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 June 30, 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 94-3026925
(State of other jurisdiction of (I.R.S. Employer
incorporationororganization) 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 June 30, 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 nine months ended June 30,
1997, are not necessarily indicative of results to be
expected for the entire year ending September 30, 1997.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
(In thousands, except per share amounts)
<TABLE>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenue $ 5,822 $ 8,559 $25,962 $22,295
Operating costs and expenses:
Cost of revenue 8,757 5,623 22,457 14,070
Marketing, general and
administrative 2,671 2,932 9,126 8,049
11,428 8,555 31,583 22,119
Income (loss) from operations (5,606) 4 (5,621) 176
Investment income, net 296 461 988 1,142
Income (loss) before provision
for income taxes (5,310) 465 (4,633) 1,318
Provision for income taxes (173) 180 44 339
Net income (loss) $ (5,137) $ 285 $ (4,677) $ 979
Net income(loss), per share $ (1.61) $ .08 $ (1.47) $ .29
Shares used in per share
computations 3,199 3,363 3,191 3,373
See accompanying Notes to Condensed Consolidated Financial
Statements.
</TABLE>
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
<TABLE>
June 30, September 30,
1997 1996
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,923 $ 7,249
(Includes restricted cash of $4,760 on June 30, 1997
$1,896 on Sept 30, 1996)
Short-term investments 11,492 15,529
Accounts receivable -
Billed 2,296 1,922
Unbilled 5,673 4,715
Inventories 2,851 5,179
Prepaid expenses 561 830
Total current assets 28,796 35,424
Property and equipment, net 1,671 1,566
Long-term investments 0 1,788
Other assets 421 414
Total assets $30,888 $39,192
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,757 $ 6,123
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized 1,482 3,336
Accrued liabilities 4,215 3,719
Total current liabilities 9,454 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 10,033 14,723
Valuation allowance-short -term investments (10) (34)
Treasury shares at cost; 83 and 102 shares at
Jun. 30, 1997 and Sept 30, 1996, respectively (369) (455)
Total stockholders' equity 21,434 26,014
Total liabilities and stockholders' equity $30,888 $39,192
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Nine Months Ended June 30,
(In thousands)
1997 1996
<S> <C> <C>
Cash provided by (used in):
Operations:
Net income (loss) $ (4,677) $ 979
Reconciliation to cash provided by operations:
Depreciation 524 402
Changes in assets and liabilities:
Accounts receivable (1,332) 211
Inventories 2,328 (1,326)
Prepaid expenses 262 (581)
Accounts payable (2,366) 3,481
Customer deposits/billing in excess of revenue (1,854) 5,716
Accrued liabilities 496 (763)
Cash provided by (used in) operations (6,619) 8,119
Investing activities:
Purchases of property and equipment (624) (412)
Purchases of short-term investments (5,900) (20,758)
Proceeds from sale of investments 11,749 14,926
Cash provided by (used in) investing activities 5,225 (6,244)
Financing activities:
Stock options exercised 68 144
Cash provided by financing activities 68 144
Net increase (decrease) in cash and cash equivalents (1,326) 2,019
Cash and cash equivalents at beginning of period 7,249 3,598
Cash and cash equivalents at end of period $ 5,923 $ 5,617
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):
June 30, September 30,
1997 1996
<S> <C> <C>
Material and component parts $2,205 $3,726
Work in process 646 1,453
$2,851 $5,179
</TABLE>
Note 2
At June 30, 1997 there were outstanding standby letters of
credit of approximately $6,170,000 serving as bid,
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
In February 1997, the Financial Accounting Standard Board
(FASB) issued Statement of Financial Accounting Standards
(SFAS) 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.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." This Statement establishes standards
for reporting and displaying comprehensive income and its
components in the consolidated financial statements. It does
not, however, require a specific format for the statement,
but requires the Company to display an amount representing
total comprehensive income for the period in that financial
statement. The Company is in the process of determining its
preferred format. This statement is effective for fiscal
years beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The
Statement establishes standards for the way public business
enterprises are to report information about operating
segments in annual financial statements and requires those
enterprises to report selected information about operating
segments in interim financial reports issued to shareholders.
This Statement is effective for financial statements for
period beginning after December 31, 1997. The Company does
not believe it has any separately reportable business
segments.
TCI INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third Fiscal Quarter of 1997
Compared to Third 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 third quarter of fiscal year 1997 was
$5,822,000, reflecting a decrease of approximately 32%
compared to revenue of $8,559,000 from the same period a year
ago. While the level of business activity within the Company
remains high, revenue was substantially below that of recent
quarters because of unfavorable percentage of completion
budget adjustments made to some long term contracts in the
Company's broadcast antenna and spectrum management product
lines. These increases in the completion budgets have the
effect of reducing gross margins and the rate at which
revenue is recognized on these specific contracts. The
budget adjustments to the spectrum management contracts were
made necessary by uncompensated delays in completing contract
obligations caused in part by changes made in the selection
of sites for the installation of Company supplied equipment.
These changes along with a corresponding extension in the
period of contract performance were formalized in a contract
modification signed by the customer and the Company in July
1997. The most significant adjustments made to the broadcast
antenna project budgets resulted from increases in
construction costs on a project to be installed in Germany
which were not foreseen in fiscal year 1995 when the contract
was originally bid. The Company only received contractual
authority to proceed in fiscal year 1997. This contract is
considered a loss contract, or one where the contract value
is not expected to cover the costs to be incurred, and as
such, the entire loss has been fully reserved for in the
consolidated financial statements.
