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, 1997
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
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, 1997, the aggregate market value of voting
stock held by non-affiliates was $19,617,242.
As of September 30, 1997, the number of shares of common stock
outstanding was 3,202,815.
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 10, 1998 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 designs and manufactures specialized radio
transmission and receiving equipment and offers these items for
sale as separate products or as part of larger systems comprised
of various components. The Company's signal collection and radio
spectrum management systems cover the full spectrum of radio
frequencies. Until recently the majority of the Company's antenna
and frequency management products have been primarily designed for
operation in the HF, or "short-wave," portion of the
electromagnetic spectrum (1.6 to 30 megahertz), and 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 range in price from approximately $20,000 to $300,000 and
are often sold into systems valued between $1,000,000 and
$6,000,000.
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. International Broadcasting Bureau (Voice of
America) and the BBC World Service are examples of users of radio
broadcasting products sold by 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 $750,000 and $10,000,000.
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. Typical
system orders range in price between $100,000 and $6,000,000.
TV broadcasting presents an exciting opportunity to the Company
both in the United States and in foreign markets. Within the
United States, in April 1997 the Federal Communications Commission
(FCC) ordered that TV stations begin broadcasting digital
television (DTV) signals over the next several years. The FCC has
given each of the approximately 1700 commercial and non-commercial
TV stations an additional frequency on which they must transmit
DTV. After a date to be certain, all analog TV broadcasting will
cease. The actual timetable of the switch from analog to digital
TV remains uncertain because of many exceptions which have been
legislated by the United States Congress. However many of the
larger broadcasting organizations in the major market areas have
already begun to add DTV service. The domestic DTV marketplace is
expected to grow slowly over the next few years, followed by more
rapid growth as more broadcasters decide how best to implement the
changeover to digital broadcasting.
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) issuance of 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
for the HF BandThe 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 HF 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. Various products and 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 that
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 either qualified subcontractors or by the
Company 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 many of the Company's products are installed by its
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 31%, 42%, and 60% of the Company's revenue in fiscal
years 1997, 1996, and 1995, 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 1997, 30% of the
Company's total revenue came from U.S. Government fixed-priced-
type contracts, and 1% from U.S. Government cost-reimbursement-
type contracts, compared to 40% and 2%, respectively, in fiscal
1996 and 59% and 1%, respectively, in fiscal 1995.
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 13% of total revenue in fiscal 1997, 23% in
fiscal 1996 and 18% in fiscal 1995.
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, Ltd. 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 AEG Telefunken,
CODEM Systems, Inc., E-Systems, Harris Corporation, Racal
Communications, Rohde and Schwarz, Siemens Plessey & Co. Ltd.,
Southwest Research Institute (SWRI), Thomson-CSF, Tadiran, and
TRW. Performance and the ability to design and produce a system
for a specialized application at a lower 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, and Thomson-CSF. 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, 1997, the Company had 158 full-time employees.
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.
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 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. In April,1997,
pursuant to their rights as the largest PRP, Teledyne, Spectra
Physics and Montwood submitted a petition to convene a hazardous
substance cleanup arbitration panel (HASCAP) with an ultimate goal
of determining and apportioning liability for the cleanup costs
amongst all of the PRPs associated with the site. The Office of
Environmental Health Hazard Assessment ("OHENHA"), the state
agency that will decided whether to convene an arbitration panel,
is reviewing objections filed by TCI and other respondents, and
has not as yet made a determination as to whether to convene an
arbitration panel. 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. In any case,
the Company will continue to vigorously assert its claim that its
operations are not now and never have been a source of
environmental contamination.
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 1997.
