement dated January 15, 1997 and filed with
the Commission, were all elected. Votes for the
directors were as follows:
Asaph H. Hall For 1,987,388
Against 45,864
E. M. T. Jones For 2,012,388
Against 20,864
Slobodan Tkalcevic For 2,012,388
Against 20,864
John W. Ballard, III For 2,012,387
Against 20,865
Directors whose term of office as a director
continued after the meeting were
John W. Ballard, Hamilton W. Budge,
Donald C. Cox and C. Alan Peyser.
b. A proposal to ratify the selection of KPMG Peat
Marwick LLP as independent public accountants
for the fiscal year ending September 30, 1997
was approved. 2,025,217 votes were cast in
favor, 3,750 votes were cast against, and 4,285
abstained.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None
b. Reports on Form 8-K: None
No other applicable items.
SIGNATURES
Pursuant to the requirements of the Securities and
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.
(Registrant)
/s/ John W. Ballard III
_________________________________
John W. Ballard III
Vice President, Chief Financial Officer
(Duly authorized officer of the registrant and
principal financial officer of the registrant)
May 14, 1997
___________________________
Date
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form 10Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 7,493
<SECURITIES> 14,814
<RECEIVABLES> 7,499
<ALLOWANCES> 0
<INVENTORY> 0
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<PP&E> 9,150
<DEPRECIATION> 7,655
<TOTAL-ASSETS> 38,080
<CURRENT-LIABILITIES> 11,523
<BONDS> 0
0
0
<COMMON> 11,780
<OTHER-SE> 14,777
<TOTAL-LIABILITY-AND-EQUITY> 38,080
<SALES> 20,140
<TOTAL-REVENUES> 20,140
<CGS> 13,700
<TOTAL-COSTS> 13,700
<OTHER-EXPENSES> 6,455
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 677
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</TABLE>