Due to the project-oriented nature of the business, the
Company believes it will continue to experience quarter-to-
quarter variations in revenue. The Company's ability to
generate consistent and growing revenue levels remains
contingent upon its ability to secure adequate levels of new
business and its ability to successfully manage the
uncertainties inherent in conducting business overseas with
foreign construction components.
During the three month period ended June 30, 1997, the cost
of revenue exceeded the revenue recognized. Included in the
cost of revenue is a non cash adjustment made to the
Company's net inventory balance of approximately $2,500,000.
The majority of this inventory adjustment was made necessary
by the recognition that customer demand for the existing BR
Communications product line appears weaker than previously
expected. A significant portion of the existing product line
was originally designed for military and highly specialized
communication purposes. With increasing frequency, such
communication requirements are being satisfied by the use of
various commercial communications mediums which provide
faster, more robust means of communicating, including secure
satellite and other wireless communication technologies.
During the most recent quarter, the Company experienced a
suspension in the receipt of at least three contract
opportunities in this product area. Consequently, for the
first time since the acquisition of BR Communications in
1987, its backlog comprises an insignificant percentage of
the Company's total backlog. While there remain a limited
number of order opportunities, the future prospects for the
sale of existing product items in significant quantities is
considered unlikely. However, the Company expects to
continue to fill orders for existing products as they are
received and to support the products it has sold by making
the sale of spare parts available on an as required basis.
However, the Company does not expect to carry substantial
inventories for these purposes in the future.
For the reasons mentioned above, gross profit expressed as a
percentage of revenue for the nine month period decreased
from 37% to 14% compared to the same period a year ago.
After eliminating the inventory adjustment from the cost of
revenue, gross profit was (7)% of revenue for the quarter and
23% for the previous nine month period. Because fewer
orders are being received and filled in the more profitable
areas of its business, the Company expects that gross profit
expressed as a percentage of revenue will not improve to
levels better than 25% during the remainder 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 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 three quarters which the Company expects will reduce
the future cost of goods sold, thereby improving its
competitive market position. 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 reduced gross margins
available from the Company's core businesses will result in a
corresponding period of reduced profitability.
Since announcing its decision to invest in Spectrum
Management System product development during the quarter
ended March 31, 1997, the Company has submitted more than 10
separate bids and proposals for competitive international
procurements valued in the aggregate in excess of
$125,000,000. While the bid evaluation processes vary
widely, from available public information the Company has
determined that it remains in a competitive position on
approximately half of these bid opportunities. To date, two
awards have been made to alternate suppliers. The
competitive nature of these procurements and the lengthy
evaluation process are such that no assurances can be given
that the Company will win any of these opportunities or that
these awards will be made to any supplier in the near future.
While operating costs and expenses declined 9% during the
three month period ended June 30, 1997 compared to the same
period one year ago, these same expenses increased by 13%
from $8,049,000 in the first nine months of fiscal year 1996
to $9,126,000 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 36% to 35%
during the respective nine month periods.
Net loss for the second quarter was $(5,137,000) or $(1.61)
per share, compared to net income of $285,000 or $0.08 per
share, for the same period in fiscal year 1996. The Company
continues to place a significant emphasis on maintaining a
strong balance sheet. During the period ended June 30, 1997,
the Company maintained a cash balance of $17,415,000 and no debt.
The Company's total backlog at June 30, 1997 was $28 million
compared to $35 million at September 30, 1996. The total
funded portion of the Company's backlog at June 30, 1997 was
$20 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 nine 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. While the Company records revenue on a
percentage of completion basis, unexpected changes in project
budgets during the course of execution can cause revenue and
accompanying gross margins to vary from quarter to quarter.
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 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, HDTV 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 accustomed 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
June 30, 1997 Compared to September 30, 1996
Consolidated cash, cash equivalents and marketable securities
totaled $17,415,000 at June 30, 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 1998.
The Company intends to utilize its cash balance to fund its
operations and its growing spectrum management product line.
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 currency 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 June 30, 1997, the Company has standby letters of credit
outstanding of approximately $6,170,000 serving as bid,
performance, and payment bonds. The standby letters
of credit are collateralized by the Company's cash or short-
term investments.
TCI INTERNATIONAL, INC.
PART II OTHER INFORMATION
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)
Date
<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>
<CIK> 0000357064
<NAME> TCI INTENRATIONAL, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 5,923
<SECURITIES> 11,492
<RECEIVABLES> 7,969
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,328
<DEPRECIATION> 6,657
<TOTAL-ASSETS> 30,888
<CURRENT-LIABILITIES> 9,454
<BONDS> 0
0
0
<COMMON> 11,780
<OTHER-SE> 9,654
<TOTAL-LIABILITY-AND-EQUITY> 30,888
<SALES> 25,962
<TOTAL-REVENUES> 25,962
<CGS> 22,457
<TOTAL-COSTS> 22,457
<OTHER-EXPENSES> 9,126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,633)
<INCOME-TAX> 44
<INCOME-CONTINUING> (4,677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,677)
<EPS-PRIMARY> (1.47)
<EPS-DILUTED> (1.47)
</TABLE>