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
sales price as reported on the Over-the-Counter National Market
System. These prices do not include retail markups, markdowns or
Fiscal 1997 Fiscal 1996
Quarter Ended High Low High Low
December 31 $7.63 $6.38 $10.13 $7.50
March 31 7.25 6.25 9.00 6.38
June 30 7.13 5.88 7.63 6.50
September 30 6.88 4.97 7.50 6.13
As of September 30, 1997, there were 547 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 into 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)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $34,101 $32,695 $29,354 $25,562 $28,258
Operating costs and expenses:
Cost of revenue 28,650 21,856 18,672 15,798 22,613
Marketing, general and administrative 11,857 10,941 10,348 9,555 10,110
Write-off of goodwill 0 0 0 0 5,462
Income (loss) from operations (6,406) (102) 334 209 (9,927)
Investment income, net 1,079 1,602 1,072 691 338
Income (loss) before provision (credit)
for income taxes (5,327) 1,500 1,406 900 (9,589)
Income (loss) before change in accounting
for income taxes (5,582) 1,056 1,311 756 (8,322)
Change in accounting for income taxes
(SFAS 109) 0 0 0 1,511 0
Net income (loss) (5,582) 1,056 1,311 2,267 (8,322)
Per share:
Income (loss) before change in accounting
for income taxes and extraordinary item (1.75) .31 .39 .23 (2.44)
Change in accounting for income taxes
(SFAS 109) 0 0 0 .45 0
Net income (loss) (1.75) .31 .39 .68 (2.44)
Shares used in per share
computations 3,194 3,366 3,400 3,335 3,417
Balance Sheet Data:
Working capital $18,500 $22,246 $23,172 $22,098 $19,355
Total assets 29,866 39,192 32,373 33,241 33,895
Stockholders' equity 20,549 26,014 24,855 24,072 22,620
</TABLE>
Quarterly Financial Data for the Two Years Ended September 30,
1997Since revenue is 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.
(In thousands, except per share amounts)
Fourth Third Second First
Quarter Quarter Quarter Quarter
Fiscal 1997
Revenue $8,139 $5,822 $9,472 $10,668
Gross profit (437) (2,935) 2,837 3,603
Net income (905) (5,137) 84 377
Net income per share (.28) (1.61) .02 .11
Fiscal 1996
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
ITEM 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
The Company believes its business has been affected by the end of
the Cold War, which has permanently eroded the market demand for
many of the Company's traditional products. Because of the shift
in focus from Cold War driven planning on the part of many of its
traditional customers, 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 and commercial applications. If not replaced by
revenues from communication products or services with a broader
and more modern market appeal, these changes in customer demand
for its products will manifest themselves in permanent reductions
in revenues and accompanying gross margins.
Since 1993, the Company's product diversification efforts have
focused principally on three 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. Additional efforts
generally characterized by being smaller in scope and expenditure
level have also been undertaken in the TV and FM broadcast
equipment product area.
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 which was delivered in early 1997.
In fiscal 1996, again teamed with the Hewlett Packard Company, the
Company won its second significant radio spectrum monitoring and
surveillance contract. In March of 1997, in an effort to increase
both its market share and the gross margins available, the Company
committed itself to replace the equipment previously supplied
by the Hewlett Packard Company with an all-DSP based solution of
proprietary origin and design. The Company is currently bidding
this equipment configuration into various procurements and will
continue to make investments in its related product line so as to
increase its relative content and value-added component. 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.
In 1996, the Company determined that due to certain attributes of
the maritime communications market, including an assessment that
an overabundance of satellite communications capacity is coming on
line, the introduction of a world-wide, maritime communications
network using proprietary elements of the Company's HF radio
technology was not economically viable. At that time, the Company
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 the last three years the Company has expended approximately
$4,000,000 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. 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 fiscal
1998. While marketable products are not expected to be ready
before late fiscal 1998, at the earliest, the investment of
financial and human resources 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, 1997 was
approximately $20 million, compared to approximately $30 million
as of September 30,1996. 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,
1997 1996 1995
Backlog $23,000 $35,000 $36,000
Of the $23 million backlog at 1997 fiscal year end, approximately
$22 million is expected to be recognized as revenue prior to
September 30, 1998. 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.
Approximately $3,700,000 of the $23,000,000 total backlog reported
at fiscal 1997 year end is associated with two contract awards for
the supply of spectrum monitoring and compliance systems for two
foreign customers representing the Company's first diversification
success. Future growth in revenue and backlog is largelycontingent
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.
