UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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 December 31, 1996 *
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
94-3026925
(I.R.S. Employer Identification Number)
incorporation or organization)
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 December 31, 1996, 3,183,432 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 three months
ended December 31, 1996, are not necessarily
indicative of results to be expected for the entire
year ending September 30, 1997.
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
Three Months Ended
December 31
1996 1995
<S> <C> <C>
Revenues $10,668 $5,926
Operating costs and expenses:
Cost of revenues 7,065 3,236
Marketing, general and administrative 3,487 2,557
10,552 5,793
Income from operations 116 133
Interest income, net 438 338
Income before provision
for income taxes 554 471
Provision for income taxes 177 137
Net income $377 $334
Net income per share $.11 $.10
Shares used in per share
computations 3,368 3,391
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
<TABLE>
December 31, September 30,
1996 1996
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 6,518 $ 7,249
(Includes restricted cash of $1,774 on Dec. 31, 1996,
$1,896 on Sept 30, 1996)
Short-term investments 13,038 15,529
Accounts receivable -
Billed 4,994 1,922
Unbilled 5,768 4,715
Inventories 5,978 5,179
Prepaid expenses 823 830
Total current assets 37,119 35,424
Property and equipment, net 1,607 1,566
Long-term investments 1,786 1,788
Other assets 418 414
Total assets $40,930 $39,192
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,905 $6,123
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized 3,218 3,336
Accrued liabilities 4,363 3,719
Total current liabilities 14,486 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 15,111 14,723
Valuation allowance-short -term investments (21) (34)
Treasury shares at cost; 98 and 102 shares at
Dec. 31, 1996 and Sept 30, 1996, respectively (426) (455)
Total stockholders' equity 26,444 26,014
Total liabilities and stockholders' equity $40,930 $39,192
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
TCI INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
(In thousands)
<TABLE>
1996 1995
<S> <C> <C>
Cash provided by (used in):
Operations:
Net income $ 377 $ 334
Reconciliation to cash provided by operations:
Depreciation 168 130
Changes in assets and liabilities:
Accounts receivable (4,125) 1,700
Inventories (799) (321)
Prepaid expenses 5 (417)
Accounts payable 782 (14)
Customer deposits/billing in excess of revenue (118) (808)
Accrued liabilities 644 (713)
Cash used in operations (3,066) (109)
Investing activities:
Purchases of property and equipment (174) (104)
Purchases of short-term investments (2,116) (3,220)
Proceeds from sale of short-term investments 4,620 4,582
Cash provided by investing activities 2,330 1,258
Financing activities:
Stock options exercised 5 9
Cash provided by financing activities 5 9
Net increase (decrease) in cash and cash equivalents (731) 1,158
Cash and cash equivalents at beginning of period 7,249 3,598
Cash and cash equivalents at end of period $ 6,518 $ 4,756
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):
December 31, September 30,
1996 1996
<S> <C> <C>
Material and component parts $4,764 $3,726
Work in process 1,214 1,453
$5,978 $5,179
</TABLE>
Note 2
At December 31, 1996 there were outstanding standby
letters of credit of approximately $3,442,000
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.
TCI INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Fiscal Quarter of 1997
Compared to First 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.
Revenues for the first quarter of fiscal year 1997
were $10,668,000, reflecting an increase of
approximately 80% over revenues of $5,926,000 for
the same period a year ago. The increase in
revenues is due to the timing of completion on a
number of long term contracts. Because of the
project-oriented nature of the business, the
Company believes it may not be possible to generate
revenues at a similar rate during the later half of
fiscal year 1997. The Company's ability to
maintain consistent revenue performance remains
contingent upon its ability to secure adequate new
business.
Although revenue increased 80%, gross profit
expressed as a percentage of revenue for the first
three month period decreased from 45% to 34% when
compared to the same period a year ago. This trend
is attributable to the timing of execution of two
inherently lower margin contracts in the Company's
spectrum management product line. Due to reasons
similar to those experienced in the first quarter
of fiscal 1997, combined with fewer orders being
received in other, more profitable areas of its
business, the Company expects that gross profit
expressed as a percentage of revenue may decline
from the current levels during the remaining three
quarters of the fiscal year.
Marketing, general and administrative expenses
increased by 36% from $2,557,000 in the first
quarter of fiscal year 1996 to $3,487,000 in the
first quarter of 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.
Net income for the first quarter was $377,000 or
$.11 per share, compared to $334,000 or $0.10 per
share, for the same period in fiscal year 1996.
Net income as a percentage of revenue decreased
from 5.6% to 3.5%, due primarily to the decrease in
profit margins.
The Company's total backlog at December 31, 1996
was $26 million compared to $35 million at
September 30, 1996. The total funded portion of
the Company's backlog at December 31, 1996 was $25
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 three
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
December 31, 1996 Compared to September 30, 1996
Consolidated cash, cash equivalents and marketable
securities totaled $21,342,000 at December 31,
1996, 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 revenues 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 December 31, 1996, the Company has standby
letters of credit outstanding of approximately
$3,442,000. The standby letters of credit are
collateralized by the Company's cash or short-term
investments.
TCI INTERNATIONAL, INC.
PART II OTHER INFORMATION
Item 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: February 13, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000357064
<NAME> TCI INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,518
<SECURITIES> 13,038
<RECEIVABLES> 10,762
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,226
<DEPRECIATION> 7,619
<TOTAL-ASSETS> 40,930
<CURRENT-LIABILITIES> 14,486
<BONDS> 0
0
0
<COMMON> 11,780
<OTHER-SE> 14,664
<TOTAL-LIABILITY-AND-EQUITY> 40,930
<SALES> 10,668
<TOTAL-REVENUES> 10,668
<CGS> 7,065
<TOTAL-COSTS> 7,065
<OTHER-EXPENSES> 3,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 554
<INCOME-TAX> 177
<INCOME-CONTINUING> 377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