Percentage of Revenue
Years Ended September 30,
1997 1996 1995
Revenue 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of revenue 84.0 66.8 63.6
Marketing, general and administrative 34.8 33.5 35.3
Income (loss) from operations (18.8) (0.3) 1.1
Investment income, net 3.2 4.9 3.7
Income (loss) before provision
for income taxes (15.6) 4.6 4.8
Provision for income taxes .8 1.4 0.3
Net income (loss) (16.4)% 3.2% 4.5%
The approximate revenue attributable to contracts from both domestic and
overseas customers is shown below (in thousands):
1997 1996 1995
Domestic revenue $11,000 $15,000 $18,100
Overseas revenue 23,100 17,700 11,200
Total $34,100 $32,700 $29,300
In fiscal 1997, largely due to the Company's diversification success
in the radio monitoring and spectrum compliance market, revenue
continued its three year growth trend. Because more than 21% of
fiscal 1997 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
15% of the total revenue in fiscal 1997.
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.
During the third quarter of fiscal 1997, the Company recorded
approximately $2,500,000 in non-cash reductions to its inventory
balance that are reflected in the cost of revenue figures included
herein. Prior to these adjustments, the cost of revenues would
have been $26,145,000 or 77% of revenues for fiscal 1997. The
majority of this inventory adjustment was made necessary by the
recognition that customer demand for the existing BR
Communications product line was 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. 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 principally due to a lack of contract opportunities in
this area. While there remains a limited number of order
opportunities, the future prospects for the sale of existing
product items in significant quantities is considered unlikely.
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.
Ignoring the inventory adjustment made during the third quarter of
1997, the cost of revenue in fiscal year 1997 was approximately
11% higher than the previous year. This is a reflection of
executing a backlog which has a mix of inherently lower margin
contracts associated with it which materialized because of
competitive bidding pressures to be the low-priced supplier.
During the fourth quarter of fiscal 1997, margins were further
impacted due to a very small contribution to revenues and
corresponding gross profit made by the BR Communications product
line.
Since 1993, the Company has experienced significant competitive
bidding pressures to be the low-priced supplier in its broadcast
and spectrum management system product lines. As a result, the
Company has experienced a corresponding reduction in gross margins
that was initially seen in fiscal 1995 which has continued during
fiscal 1997. Gross margins expressed as a percentage of revenue
are expected to stabilize but are not expected to return to pre-
fiscal 1995 levels until such time as new products are introduced
which gain acceptance from customers in the form of new contracts.
In fiscal 1997, Marketing, General and Administrative ("M,G&A")
costs increased 8% over previous year levels. This increase
reflects a continued emphasis being placed on marketing and
selling 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 revenue growth experienced in fiscal 1996 over the previous
year is, similar to the 1997 trend, attributable to the success of
the company's diversification programs. Revenues during each of
the last three fiscal years have increasingly been comprised of
international sources with fiscal 1997 international revenues
approximately twice the level of fiscal 1995 international
revenues. Due to forces similar to those experienced in fiscal
1997 and discussed herein, M,G&A costs have grown at approximately
6%-8% per year since 1994.
During the fourth quarter of fiscal 1997, the Company booked a tax
provision of $212,000 to cover its foreign tax liability
associated with the execution of a certain contract in a South
American country. Because no tax treaty exists between the U.S.
and most South American countries, such taxes are calculated
without respect to the parent Company's tax position in the U.S.
In this instance, the effect is to require the Company to pay
foreign source income taxes even though the U.S. corporation is
unprofitable. These taxes can be used to offset foreign source
income generated by the Company before 2002 after the available
net operating loss ("NOL") is first used to offset future tax
liabilities. Prior to fiscal 1997 and after fiscal 1993, the
Company reduced its payment of income taxes by offsetting these
liabilities with an NOL carryforward 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 1997, the Company had
approximately $xxxxxxxx 1,740,000 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 20122012. 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 $1,600,000, $2,000,000, and $1,800,000 in
fiscal 1997, 1996, and 1995, 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 $3,700,0004,100,000, $4,200,000 and
$3,500,000 in fiscal 1997, 1996, and 1995, 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 fiscal 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 was not economically viable,
and as a result, ceased expenditures on this activity during early
fiscal 1997. 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.
The Company is in the process of executing contract obligations in
a number of countries that have been subjected to substantial
devaluations of currency during the last fiscal year. While the
majority of payments owed the Company are made in U.S. dollars and
are secured before product shipment with irrevocable letters of
credit, scenarios could occur that make it difficult for the
Company to collect all the money owed against the payment of a
given contract. 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
Cash used in operations in fiscal 1997 and fiscal 1995 were $9.4
million and $7 thousand, respectively. Cash provided by
operations was $6.3 million in fiscal 1996. In fiscal 1997, cash
used in operations resulted primarily from a net loss of $5.6
million which included a non-cash inventory adjustment of $2.5
million, offset by an increase in accounts receivable of $3.6
million and a decrease in accounts payable of $2.6 million. The
increase in accounts receivable was due to the timing of milestone
and final billings on various contracts. In fiscal 1996, cash
provided by operations resulted primarily from a net income of $1
million, an increase in accounts payable of $4.2 million and
customer deposit and billing on uncompleted contracts in excess of
revenue recognized of $1.6 million. In fiscal 1995, cash was
provided from a net income of $1.3 million, offset by an increase
in accounts payable of $1.7 million resulting in a net cash used
in operation of $7 thousand.
Cash of $12.5 million was provided from investing activities in
fiscal 1997 through the maturity of short-term investments. Cash
used in investing activities for fiscal 1996 and 1995 was $2.8 and
$4.3 million, respectively. This is due to the purchase of short-
term and long-term investments.
As of September 30, 1997, the Company had approximately $14
million in cash and short-term investments. As of the same date,
the Company had standby letters of credit outstanding totaling
approximately $6.4 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 Company currently believes that its cash
and expected cash flow from operations will be sufficient to fund
its operations through fiscal 1998.
A significant portion of the Company's sales are 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 revenues are derived from governments
in areas of political instability. The Company generally attempts
to reduce the risks associated with such instability by requesting
advance payments 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 number0-10877)
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 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.)
10.2 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.)
10.3 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.)
10.4 1995 Non-employee Director Stock Option Plan under the
Company's Stock Option Plan (1981). (Incorporated by
reference to Exhibit 99.1, 99.2 and 99.3 to the Company's
Registration Statement on form S-8 No. 33-11339 filed on
December 29, 1988.)
10.5 The Company's Employee Stock Ownership Plan (Incorporated by
reference to Exhibit 99 to the Company's Registration
Statement on Form S-8 No. 33-73484 filed on December 27,
1993.)
10.6 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)
10.7 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)
10.8 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)
10.9 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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,
1997 and 1996 F-4
Consolidated Statements of Operations for the
Three Years Ended September 30, 1997 F-5
Consolidated Statements of Stockholders' Equity
for the Three Years Ended September 30, 1997 F-6
Consolidated Statements of Cash Flows for the
Three Years Ended September 30, 1997 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 sheets of
TCI International, Inc. and subsidiaries as of September 30, 1997
and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the
two-year period ended September 30, 1997. 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 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the two-year period
ended September 30, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
November 7, 1997
Palo Alto, California
REPORT OF DELOITTE & TOUCHE LLP
To the Stockholders and Board of Directors of TCI International,
Inc.:
We have audited the consolidated statements of operations,
stockholders' equity and cash flows of TCI International, Inc. and
its subsidiaries as of 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 results of operations and
cash flows of TCI International, Inc. and its subsidiaries for the
year ended September 30, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
November 22, 1995
San Jose, California
TCI INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
In thousands, except per share amounts
September 30, 1997 1996
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,439 $ 7,249
(Includes restricted cash of $6,420 in 1997,
$1,896 in 1996)
Short-term investments 4,089 15,529
Accounts receivable:
Billed, net of allowance of $218 in 1997,
$228 in 1996 1,234 1,922
Unbilled 8,970 4,715
Inventories 2,118 5,179
Prepaid expenses 967 830
Total current assets 27,817 35,424
Property and equipment, net 1,623 1,566
Long-term marketable securities 0 1,788
Other assets 426 414
Total assets $29,866 $39,192
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,560 $ 6,123
Customer deposits and billings on uncompleted
contracts in excess of revenue recognized 1,019 3,336
Accrued liabilities 4,738 3,719
Total current liabilities 9,317 13,178
Commitments and contingencies (Notes 8 and 10)
Stockholders' equity:
Common stock:
Authorized - 5,000 shares, $.01 par value
Issued - 3,281 shares as of
September 30, 1997 and 1996 11,780 11,780
Shares held in treasury at cost -
79 and 102 shares as of
September 30, 1997 and 1996 (351) (455)
Retained earnings 9,124 14,723
Net unrealized (loss) on investments (4) (34)
Total stockholders' equity 20,549 26,014
Total liabilities and stockholders' equity $29,866 $39,192
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
In thousands, except per share amounts
Years ended September 30, 1997 1996 1995
<S> <C> <C> <C>
Revenue $34,101 $32,695 $29,354
Operating costs and expenses:
Cost of revenue 28,650 21,856 18,672
Marketing, general and administrative 11,857 10,941 10,348
Total operating costs and expenses 40,507 32,797 29,020
Income (loss) from operations (6,406) (102) 334
Investment income, net 1,079 1,602 1,072
Income(loss) before provision
for income taxes (5,327) 1,500 1,406
Provision for income taxes 255 444 95
Net income (loss) $(5,582) $ 1,056 $ 1,311
Per share:
Net income (loss) $ (1.75) $ .31 $ .39
Shares used in per share computations 3,194 3,366 3,400
</TABLE>
See accompanying Notes to Consolidated Financial Statements
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
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, 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
Stock options exercised 0 0 23 104 (17) 0 87
Net unrealized gain on investments 0 0 0 0 0 30 30
Net loss 0 0 0 0 (5,582) 0 (5,582)
Balances at September 30, 1997 3,281 $11,780 (79) $(351) $9,124 $(4) $20,549
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
TCI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
In thousands
Year ended September 30, 1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Operations:
Net income (loss) $ (5,582) $ 1,056 $ 1,311
Reconciliation to cash provided by
(used in) operations:
Depreciation and amortization 683 557 644
Gain on sale of investments 0 0 (32)
Changes in assets and liabilities:
Accounts receivable (3,567) 723 (1,739)
Refundable income taxes 0 0 739
Inventories 3,061 (897) 619
Prepaid expenses and other assets (149) (771) 102
Accounts payable (2,563) 4,223 (268)
Customer deposits and billings
on uncompleted contracts in
excess of revenue recognized (2,317) 1,582 (724)
Accrued liabilities 1,019 (145) (659)
Cash provided by (used in) operations (9,415) 6,328 (7)
Cash flows from investing activities:
Purchases of property and equipment (735) (531) (347)
Purchases of short-term and long-term
investments (14,037) (23,266) (32,830)
Proceeds from sale of short-term investments 0 0 2,564
Proceeds from maturity of short-term
investments 27,295 20,976 26,260
Cash provided by (used in) investing activities 12,523 (2,821) (4,353)
Cash flows from financing activities:
Repurchases of common stock 0 0 (764)
Stock options exercised 82 144 136
Cash provided by (used in) financing activities 82 144 (628)
Net increase (decrease) in cash and
cash equivalents 3,190 3,651 (4,988)
Cash and cash equivalents at beginning of year 7,249 3,598 8,586
Cash and cash equivalents at end of year $10,439 $ 7,249 $ 3,598
</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 year for
1997, 1996, and 1995 ended on September 28, September 29, and
October 1, 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
($10,084,000 as of September 30, 1997 and $6,618,000 as of
September 30, 1996). 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
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.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $1,631,000 in fiscal 1997 $1,976,000 in fiscal 1996, and
$1,830,000 in fiscal 1995.
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 Remaining life of lease
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 (Loss) per Share - Net income (loss) per share is
computed based upon the weighted average number of common shares
and common equivalent shares outstanding during the period.
Common equivalent shares consist of the dilutive effect of stock
options (using the treasury stock method).
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.
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.
Impairment of Long-Lived Assets and Assets to be Disposed Of - The
Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on January 1, 1996. SFAS No. 121 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.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to the future cash
flows to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or the fair value
less costs to sell. The adoption of SFAS No. 121 did not have a
material effect on the Company's results of operations.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earning Per Share." SFAS No. 128 requires the presentation of
basic earning per share ("EPS") and, for companies with
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 and will
require restatement of all comparative per share amounts. The
Company expects that basic EPS will be greater than primary
earnings per share as presented in the accompanying consolidated
financial statements and that diluted EPS will not differ
materially from fully diluted earnings per share under the
Company's existing capital structure.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components
in the financial statements. It requires classification of other
comprehensive income, as defined by the standard, by their nature
(e.g., unrealized gains or losses on securities) in a financial
statement, but does not require a specific format for that
statement. The accumulated balance of other comprehensive income
is to be displayed separately from retained earnings and
additional paid-in-capital in the equity section of the balance
sheet. This statement is effective for financial statements
issued for fiscal years beginning after December 15, 1997 and
reclassification of financial statements for earlier periods
provided for comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The statement
requires that a public business enterprise report financial and
descriptive information about its reportable operating segments on
the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments.
This statement is effective for financial statements issued for
fiscal years beginning after December 15, 1997.
The Company is evaluating its reporting practices and will make
the necessary modifications for compliance with SFAS No. 128, SFAS
No. 130 and SFAS No. 131.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997 and
September 30, 1996, were as follows:
<TABLE>
In thousands
Amortized Gross Unrealized Gross Unrealized Fair
Cost Holding Gains Holding Losses Value
<S> <C> <C> <C> <C>
September 30, 1997
Short-term investments:
Certificates of deposit $1,271 $0 $0 $1,271
Government bonds 1,812 0 (5) 1,807
Corporate bonds 1,010 1 0 1,011
$4,093 $1 $(5) $4,089
September 30, 1996
Short-term investments:
Certificates of deposit $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
</TABLE>
The short-term and long-term cash management portfolio is managed
by a securities investment firm which invests primarily in 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.
The Company's short-term investments as of September 30, 1997 have
a maturity date of one year or less.
Investment income consists of the following:
Year ended September 30, 1997 1996 1995
(In thousands)
Interest income and other $1,471 $1,602 $1,040
Realized/unrealized foreign
currency loss (392) 0 0
Realized gain on sale of
securities 0 0 32
$1,079 $1,602 $1,072
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
4. Inventories
Inventories consist of the following:
September 30, 1997 1996
(In thousands)
Material and component parts $ 1,535 $ 3,726
Work in process 583 1,453
$ 2,118 $ 5,179
5. Property and Equipment
Property and equipment consist of the following:
September 30, 1997 1996
(In thousands)
Machinery and equipment $ 7,818 $ 8,690
Leasehold improvements 375 375
8,193 9,065
Accumulated depreciation
and amortization (6,570) (7,499)
$ 1,623 $ 1,566
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Export Revenue and Revenue from Major Customers
Revenue was derived from sales to customers located in the
following geographic areas:
Year ended September 30, 1997 1996 1995
(In thousands)
United States $10,672 $14,977 $18,127
Europe 1,753 2,848 3,945
Africa 6,846 3,757 1,915
Asia/Pacific Basin 8,820 3,961 3,746
South America 5,542 6,585 166
Other 468 567 1,455
$34,101 $32,695 $29,354
Sales under U.S. Government prime contracts and subcontracts
accounted for 31%, 42%, and 60% of the Company's total revenue in
1997, 1996, and 1995, respectively, of which the U.S. Government
prime contracts accounted for 27%, 32%, and 45%, respectively.
Revenue from contracts with the United States Information Agency
(prime contracts and subcontracts) represented 13%, 23% and 18% of
the Company's total revenue for 1997, 1996, and 1995,
respectively.
Revenue from two commercial customers represented 15% and 14%,
respectively of the Company's total revenue for fiscal 1997, 19%
and 3%, respectively for fiscal 1996 and none for fiscal 1995.
The total accounts receivable from these two commercial customers
were approximately $3,500,000 at the end of fiscal 1997 and none
at the end of fiscal 1996 and 1995.
7. Accrued Liabilities
Accrued liabilities consist of the following:
September 30, 1997 1996
(In thousands)
Accrued contract costs $2,106 $1,455
Compensation and employee
benefit plans 1,098 1,070
Accrued vacation 835 816
Other 699 378
$4,738 $3,719
8. Bank Credit Agreements
The Company has a bank credit agreement 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, 1997, there were outstanding stand-by letters of
credit of approximately $6,400,000 held as bid, 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.
Cash equivalents and short term investments totaling $6,420,000
are held by banks as collateral for outstanding stand-by letters
of credit.
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 1997, $200,000 for fiscal 1996, and $200,000
for fiscal 1995. As of September 30, 1997, the ESOP owns 563,266
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 $150,000 for fiscal 1997, $136,000
for fiscal 1996, and $126,000 for fiscal 1995.
In 1981, the Company adopted the 1981 Stock Option Plan ("1981
Plan") pursuant to which the Company's Board of Directors may
grant stock options to key employees, non-employee directors and
independent contractors. The 1981 Plan authorizes the grant of
options to purchase an aggregate of 1,100,000 shares of Common
Stock. Such shares are to be made available either from the
Company's authorized and previously unissued shares of Common
Stock or from shares reacquired by the Company.
Under the 1981 Plan, the Board of Directors has the authority to
determine the time or times at which options granted under the
1981 Plan are to become exercisable. Options under the 1981 Plan
are generally exercisable in annual increments, on a cumulative
basis, during the term of the option. Options granted may not be
exercised after the expiration of ten years from the date of
grant. The options may be granted at not less than the fair
market value of the Common Stock on the date of the option grant.
Stock option activity during the period indicated is as follows:
Number Weighted Average
of shares Exercise Price
Options outstanding at Sept 30, 1994 579,290 $6.36
Granted 303,000 5.73
Exercised (40,200) 3.38
Canceled (66,440) 8.65
Options outstanding at Sept 30, 1995 775,650 6.07
Granted 181,000 6.75
Exercised (40,000) 3.44
Canceled (107,850) 9.27
Options outstanding at Sept 30, 1996 808,800 5.91
Granted 55,000 6.55
Exercised (22,700) 3.61
Canceled (127,500) 7.51
Options outstanding at Sept 30, 1997 713,600 $5.75
At September 30, 1997, there were 232,235 shares available for
future grant under the 1981 Plan. The per share weighted-average
fair value of stock options granted during fiscal 1997 and 1996
was $2.14 and $2.21 on the date of the grant. The fair value of
each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
1997 1996
Weighted-average risk free
Interest rate 6% 6%
Dividend yield 0% 0%
Volatility factor .295 .291
Weighted average expected
Life of an option 4 years 5 years
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company applies APB Opinion No. 25 in accounting for its 1981
Plan and, accordingly, no compensation cost has been recognized
for its stock options in the financial statements. Had the
Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the
Company's net income (loss) and net income (loss) per share would
have been reduced or increased to the pro forma amounts indicated
below:
1997 1996
Net income (loss)
As reported $(5,582) $1,056
Pro forma (5,696) 1,035
Net income (loss) per share
As reported $(1.75) $0.31
Pro forma (1.78) 0.31
Pro forma net income reflects only options granted in 1997 and
1996. Therefore, the full impact of calculating compensation cost
for the stock options under SFAS No. 123 is not reflected in the
pro forma net income or net loss amounts presented above because
compensation cost is reflected over the options' vesting period of
3 - 5 years and compensation cost for options granted prior to
October 1, 1995 is not considered.
At September 30, 1997, the range of exercise price and weight-
average remaining contractual life of outstanding options was as
follows:
<TABLE>
Option Outstanding Option Exercisable
Range of Number Weighted Average Weighted Average Number Weighted
Exercise Prices Outstanding Remaining Exercise Price Average
Contractual Life Exercise
Price
<S> <C> <C> <C> <C> <C>
$2.25 2,500 1.40 years $2.25 2,000 $2.25
3.38 182,100 2.21 years 3.38 131,400 3.38
4.12 - 4.25 182,000 4.14 years 4.24 64,000 4.24
5.63 10,000 10.00 years 5.63 0 0
6.75 - 6.88 160,500 8.83 years 6.75 53,812 6.75
7.63 45,000 7.59 years 7.63 42,000 7.63
8.25 - 8.75 29,500 4.50 years 8.69 13,800 8.63
9.50 102,000 1.90 years 9.50 93,500 9.50
713,600 4.95 years 400,512 $6.55
</TABLE>
At September 30, 1997 and 1996, the number of options exercisable
was 400,512 and 300,218, respectively, and the weighted-average
exercise price of those options was $6.55 and $6.75, respectively.
TCI INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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)
1998 $ 538
1999 448
2000 315
$1,301
Rental expense was $612,000, $610,000, and $601,000 in fiscal
1997, 1996, and 1995, 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 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. In April,
1997, pursuant to their rights as the largest PRP, Teledyne,
Spectra Physics and Montwood submitted a petition to convene a
hazardous substance cleanup arbitration panel (HASCAP) with an
ultimate goal of determining and apportioning liability for the
cleanup costs amongst all of the PRPs associated with the site.
The Office of Environmental Health Hazard Assessment ("OHENHA"),
the state agency that will decided whether to convene an
arbitration panel, is reviewing objections filed by TCI and other
respondents, and has not as yet made a determination as to whether
to convene an arbitration panel. 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. In any case, the Company will continue to vigorously
assert its claim that its operations are not now and never have
been a source of environmental contamination.
subject site.
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
The Company has net operating loss carryforwards for federal
income tax purposes of approximately $1901,740,000 which expire
through 20082012.
The provision for federal income taxes for the years ended
September 30, 1997, 1996, and 1995, consist of the
following:
Years ended September 30, 1997 1996 1995
(In thousands)
Current:
Federal (160) 396 86
State 415 48 9
255 444 95
Deferred:
Federal 0 0 0
State 0 0 0
0 0 0
Total $ 255 $ 444 $ 95
The effective tax rate differed from the statutory federal income
tax rate due to the following:
Year ended September 30, 1997 1996 1995
Statutory federal rate (35)% 35% 35%
State taxes, net of federal benefit 0 6 6
Net operating loss not utilized 23 6 (36)
Foreign sales corporation 0 (19) 0
Alternative minimum tax 0 2 2
Other (1) 0 0
Foreign 8 0 0
Effective income tax rate (5)% 30% 7%
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, 1997 1996
(In thousands)
Deferred tax assets:
Net operating loss carryforward 1,338 72
Long-term contracts 896 697
Accruals not currently deductible 2,507 1,385
4,741 2,154
Deferred tax liabilities:
Differences in tax basis of
property, plant and equipment 164 115
164 115
Valuation allowance 4,577 2,039
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, 1997 and September 30, 1996 was an
increase of $2,538,000 and a increase of $548,000, respectively.
Cash payments for income taxes were $362,000 in 1997, $934,000 in
1996.
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 02, 1997 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 12/02/97
(John W. Ballard) (Principal Executive Officer)
/s/ E.M.T. Jones Director 12/02/97
(E.M.T. Jones)
/s/ Hamilton W. Budge Director 12/02/97
(Hamilton W. Budge)
/s/ Asaph H. Hall Director 12/02/97
(Asaph H. Hall)
/s/ Alan C. Peyser Director 12/09/97
(Alan C. Peyser)
/s/ Donald C. Cox Director 12/02/97
(Donald C. Cox)
/s/ John W. Ballard, III Director 12/02/97
(John W. Ballard, III)
/s/ Slobodan Tkalcevic Director 12/02/97
(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 INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration
statements (Nos. 33-73484, 33-26353, 33-11339, 2-98005, 2-80875
and 333-21387) on Form S-8 of TCI International, Inc. of our
report dated November 7, 1997, relating to the consolidated
balance sheets of TCI International, Inc. and subsidiaries as of
September 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for
the two-year period ended September 30, 1997 which report appears
in the September 30, 1997 annual report on Form 10-K of TCI
International, Inc.
KPMG Peat Marwick LLP
December 23, 1997
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, 2-80875 and
333-21387 of TCI International, Inc. on Forms S-8 of our report
dated November 22, 1995 appearing in this Annual Report on Form
10-K of TCI International, Inc. for the year ended September 30,
1997.
Deloitte & Touche LLP
December 16, 1997
San Jose, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
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